VAT rule-breakers have until 30 September to register to pay what they owe under an HM Revenue & Customs (HMRC) campaign.

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.

Government must put targeted and time specific VAT cuts in place to restore growth in key sectors, the Federation of Small Businesses (FSB) said as its latest figures show that business confidence has fallen dramatically.

The FSB is calling on 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. Consumer demand is a large barrier to economic growth so a VAT cut would encourage people to spend in these areas.

FSB figures show that businesses were less confident in the second quarter of 2011 than they were at the start of the year as the FSB ‘Voice of Small Business’ Index fell by 6.4 points in the first quarter from +6.7 to +0.3.

Strikingly, confidence in 13 of the 18 sectors monitored by the Index is not showing signs of business confidence, with five sectors falling from a positive to a negative reading. Most notably, firms that sell or repair motor vehicles are the least confident with an Index score of -45, which is a 65 point drop on the previous quarter.

The FSB is concerned that key sectors for economic growth fell, with confidence among hotels, restaurants and bars falling by nine points from +13 to +4 in the first quarter and construction only rising by one point to +3 in the second quarter.

The Index – which measures the confidence of small businesses across the UK – has been a good predictor for the path of economic growth since it began in 2010. The FSB is extremely worried that the Government’s growth plan is failing and the promises to help small businesses grow have yet to materialise.

By targeting VAT cuts in construction and tourism, the FSB believes that small firms will be able to drive job creation and boost consumer spending – something the Government’s growth plan has so far failed to do.

Evidence from other EU countries shows that any lost revenue to the Exchequer by making VAT cuts will be met by earnings from additional demand, jobs and the wider economic activity.

The Index also worryingly showed that business confidence fell in all but two regions of the UK, with confidence improved in the east of England and in the East Midlands – possibly buoyed by the resurgence in manufacturing in the previous quarter. Business in the North East recorded the largest dip in confidence, with its Index score falling from +2 in Q1, to -30 in Q2 – an enormous fall of 32 points.

It also showed that more firms reported falling revenues in the three months to June than in the first quarter – the biggest decline since Q2 2010, and it showed the second lowest balance since the Index started of firms expecting higher turnover in the coming three months in the second quarter.

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

“The economy is still in a fragile state and these figures clearly show that the Government’s growth strategy is just not working. In an economy characterised by high unemployment and muted demand, more needs to be done to encourage businesses to take on staff and grow their business so that the recovery can really get back on track.

“Since the start of 2010, the FSB Index has proved to be a good barometer of the path that economic growth will take, so the news that it has fallen back to almost zero paints a very worrying picture for GDP.

“We now need the Government’s actions to match its rhetoric, and it must finally deliver on actions in its growth strategy. We must see a cut in VAT to five per cent in the construction and tourism sectors to boost consumer demand. It is tangible measures like this that will actually help small businesses to be able to grow their businesses and grow the economy.”

As part of a campaign launched aimed at VAT rule-breakers, HM Revenue & Customs (HMRC) will be sending letters informing businesses how to register to pay what they owe.

The new campaign focuses on individuals and businesses trading above the VAT threshold of £73,000 turnover but who have not registered for VAT.

More than 40,000 letters will be sent out over the next few weeks. 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 face a low penalty rate of 10 per cent on VAT that has been paid late.

They will also be invited to 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.

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

Mike Wells, HMRC’s director of risk and intelligence, said:

“This is our third campaign, raising more than £500 million from voluntary disclosures and a further £100 million so far from follow-up activity.

“Our campaigns are designed to ensure tax is paid so that the money is available to spend on public services used by everyone.

“The aim is to make it easy for individuals and businesses to contact us, make a full disclosure of their income and face a reduced penalty on any tax owed.

“I 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 available terms.”

When money is tight and you need a new vehicle for your business fleet, whether that be a car or van, it is worthwhile considering contract hire leasing. There are five reasons why it may make sense for your business, but don’t forget to shop around to get the best deal. Firstly contract hire leasing is like hiring your vehicle for a fixed period, at an agreed annual mileage and you can also build all routine servicing and maintenance in as well if you prefer.

The 5 reasons to consider this finance method are as follows;

• Cars will lose money over time

Investing your hard earned cash in an asset, that will always reduce in value, may not be the most cost effective thing to do. Cash flow is vital in todays’ market so don’t tie up all your cash in a vehicle that’s losing value the minute you drive off the dealer’s forecourt.

