The Dash for Cash

The Dash for Cash

I have recently completed a twelve-date tour around the UK on behalf of the Federation of Small Businesses (FSB). The presentations focused on key issues for the FSB's members, such as securing access to finance, improving cash flow and incentivising job creation. 

Also on the bill were three of the FSB's service partners detailing their special offers for members, including Streamline, who have card and online payment systems through WorldPay, and IFS, who are providing a pension scheme backed by Scottish Widows as an alternative to the government's National Employment Savings Trust (NEST).

But it was the revelations from Abbey Legal Services, who gave a presentation about their 24/7 legal services for FSB members, that made my blood boil. My anger was directed towards Her Majesty's Revenue & Customs (HMRC) when Abbey explained the full horror of the tax man's so-called "dash for cash".

According to Abbey, HMRC has ploughed £917 million from its savings into compliance activity, targeting income generation of £2 billion in the current year and £7 billion by 2014-15. The way they plan to do this is via an "aspect enquiry", a quick review of certain aspects of small businesses, aiming to "get in and get out" swiftly with our money.

So HMRC has a vested interest in finding something wrong. While it still plans to run full enquiries, which typically last around 17 months, aspect enquiries can be settled in weeks if the business makes a commercial decision that it is cheaper to settle with the taxman rather than incur the costs of fighting the claim.

This is undoubtedly a very effective business strategy, as inspired by the mafia, otherwise referred to as "demanding money with menaces". What is insulting for us small businesses is the general assumption that we are crooks.

I speak for every other long-term VAT-registered company that ensures our accounts are first checked by a qualified bookkeeper and then signed off by a qualified accountant, both of whom are also risking prison if they are knowingly a party to fraudulent activity.

A much better approach by the Government would be to treat small businesses as potential employers rather than hardened criminals. I have an idea: those of us who have been running profitable, VAT-registered legitimate businesses for more than five years should be given a 12-month VAT holiday if we employ an unemployed young person for that period.

A proportion of this tax saving would go directly to the apprentice in the form of a payment matching the amount they would receive in unemployment benefits, so the state would gain on one hand what it loses with the other.

The rest of the VAT saving would be used by the employer to fund bonus payments to those apprentices who are instrumental in improving our profitability. This could help these young people to pay off their student debt more quickly than would otherwise be possible.

My proposal, I believe, would nurture a new generation of highly motivated young people who would get a proven track record in delivering results and possibly receive help to pay off their student debts. 

These young people would be made more employable and, by working for a growing business, could acquire skills to start their own business if they so wished. The mathematics should be compelling to the Chancellor.

If only a small percentage of the UK's four million small businesses employed one apprentice, this would significantly reduce youth unemployment.

In the meantime, I am ready for HMRC's next knock on the door. Last time they did an inspection on me they demanded and received an arbitrary £1,500.Next time they try this approach, as an FSB member I will ask them to discuss this matter with one of their former colleagues, a former tax inspector now working for Abbey.

The Federation for Small Businesses can be found at www.fsb.org.uk

Originally published in The Financial Times. Copyright ©Mike Southon 2012. All Rights Reserved. Not to be reproduced without permission in writing.

Mike Southon is the co-author of The Beermat Entrepreneur and a business speaker.

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