The Enactment of Extra-Statutory Concessions Order 2012, passed on Monday afternoon by the House of Commons First Delegated Legislation Committee, gives legislative effect to six extra-statutory concessions (ESCs), including ESC C16, which deals with the tax treatment of distributions to shareholders when a small company is dissolved.

The CIOT and the Institute of Chartered Accountants of England and Wales had written jointly to Exchequer Secretary David Gauke, the Labour Treasury team and other members of the committee considering the legislation asking them to withdraw or reject the legislation to allow it to be amended. Although some of the concerns of the two bodies were referred to during debate, the committee passed the proposal without a vote after just 20 minutes of discussion.

Andrew Gotch, chairman of the CIOT’s Owner Managed Business Sub-Committee, said:

“It is extremely disappointing that the Government has chosen not to listen to the concerns of the tax profession and small business and have pushed this measure through.

“Currently ESC C16 provides a simple, straightforward and inexpensive way for a company to be wound up at the end of its life without the need for a formal liquidation, but with the same tax consequences as if it had been liquidated. However, the Government has brought this concession into law in a way that is far more restrictive, limiting it to companies whose total distributions come to no more than £25,000.

“The effect of this will be to impose significant additional financial and administrative burdens on small and medium-sized businesses, directly contrary to the Government’s stated policy in this area.”

Paul Aitken, CEO of personal asset lender borro commented: “The deadline is fast approaching for people to submit their self-assessment tax return. People who find themselves with a larger than expected tax bill or waiting to claim tax allowances, may need short-term finance – either for themselves or their business.

“Tax related applications to borro have already increased by 39 per cent from 2010 to 2011 and we expect this trend to continue.”

The Alternative Dispute Resolution (ADR) is a pilot for small and medium enterprises. It uses independent HMRC facilitators to resolve disputes between HMRC and customers during a compliance check but before a decision or assessment has been made. ADR aims to find a fair and quick outcome for both parties, helping to reduce their costs and avoid a tribunal.

The pilot in North Wales and the North West follows a successful trial earlier this year, where 60 per cent of disputes were either fully or partially resolved.

HMRC’s, Jim Stevenson, assistant director, local compliance, said:

“ADR will help SMEs resolve disputes without having to go to a tribunal – saving them both time and money. It is a good opportunity for HMRC to work together with our customers to potentially resolve disputes much earlier than at present.

“The facilitators are HMRC members of staff who have been trained in ADR techniques and have not been involved in the dispute.

“We have found that often there are communication problems. So the HMRC facilitator will help all parties reach a shared and full understanding of the disputed facts and arguments. They will also ensure there is good communication, and help explain what each side is trying to say to the other. The aim is to resolve the dispute or, if not, as many issues as possible.”

ADR does not affect existing processes or review and appeal rights, and covers both VAT and direct taxes.

The Chartered Institute of Taxation (CIOT) has welcomed the announcement by HM Revenue and Customs (HMRC) that they will be trialling a new way of resolving disputes between small businesses and the taxman over the next six months.

Andrew Gotch, chairman of the CIOT’s Owner Managed Business Sub-Committee, said:

“This is a welcome move. ADR has the potential to be a valuable Gordian knot-cutter in investigations and technical disputes that have run into the sand. Anything which can help resolve disputes between HMRC and taxpayers to mutual satisfaction without the need to resort to expensive and time-consuming litigation has to be good news for all sides.

“There has already been a small-scale pilot of this new technique, using a few hand-picked cases which had already reached the stage of an appeal against a decision. Under this new trial, cases will be accepted at an earlier stage, where no appeal has yet been made, which is sensible. Additionally, taxpayers and their advisers will also be able to put cases forward for ADR, whereas in the first pilot HMRC did the selecting in most cases.

“It is very important that HMRC are able to gather reliable data from this next stage in the ADR pilot, so that an informed decision can be made as to whether the facility should be extended nationally. So, even though at this stage only those in some parts of the country will be able to participate, I would encourage all small businesses and their tax advisers who can take advantage of the facility to consider using it in situations where there are intractable disagreements with HMRC. This is an entirely voluntary process, from which neither side can possibly emerge worse off. In fact, evidence from the earlier phase of the pilot suggests that participants usually emerge far better off either in terms of getting a solution or understanding each others’ positions better, thus saving stress, time and costs all round”.

From 1 April 2012, all VAT-registered businesses must send their VAT returns online and pay their VAT electronically. Currently, only newly-registered businesses, and those with turnovers of more than £100,000, have to file and pay their VAT online.

The new rules will cover VAT returns filed for accounting periods beginning on or after 1 April 2012.

