Treasury looks at tax amnesty

Small businesses in the 'black economy' are set to be offered a partial tax amnesty for past misdeeds in an attempt to encourage them to 'set their affairs in order'.

According to a report in the Mail on Sunday, a pilot scheme from the Treasury offers a 'compromise' settlement for the amount owing, if they come clean about previous earnings. The pilot projects are aimed at enticing people out of the £75bn black economy and, if successful, could become nationwide.

The schemes were broadly welcomed by business organisations, but there were fears that any forgiveness of past tax owed would reward dodgers and penalise those in the same line of work who had played by the rules.

In November, the Small Business Council looked at this issue and claimed that any amnesty should apply only to 'entrepreneurial' and not to criminal black-economy activity. It should distinguish between legal but unregistered businesses, such as cash-in-hand cleaning work; and illegal business activities, such as drug trafficking.

It suggested adopting an American system known as 'offer in compromise' under which part of the tax due on previously undeclared earnings is written off. Whereas at present, back-tax is subjected to surcharges and interest.