By Mike Southon, FT Columnist

I have recently completed a twelve-date tour around the UK on behalf of the Federation of Small Businesses (FSB). The presentations focused on key issues for the FSB's members, such as securing access to finance, improving cash flow and incentivising job creation.

Also on the bill were three of the FSB's service partners detailing their special offers for members, including Streamline, who have card and online payment systems through WorldPay and IFS who are providing a pension scheme backed by Scottish Widows as an alternative to the government's National Employment Savings Trust (NEST) system.

But it was the presentation by Abbey Legal Services that really made my blood boil. This was not a reaction to that particular company's services for FSB members, including 24/7 legal advice and employment protection cover. My anger was directed towards Her Majesty's Revenue and Customs (HMRC) when Abbey explained the full horror of the tax man's so-called "dash for cash".

According to Abbey, HMRC has ploughed £917m from its savings into compliance activity, targeting income generation of £2bn in the current year and £7bn by 2014/15.
 The way they plan to do this is via an "aspect enquiry", a quick review of certain aspects of small businesses, aiming to "get in and get out" swiftly with our money.


Thus HMRC has a vested interest in finding something wrong. While it still plans to do full enquiries, which typically last around 17 months, aspect enquiries can be settled in weeks if the business makes a commercial decision that it is cheaper to settle with the taxman rather than incur the costs of fighting the claim.

This is undoubtedly a very effective business strategy, inspired by the mafia, otherwise referred to as "demanding money with menaces". What is insulting for us small businesses is the general assumption that we are crooks.

I speak for every other long-term VAT-registered company, who ensure that our accounts are first checked by a qualified bookkeeper and then signed off by a qualified accountant, both of whom are also risking prison if they are knowingly a party to fraudulent activity. A much better approach by the government would be to treat small businesses as potential employers rather than hardened criminals.

I have an idea: Those of us who have been running profitable, VAT-registered legitimate businesses for more than five years should be given a 12-month VAT holiday if we employ an unemployed young person for that period.


A proportion of this tax saving would go directly to the apprentice in the form of a payment matching the amount they would receive in unemployment benefits, so the state would gain on the one hand what they lose with the other.


The other part of the VAT saving would be used by the employer to fund bonus payments to those apprentices that are instrumental in improving our profitability. This could help these young people to pay off their student debt more quickly than would otherwise be possible.

My proposal, I believe, would nurture a new generation of highly motivated young people, who would get a proven track record in delivering results as a result and possibly receive help to pay off their student debts.

These young people would be made more employable as a result and, by working for a growing business, acquire skills to start their own business if they so wished. The mathematics should be compelling to the chancellor.

If only a small percentage of the UK's four million small businesses employed one apprentice, this would significantly reduce youth unemployment. 
In the meantime, I am ready for HMRC's next knock on the door.

Last time they did an inspection on me they demanded and received an arbitrary £1,500.
Next time they try this approach, as an FSB member I will ask them to discuss this matter with one of their former colleagues, a former tax inspector now working for Abbey.


The Federation for Small Businesses can be found at www.fsb.org.uk


Originally published in The Financial Times: www.ft.com Copyright ©Mike Southon 2011. All Rights Reserved. Not to be reproduced without permission in writing. Mike Southon- Co-author of The Beermat Entrepreneur & Business Speaker- www.mikesouthon.com

Mike is one of the world’s top business speakers, a Fellow of The Professional Speakers Association. Mike is a Visiting Fellow in Innovation and Entrepreneurship at London South Bank University. He has made frequent appearances on television and radio, has a monthly sales column in Real Business magazine and is a regular commentator in the Financial Times.


Join us on
Follow @freshbusiness