Hundreds of small businesses throughout the North West risk being left in limbo unless the government adopts a more flexible approach to tackling ‘tax avoidance’, members of the insolvency and restructuring trade body R3 have warned.
While R3 members say cracking down on tax avoidance is necessary and welcome, the insolvency experts report that many SMEs have received large tax demands which they are unable to pay, leaving them facing the risk of a winding-up order and considering insolvency. Recipients of these demands include many businesses and individuals who took part in schemes unwittingly or in good faith.
Paul Barber, the North West chair of R3 and a partner at Begbies Traynor, says some tax avoidance measures could put businesses and jobs at risk: “Many of those who entered into these schemes did so following professional advice. They were under the impression that it was sensible tax planning via an approved HMRC scheme and they paid large sums in advisors’ fees to check they complied with the rules.
“Since the rules changed in 2014, many of these people find the scheme has been reclassified as tax avoidance. Some clients have compared it to having driven at 50mph in a 70mph zone, and now being fined because the speed limit has subsequently been reduced to 30mph.”
HMRC figures released last September showed that it had issued 60,000 such demands – known as accelerated payment notices or APNs – since 2014, and collected £3 billion in revenue. Paul Barber cites one example of a small North West contractor with around 10 staff which saved £40,000 using a scheme and paid around £20,000 in professional fees; the firm has received an APN for over £100,000. Other cases include a care home for the elderly and a couple who retired over five years ago and are facing a demand for a six-figure sum.
The debt represented by APNs could affect businesses’ credit ratings and prevent them from securing new finance or winning new contracts, thus harming the overall economy.
Paul Barber adds: “The government needs to think more carefully about the impact its anti-tax avoidance tools have on those individuals affected. Tackling the abuse of the tax system is needed, but efforts to do so should not tar everyone with the same brush, while inflexibility can have disproportionate or unproductive outcomes.
“Attention should be given to how people can pay new tax demands, as penalties for tax avoidance won’t bring in extra money if people don’t have the money on hand to pay them.”
A national survey of R3 members as far back as last June found that 12% had been involved in business insolvency resulting from a APN, while 26% had given advice to a business, and 16% to an individual in receipt of an APN.