Treasury offer on tax debts

TAX-dodging small business owners and sole traders are being offered a partial amnesty for their past misdeeds under a Treasury pilot scheme. In return for coming clean about previous earnings and making a 'compromise' settlement of what they owe, they will be able to come in from the cold.

The pilot projects have been set up to entice people out of the £75bn so-called black economy and to 'set their affairs in order'.

If successful, it could be extended nationwide, giving thousands of people the chance to join mainstream economic activity. A Treasury spokesman said: 'The pilots have started and we have not evaluated them yet. It is important to get them right.'

But while business organisations broadly welcomed the scheme, there were fears that any forgiveness of past tax owed would reward dodgers and penalise those in the same line of work who had played by the rules.

It is thought the schemes are based on recommendations made in November by the Small Business Council, a Government advisory body. The council said any amnesty should apply only to 'entrepreneurial' and not to criminal black-economy activity.

It added: 'It should be recognised there is a distinct difference between business activity that would be legal if it were registered, such as cash-in-hand cleaning work, and business activity that is illegal, such as human trafficking, drugs and prostitution.'

It suggested adopting an American system known as 'offer in compromise' under which part of the tax due on previously undeclared earnings is written off. At present, any back-tax is subjected to surcharges and interest.

Steven Hill of the British Chambers of Commerce said: 'People operating in the informal economy are undermining legitimate businesses. An amnesty seems to be needed.'

Simon Sweetman, vice-chairman of the Federation of Small Businesses, warned: 'The problem is striking a balance between enabling people to come into the mainstream economy while not rewarding them for having been outside the tax system.'