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HMRC – the single biggest inhibitor to the recovery I can think of

HMRC – the single biggest inhibitor to the recovery I can think of

January, and the vexed question of self-assessment rears its head again. My accountant friends have said good bye to the family until February and closeted themselves with quill pens and envelopes of receipts. Others have burned the midnight oil trying to complete their online returns. Still others – like me for example – pay the bill to the accountant, send off a small corrective payment to HMRC and wonder what all the fuss is about.

In my case that cheque is for precisely eighty pence. Can’t pay that online so a cheque it will have to be. Which will cost the drones in HMRC around £30 to process but basic economics was never really their strong point. And it’s only outstanding in the first place because last year I ignored a similarly trivial underpayment and this year got rightly stung for the interest.

Meanwhile, away from the distractions of the self-assessment merry-go-round, a rather more invidious tax change has crept in, largely unannounced and unremarked. As of now, there is a limit on how much cash you can take out when closing your company under the provisions of Extra-Statutory Concession 16 of just £25,000. Anything over that attracts Capital Gains tax at the relevant rate. Great. More taxes you never knew you owed.

There is a way around it; you simply have to liquidate your company. That means using the services of a liquidator who, incidentally, can’t be your current accountant. And it seems that such a service comes in at around seven grand a pop. Until, that is, Liquidators-R-Us get up and running and the cost comes down, so defeating the whole purpose.

But if you think about it, if the idea is to increase the CGT take from closing companies, why leave the Liquidation loophole in the first place? Joined-up thinking? Not at all, merely another excuse to get taxes imposed by relying on people not knowing the detail.

But what really irritates me about this is the underlying assumption by HMRC that a company’s sole purpose is to grow into an eternal corporate body and any that don’t are not to be taken seriously. There is no acceptance or understanding that if you are working in a world where income is variable and frequently non-existent, using a company to store and distribute your income evenly across the year is the best way to do it. And when you finally stop grinding away at the coal face you want to get your money back as efficiently as you can while paying whatever levies are due to the Treasury, not to some pointless corporate leech.

It’s exactly the same mindset that got us IR35 in the first place. We have companies. We don’t have 300 employees and a pile of plant and machinery so we must be cheating the taxman, else why have the company? Well there’s S44-47 for one thing and the idiot tax liability transfer rules it embodies. But hey, that’s no excuse.

I have to conclude that the increasingly rapacious predations of HMRC are the single biggest inhibitor to the recovery we can think of. It’s all very well the Government saying we need a vibrant and flexible workforce, and we’d love to give them one, but getting constantly cut off at the knees by a body that has absolutely no experience or expertise in the real world is getting more than a little wearing.

And finally it’s the next meeting of the infamous IR35 Forum soon. There is a hope that they will come up with a final answer to the IR35 question. Personally, I’m not hopeful. Can’t imagine why…

About the author: Alan Watts

Alan has worked in IT for most of the last 35 years, and first went freelance in 1996. He has been a PCG member from its start and has been spreading the message that freelancing is a professional career choice for many years. Alan also runs Malvolio’s Blog, a personal but highly informative take on the life of the modern freelance.

Alan Watts, Principal Consultant, LPW Computer Services

© 2012 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Clueless BUB by Birdies100

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