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Around 700,000 new businesses start up each year. They have to register with HM Revenue & Customs (the Department) for each tax as it becomes due—usually at different times. There are around 1.2 million registrations each year. The Department expects registered businesses to file their tax returns on time, calculate the right amount of tax due and pay it on time.
The Department spends over £10 million a year on staff engaged in registering new businesses, and a further £23 million in providing help through its website, printed guidance, telephone helplines, workshops and seminars.
Newly registered businesses are a diverse group. Some are setting up in business for the first time, others have previous experience. Some manage their tax affairs themselves, others rely on an agent or other assistance. Attitudes to compliance also vary. But those who get their tax right the first time are more likely to continue to comply as they grow and their tax obligations increase. Compliance can be more onerous for new and smaller businesses which have most to gain from assistance and simplified requirements.
New businesses incur late filing penalties of over £8 million on Income Tax Self Assessment and Corporation Tax. The proportion of new businesses filing their returns on time is generally lower than for the business population as a whole. On the accuracy of returns and paying on time, such a comparison gives a mixed picture and is less clear because of gaps in the Department's data. The available data shows that the levels achieved on both by newly registered businesses are between 53% and 69%.
The requirement to register separately for each tax duplicates effort for businesses and the Department in providing and processing the same information more than once. In Canada and Australia the tax authorities offer single registration for all taxes, allowing businesses to provide basic information only once and additional details as and when needed for specific taxes. In 2004-05 the Department imposed penalties totalling £6.7 million in nearly 70,000 cases of late registration for Class 2 National Insurance Contributions and VAT.
Over two thirds of tax registrations are in paper form. Businesses have been able to register online for VAT since 2004, for PAYE since 2006 and for Income Tax Self Assessment since February 2007. Take up on VAT is around 20%, and on PAYE 25%. In Australia 96% of new businesses register for tax online. 85% of registrations with Companies House are conducted online in the UK.
The Department publishes guidance targeted at newly registered businesses. But it requires an average reading age of at least 16 to 17 years old while over 5 million adults have literacy skills well below this level.
On the basis of a report by the Comptroller and Auditor General[1], the Committee examined HM Revenue & Customs on simplifying registration; improving compliance by newly registered businesses; and making compliance easier.
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