To file your VAT return online, you’ll need to register for HMRC’s VAT Online Service – visit www.online.hmrc.gov.uk and click “Register” under the “New user” section. Then follow the instructions.

Affected businesses will also need to set up their preferred electronic payment method. Visit www.hmrc.gov.uk/payinghmrc/vat.htm for more information on the various options.

Up to one in 10 companies could be taking cash-only payments in a bid to hide their full earnings from HM Revenue and Customs (HMRC), it is claimed.

Sole traders who earn more than £37,400 fall into the 40 per cent tax bracket, and for every job over £1,000 they could save about £500 if they avoided paying National Insurance and income tax.

There is no law against receiving cash, but the onus is on businesses to make the correct earnings declaration.

Experts believe the cash-in-hand culture is being driven by a boom in entrepreneurs, many of whom lost their jobs in the recession and started-up on their own.

Up to £50 million could be being “squirreled away” by plumbers, electricians, window cleaners, gardeners and other sole traders every year.

But a spokesperson for Crunch Accounting, which polled 1,000 new and small businesses across the UK, said cash-only payments are liable to continue.

She said: “The fact is that cash-only payments are beneficial to everyone but the Inland Revenue. They present the trader with a lower tax bill, and also drive down cost. From our research, we believe cash-only payments are on the increase.

“Obviously, all consumers should strive to stick to the law, but it would take a consumer made of granite to argue with anyone who offers a job at a discount.”

Currently items with a value of £15 or lower can be sent from the Channel Islands – which are technically not part of the EU – VAT-free. This has led to a number of large companies such as Amazon setting up subsidiaries in the islands to undercut local retailers.

At Budget 2011, the Chancellor stated the Government’s intention to take action to end the exploitation of LVCR, which in recent years has been used on an increasingly large scale to sell low value goods to UK customers VAT-free. Most of this trade is from, or via, the Channel Islands.

The Government took the initial step of reducing the LVCR threshold, below which items are imported free of VAT, from £18 to £15. The new threshold came into effect on 1 November 2011 and will apply to goods from the Channel Islands until 1 April next year.

David Gauke, Exchequer Secretary to the Treasury, said:

“These reforms will ensure that UK companies, especially small and medium sized enterprises, can compete on a level playing field with those larger companies with the resources to set up operations in the Channel Islands. We are also protecting a significant amount of tax revenue. By making these changes, we are striking the best possible balance between the costs of collecting small amounts of VAT and protecting the interests of UK taxpayers and businesses.”

Legislation to enact the change will be published in draft on 6 December 2011, for inclusion in Finance Bill 2012.

Under the current system, September’s RPI is used to calculate the annual increase in commercial property taxes introduced next April. Today’s RPI figure of 5.6 per cent, the highest monthly rate since 1991, means an additional £350 million siphoned from the high street into Government coffers, according to research published today by the British Retail Consortium.

In its response to Mary Portas’s Government commissioned review of the High Street the BPF pointed out the compounding effect of linking business rates to RPI meant they had doubled over the past two decades, and if government wanted to provide certainty for retailers a better system would be to have a fixed uplift, of say two per cent – the UK inflation target.

If that was too expensive in the current climate, the Government should at least be using the rate of 5.2 per cent, which was what it had budgeted its own sums on in the Budget.

Ian Fletcher, director of policy at the British Property Federation, said: “This is bad news for retailers, landlords and the economy and comes at a time when many High Streets are fighting for their survival. At the very least the Government should not be making a windfall from business rates. It budgeted its sums on the basis of 5.2 per cent this year and should be giving the difference back.

“When finances allow the Government should also be considering two further reforms. The first to reinstate empty property relief – empty rates are an unjust tax on people deriving no income and who will be paying even more out now as a result of today’s inflation figure. Secondly, linking business rates to RPI has meant they have doubled over the last 20 years and Government should provide greater certainty for businesses by fixing the business rate uplift each year, which we have suggested should be at the rate of the inflation target, currently 2 per cent.”

The Index – which has been a good predictor of the path GDP will take – fell by 9.6 points from +0.3 to -9.3 in the third quarter as more businesses lost confidence in the economy. This news comes just weeks after GDP was revised downwards to 0.1 per cent in the second quarter and ahead of third quarter figures due next week.

And, in more gloomy news, figures last week showed unemployment reached 2.57 million and youth unemployment almost reach the one million barrier. A balance of six per cent more businesses surveyed by the FSB think that they will lay people off in the coming three months, pointing to a further increase in unemployment by the end of the year.

The FSB has long called for the current NICs holiday to be extended to existing businesses across the UK that have fewer than four employees and that employ up to the three more staff.

