THE BUDGET last month saw the government impose a raft of new burdens on business. Higher National Insurance contributions grabbed all the headlines. But the sheer size of the finance bill is a more reliable indication of the heavier, hidden load that businesses will have to bear. Growing businesses are going to be particularly badly hit.
NI increases will cost companies £3.9bn a year. Some £2bn of this will be paid by small companies. It’s easy to calculate how much a one per cent increase in employers’ NI is going to cost your businessbut it’s much more difficult to measure – and therefore manage – the additional cost of administering your payroll.
However, the admin burden goes far beyond the new mutation of NICs. Gordon Brown’s accomplished delivery at the despatch box was just a veneer. (OK, I’ll give him some credit for R&D tax credits, reforms to CGT and for the one per cent cut in tax for small firms.) In the guts of the Budget was yet another massive increase in the complexity of the UK tax and benefits system.
For a start, benefits are no longer the preserve of the low paid. Middle-income earners are also entitled to a whole raft of new tax credits. But the detailed interaction between tax credits and benefits leaves middle income-earning families – and those who employ them – bemused. While many tax experts have welcomed the move to the new integrated child tax credit, for example, the practicalities of paying it are mired in complexity. There are two possible outcomes. First, these new “claimants” do all the paperwork and get their tax credits. As Anne Redstone, international tax partner at Ernst & Young, has said, this is starting to look like 100 percent self-assessment by the back door. The other option is that they don’t bother, in which case Gordon’s got great headlines at a bargain price.
It’s easy to see why the government wants to place this burgeoning burden on companies. By making you do the job, politicians and civil servants can claim they are more efficient and making better use of taxpayers’ money. They argue that the trend to link earned income with state benefits means that the logical place to do all the organisation and administration is in employers’ accounts departments. I’m not making a political statement on the desirability of these new measures. I’m merely saying that the average growing business can’t cope with the state-imposed regulation. For all their talk of creating an enterprise-based economy, it’s hard to believe that politicians have the faintest idea what it’s like to try to run a growing business. They see us more as an outpost of the Benefits Agency than as wealth-creators. It’s not as if this Budget was the first wave of additional burdens. The new tax credits will join a whole host of other tax problems for UK FDs.
“PLEASE REMEMBER, GORDON, THAT OUR FINANCE FUNCTIONS ARE NOT THERE TO DO YOUR PAPERWORK”
How are you feeling about corporate tax self-assessment a couple of years in? What about keeping Customs & Excise on-side by accounting for VAT correctly? Stakeholder pensions – that was a breeze, right? And while you’re expected to do more of the government’s book-keeping, they are also expected to do it right.
The resources that have been freed up (particularly inside the Inland Revenue) by shifting these burdens onto Fds, are directed towards investigations. So your accounts and your procedures are more likely to face formal investigation by the authorities right at the time when you’re dealing with a raft of complex new measures. So what’s the solution? On a practical level, there’s always out-sourcing. Companies that try to run their business and do all the detailed administration almost always fail to realise their full potential. They also don’t tend to complete their administrative tasks as well as they need to.
In terms of payroll – where many of these new burdens fall – that’s likely
to be a bank or an accountancy firm. Or you can try to automate. There are
software solutions that will help you to control your payroll and other admin.
But it’s not easy to find an outsourcing partner that suits you and will adapt
to meet you future needs. Nor is choosing a software supplier. Systems need
to be updated regularly and you need the updates to work. Upheavals in the
accounting software market over the last few years don’t offer much hope. I’ve
seen plenty of FDs bang their head against the wall when they find out that
their supplier’s been bought out and the next upgrade means changing to a whole
new system. So next time, Gordon, by all means tinker with the total tax take.
But please, if you can, remember that the UK’s finance functions aren’t there
to do your paperwork.