Taxing the nation

WHEN a small business collapses, it is not overstating the case to say it is a tragedy for those involved.

All the hopes and dreams invested in the venture, all the hard work and imagination, all the sacrifice in money and long hours – all ultimately count for nothing as the firm is wound up. There may well be creditors who will have to go without, and staff who will lose their jobs and livelihoods. At a time of economic recession there are thousands of such stories being played out across the country with heart-sinking regularity, and for the most part we accept this as an inevitable consequence of our country's financial predicament. But what if the fatal blow that kills a company's hopes is delivered not by a sluggish market or rising costs or a structural decline in a particular sector, but by HM Government?

As the story on our news pages today reveals, every working day for the past two years, a Scottish company has been put out of business by Her Majesty's Revenue and Customs. In all, 466 firms have been closed down in Scotland in 2008 and 2009 because they were having trouble paying their tax bills on time. Some of these firms were, no doubt, run by people who never intended to help make their duty-bound contribution to the public purse. They deserved their fate. But a great many more were firms that were simply feeling the chill wind of recession, and trying desperately to survive.

Of course, the government must collect tax. In fact, in a time of recession, it must be all the more thorough in collecting every penny it can, and even more diligent in hunting down those who attempt to hide their income from the Treasury – especially those wealthy individuals who say with a sneer that "only the poor pay taxes". In his Budget last month, Alistair Darling announced a new strategy to claw back 2 billion from people avoiding a range of taxes, and especially those using offshore tax havens. The Chancellor also announced heavier fines for those who defraud the exchequer in this way. At a time when the very basic frontline services we took for granted in the prosperous late 1990s and early-to-mid 2000s are coming under threat, with serious consequences for the NHS and schools, this is only right.

And yet surely we must make a distinction between those deliberate avoiders, and men and women trying to keep small and medium sized businesses afloat at a time of unprecedentedly intense economic difficulty. According to Lib Dem MP Danny Alexander, many of the firms being closed down by the taxman are essentially solvent. Their business models are sound and they contribute to keeping the British economy moving in the right direction – they simply, usually for cashflow reasons, are having trouble fulfilling their tax commitments at the time dictated by the Revenue. Mr Alexander says thousands of Scots are currently on the dole queues as a result of Revenue inflexibility on timescales.

Being a taxman is a job with a simple imperative – you collect tax. Industry insiders report that there has been a hardening of attitude of HMRC's debt collectors in recent months as this imperative becomes all the more pressing.

But that hardline push from officials is completely at odds with Mr Darling's pledge to help businesses in these difficult times. This is not two arms of government acting against each other; this is supposed to be the one arm of government. Despite what Mr Darling is saying, HMRC is acting in a completely different manner.

Even on a financial level, a good case can be made for greater flexibility. If the taxman closes down a company – as he is at the top of the creditors list – he may well get his cash. But what about all the future tax that company would pay if a way was found to allow it to trade and still pay back tax owed but on a different timescale? And what about the loss of income tax and national insurance that would otherwise have been paid by the employees? And of course the government will see increased costs in benefit payouts.

But it is the bigger picture that is even more compelling. Businesses are the vital building blocks of our economy; at no time have we needed them more. Shutting them down when you do not absolutely have to is not just short-sighted, it is idiotic.