One in 10 businesses (11 per cent) said that extending the NICs holiday would be an incentive to take on staff, according to recent FSB research. The current NICs holiday is only open to new start ups and has not had the take-up that the Government expected it to, with only 7,000 businesses using it. By extending it, the Government has the opportunity to put more people in a job which in turn would boost the tax base and money to the treasury.

Consumer demand is also a large barrier to economic growth and so the FSB has called for a targeted and time specific VAT cut to encourage people to spend in these areas. The FSB is urging the Government to follow the lead of other EU countries and cut VAT in the construction and tourism sectors to five per cent for a year to help give the economy a real boost.

In addition, a NICs holiday would also offset increasing cost pressures on firms. More than three quarters of the firms surveyed said that their costs had increased in the quarter, mainly due to rising commodity prices as more than half of respondents (57 per cent) cite rising energy costs, and 49 per cent increase in the cost of raw materials as the reason.

John Walker, national chairman, Federation of Small Businesses, said:

“As businesses come to terms with the double whammy of falling revenues and rising costs, it is no wonder that they’re losing confidence, and unfortunately, as their overheads increase one way to control it is to lay off staff.

“It is the first time since we started the Index that we have seen more people believe that they’re going to lay off staff than take them on. This has to show the Government that a more robust plan for growth is needed.

“Moreover, this is the first time that we have seen confidence in all regions of the UK in negative territory. We urge the Chancellor to look closely at our NICs holiday proposals and bring this forward in his Autumn Statement. We fear that without it, the recovery will falter once more.”

Business Records Checks were piloted earlier this year in eight key areas, and involve checks on the adequacy of small and medium-sized enterprises’ business records.

The pilots found that around 44 per cent of businesses visited had issues with their record-keeping, while around 12 per cent of those visited had seriously inadequate records.

HMRC will be now be extending this activity from mid-September to cover a number of key areas across the UK. As part of this, the number of full-time staff employed on the programme will rise from 30 to 120.

HMRC plans to complete up to 12,000 Business Records Checks by the end of the current financial year, with 20,000 provisionally planned for 2012/13. HMRC is increasing the number of visits, so it can refine the process, before final decisions on a national roll-out are taken in the New Year.

Initially, HMRC will only levy a record-keeping penalty in the most extreme cases of poor record-keeping. In the longer-term, HMRC intends to issue penalties of up to £3,000 for serious inadequacies in record-keeping. HMRC will issue guidance on this, and make a further announcement on when it will happen, in due course.

HMRC’s director of local compliance, Richard Summersgill, said:

“Good record-keeping helps businesses pay the right amount of tax at the right time, thereby potentially avoiding interest and penalties.

“Adequate records give businesses a clear idea of their trading position and profitability, allowing them to make business decisions and adjustments to ensure survival and success. And where a check has shown a business keeps adequate records, it gives HMRC a greater degree of assurance as to the likely accuracy of its tax returns.

“Ultimately, this is about supporting businesses and reducing the tax gap.”

The new campaign focuses on individuals and businesses trading above the VAT registration threshold – a turnover of £73,000 – but who have not registered. Target sectors include: construction, business services, hair and beauty, hotels and catering, retail distribution, recreational services, motor vehicle distribution and repair, sanitary and domestic services, agriculture and horticulture, property and road haulage.

Under the terms of the VAT Initiative, those who have not registered to pay VAT can come forward any time up to 30 September to tell HMRC that they want to take part. If they make a full disclosure, most will face a low penalty rate of 10 per cent on VAT that has been paid late.

After 30 September, using information pulled together from different sources, HMRC will investigate those who have failed to come forward. Substantial penalties and even criminal prosecution could follow.

Mike Wells, HMRC’s director of risk and intelligence, said: “Most people do register for, and pay, the correct amount of VAT. This isn’t about honest taxpayers, who have nothing to fear from any of our campaigns.

“But we are committed to ensuring tax is paid so that the maximum is available for public services used by everyone.

“I therefore urge people who have not registered their businesses for VAT to get in touch with HMRC and get their tax affairs in order simply, and on the best terms available.”

To use the VAT Initiative, people and businesses must:

* Register with HMRC by 30 September to “notify” that they plan to make a voluntary VAT disclosure; and

* Tell HMRC about VAT due and make arrangements to pay it, as well as any penalties due, by 31 December.

How to let HMRC know of the intention to make a tax disclosure:

* Online by completing a notification form at www.hmrc.gov.uk/ris/vat/ or

* Ring HMRC on 0845 600 5217, where a dedicated team is available to give information and advice.

Those coming forward are invited to also disclose any other tax arrears. Where they have to pay a penalty on undeclared tax other than VAT, this will be lower than the customary penalty of up to 100 per cent charged to those who fall outside the opportunity.