Start-ups forced registration may not mean "fairness for all"

Paymaster General Dawn Primarolo's scheme to make start-up businesses and the self-employed register with the Revenue immediately or face a £100 fine has been officially launched.

The idea, originally proposed last October, gives new businesses a three month 'grace period' to register formally with the Inland Revenue, after which time non-compliance will result in a fine.

Speaking of the new measures Dawn Primarolo said "We are not prepared to allow honest businesses to be undercut by those in the hidden economy who are determined not to pay their dues, so we are also introducing a penalty for those who fail to notify the Inland Revenue about their new businesses. Our intention is fairness for all."

A guide entitled 'Starting up in Business', issued by the Revenue to accompany the new rules, covers 'everything about tax, National Insurance and tax credits' and will be sent out to all registering companies. A helpline has additionally been set up to enable registration over the telephone but has drawn criticism from accountants who argue that it bypasses their ability to provide enquirers with more objective and comprehensive information.

The Inland Revenue is also launching a video "Starting up in business - cutting through the red tape" to advise the newly self-employed of their responsibilities, a key point behind the campaign's conception as recommended in Lord Grabiner's Report on the Informal Economy.

Speaking of the new compulsory registration system and its likely implications for business, the Professional Contractor Group's Finance Director Kevin Miller told UKTECH: "Without wanting to condone the black economy - I have to say that I do not believe that the proposals will hit the people in question. They will just increase bureaucracy and obstacles placed in the way of legitimate business and will impose more red tape, damaging enterprise and innovation.

"The fine being suggested is also disproportionate to the amount of National Insurance in question and will create more disincentives along with IR35 for people to set themselves up in business as 'self-employed'. I don't think the Government will be content until everyone is under PAYE and is therefore more controllable. The Government is into control in a big way and do not like the self-employed".

In a memorandum submitted to the Revenue in December by the Tax Faculty of the Institute of Chartered Accountants in England and Wales a number of other concerns over the new registration guidelines were detailed. Listed amongst them was the warning that the 'imposing of penalties on those who notify commencement of business late is likely to discourage people from registering at all'.

In the consultation process on this issue the ICAEW Tax Faculty also noted in the memo that although 'help for start-ups is a good thing, one of the real difficulties is determining when a business actually starts trading. Often this can only be determined with the benefit of hindsight'.