Small-fry are 'soft target' for taxman

AN anti-red tape measure meant to help the UK's smallest businesses is being exploited by the Inland Revenue to find "soft targets" for tax investigations, companies fear, in a drive to jack up fines, surcharges and additional payments to meet new Treasury performance quotas.

Businesses with a turnover of 15,000 or less are now encouraged to make a three-line return, listing only profit, expenses and net profit, to reach a self-assessed taxable amount.

But with these three lines, it emerges, the business unwittingly nominates itself as a candidate for a time-consuming tax investigation that may also require expensive accounting or even legal help.

Self-employment is above the national average in London, where nine-tenths of the capital's 3.5 million "economically active" population work in concerns of less than 25 people. The three-line self-assessment was meant to help small companies that complain of being choked with red tape.

Instead, it emerges that the Revenue is targeting three-line businesses in order to meet new internal performance targets demanded by the Treasury, which require investigators to find against the taxpayer in 76% of cases.

Inland Revenue declines to discuss the targeting of registered small businesses, and will give details neither of how many extra investigations there are likely to be, nor of what its own revenue targets are.

The Association of Chartered Certified Accountants, however, is already advising three-line small-business clients to buy off trouble by submitting detailed accounts even though entitled to a three-line self-assessment return. ACCA said today: "Government should act now, and tell Inland Revenue to stop stifling small-scale enterprise and instead devote its resources to seeking out individuals and businesses who do not even register for tax, instead of going for the soft targets."

It added that three-line businesses, by their very nature, do not have the resources to cope "effectively and efficiently" with Revenue investigators.

The cards are stacked against the taxpayer in these investigations, for even accountants say that Gordon Brown's relentless tinkering makes the tax system so hard to follow that the Inland Revenue can have the whip hand in matters of interpretation.

There is a 5% automatic surcharge for individuals and businesses who fail to meet the next self-assessment tax payment deadline on 31 July.

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