• Fixed cost motoring

Contact hire leasing is a fixed cost motoring scheme. All you pay is a monthly rental that covers the finance, depreciation, maintenance and your road fund licence – then just hand it back at the end of the contract. All you need to do is insure it and fuel it.

• Leasing companies recover VAT  on purchase price

When a vehicle leasing company buys your car, they recover the VAT on the purchase price. The reduced amount of capital to finance is then passed onto you in a lower rental to pay. (Please note there are VAT recovery restrictions on the VAT added to the finance element of the monthly rental – only 50% of the VAT can be recovered. If you are not VAT registered then no VAT can be recovered and you will be paying the rental plus the VAT).

• More expensive cars can cost less  on contract hire leasing

This is due to the fact that vehicle leasing companies set resale values (residual values) on their vehicles and some cars depreciate more quickly than others. German cars for example, tend to have strong residual values and hence also tend to have lower contract hire rentals than other comparable cars from other manufacturers (in terms of the cost price).

• Compare contract hire prices

If you are a small business running a fleet of say three vehicle, leasing or buying a car is a really big decision for your business. Make sure you shop around and also compare lease prices on a like for like basis, to ensure you get the right car (or van) at the right price for you.

 

Well over half (57 per cent) of business owners surveyed by the Forum of Private Business said they would be willing to pay more tax  in exchange for a simplified system – providing the system led to greater rewards.

Meanwhile, 50 per cent said they would be prepared to pay more under a simplified system if that system cut down on tax avoidance among their competitors. Tax avoidance is typically carried out by bigger businesses with the resources to exploit geographic loopholes.

And 45 per cent of business owners on the Forum’s Tax and Budget member panel said they would tolerate a higher tax bill under a simplified system if it was accompanied by a general reduction in legislative red tape.

The findings come after the Coalition Government announced the creation of the Office for Tax Simplification last summer. The Office is a Treasury department which is currently working on tax simplification proposals ahead of the March budget.

Forum chief executive Phil Orford said: “The cost of complying with Britain’s hugely complex tax system is such that, if simplification and profitability result, most businesses believe a little more tax would be a price worth paying.

“Clearly, if the Government is serious about stimulating small business growth, streamlining tax administration must be a priority.

“In addition, small businesses are deeply concerned that the tax system favours large companies and is deeply unfair. Plans to clamp down on tax avoidance, for example, seem to fall short in several areas.

“How can the Government continue to allow major retailers to set up shop in the Channel Islands to deliberately undercut small shops and internet businesses by exploiting a VAT loophole that clearly distorts competition and leads to tax abuse?”

Orford added: “Tax policy directly influences business behaviour.

“We desperately need reforms that incentivise small business growth by freeing up time and money to invest in future planning and expansion, rather than a system that impedes it, as the present one does.”

Other key findings of the Tax and Budget panel included:

- Small business owners have strongly differing views concerning the purpose of the tax system. At 59 per cent, many respondents felt that the priority of tax is simply to raise revenue to pay off the UK’s national debt, however a significant 33 per cent said the tax system should prioritise the regulation of economic behaviour.

- Business owners also have very mixed views of the recent VAT increase. 48 per cent of respondents felt that the VAT rise would create minimal problems for their business but 21 per cent said it would have a significant impact. Additionally, nine per cent believed it would give some competitors an unfair advantage and six per cent considered the administrative burden associated with price adjustment in light of the increase to be a barrier.

- 78 per cent of businesses felt that the tax system deters smaller firms from employing due to the complexity of payroll taxes and the repeated increases in National Insurance. A further 45 per cent said the tax system hinders financial planning and 41 per cent said it impedes prompt payment.

- 57 per cent said the tax system should be incentivized to allow businesses to employ more people. Panel members also said they want to see a reduction in unemployment and felt that the Government should reward individuals who are prepared to work by increasing the number of workers taken out of the tax system, as well as taking measures which would encourage businesses to employ. Respondents also said they would like to see taxation rates for employees and the self-employed more closely aligned in any reform of the IR35.

In response to the panel findings, the Forum plans to investigate the possibility of a radical overhaul to the tax system.

This could include the abolition of business tax reliefs and allowances if corporation tax were to be cut to internationally-competitive rates and employment taxes (particularly employers’ National Insurance Contributions) were significantly reduced or abolished.

The Forum will also continue lobbying against tax avoidance schemes exploited by bigger businesses, such as the Low Value Consignment Relief loophole for goods mailed from the Channel Islands.