Will HMRC reforms really make a difference?

From unanswered calls to clamping down on small businesses while turning a blind eye to widespread tax avoidance by large companies, HMRC and the UK’s overly-complex, unwieldy tax system are held responsible for creating significant barriers to business growth.

The Chancellor has responded to criticisms of HMRC’s service and the system itself by announcing a boost to HMRC’s services – including a boost to its communications in the form of better online support, call handling and postal responses as well as making it easier for businesses to register and pay.

Already we have seen changes to tax rules to allow new cash basis for calculating tax for up to three million small unincorporated businesses, and the Government is again exploring merging income tax and National Insurance in order to simplify the system.

Earlier, the decision was taken to freeze the unpopular Business Records Checks regime, which had threatened firms with fines of up to £3,000 for paperwork errors where a guiding hand and genuine support would clearly have been a far better approach.

The Government is also exploring merging income tax and National Insurance to simplify the system. The announcement follows the Forum’s latest ‘cost of compliance’ research which shows that tax red tape has become the top administrative burden for firms.

According to the Forum’s research tax-related regulation was deemed to be the most costly area of red tape for smaller employers, leaving them with a bill of £5.1 billion per year.

But it remains to be seen whether these initial steps will snowball into anything like what is required – which is nothing short of a complete overhaul of the UK’s tax regime and HMRC’s service in order to make taxation an incentive to business success and growth rather than allowing it to remain a stumbling block.

The Forum’s headline Get Britain Trading Campaign includes a major emphasis on making the tax system simpler and more proportionate – unfortunately, the Budget’s handful of targeted tax cuts, while welcome, are unlikely to be enough to provide the real stimulus businesses need by themselves.

For that we need real, root-and-branch reforms that make tax more easily understood and followed, changes with the principle of proportionality at their heart – and which overturn the notion of using the threat of non-compliance to beat business owners.