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Benefits of online tax returns ‘negligible’

Costs outweigh cash incentives

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A government incentive to get small businesses to file their tax returns online is not what it appears, with the financial benefits set to be "negligible", an accountancy firm has warned.

Ministers have said that from 19 May 2010, firms with fewer than 50 employees will have to file their PAYE returns online each year by law.

As an incentive to get employers using the internet to send returns now, the government announced that firms who file online every year until 2009 will get a total of £825, tax-free.

However, accountants at PKF said that due to software costs and other expenses, small businesses are unlikely to see any real benefits from filing online before they are required to do so.

Peter Pennycard, national director of tax at PKF, warned small firms to be wary of the initiative: "Whilst this may sound like a genuine incentive to start filing online sooner rather than later, small businesses would do well to remember that, like many government offers, the financial advantage could be negligible.

"Not only will employers have to purchase software approved by the Inland Revenue to complete PAYE returns at the beginning of the 2004/5 tax year, but they will have to wait for their first incentive payment of £250.

"It will be credited against their 2005/6 tax payments and they will only get a cheque in they actually ask for it."

Although business groups have repeatedly urged chancellor Gordon Brown to lessen tax requirements in the upcoming Budget, PKF said that firms should brace themselves for an even greater regulatory burden.

The accountancy company pointed out that the Inland Revenue is now collected tax earlier from employees by taking payments from the PAYE tax code on their earnings. This system means that tax will be paid up to nine months earlier than under self-assessment rules.

Pennycard said that it was clear that the chancellor’s attempts to increase the tax take is forcing the Inland Revenue to take a singular approach to tax collection.

"Their slogan seems to be 'We want you to pay is now, but you will have to wait for anything that we owe you'.

"Such penny pinching is yet another example of the government’s unnecessarily ruthless treatment of businesses and taxpayers and we are likely to see more of the same in this year’s Budget," he concluded.

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