🦹 Phoenixism Scandal: SME Tax Dodging Under Fire

📰 Industry News

• Britain's largest real estate portal Rightmove rejected the £5.6 billion cash-and-stock takeover proposal from Rupert Murdoch’s REA Group. (Reuters)

• Luxury department store Harrods has recorded its highest-ever turnover, rising 8% on the previous year to £898.4m driven by tourists returning to London post-pandemic. (RetailWeek)

• The Body Shop has been rescued from administration by British cosmetics tycoon Mike Jatania who leads a consortium to acquire 113 of the UK’s outlets. (The Guardian)

• Last week we shared how Oasis will boost the UK economy, now HMV has recorded a “huge boost in sales“ due to Oasis returning, with sales across the band’s catalogue rising 526% week on week. (RetailWeek)

• The Spectator magazine has been sold to hedge fund tycoon and GB News's biggest shareholder Sir Paul Marshall for £100m. (Sky News)
  

🐦‍🔥 Billions Lost from Small Business Tax Evasion

A new report from the National Audit Office (NAO) has revealed that the UK is losing billions of pounds in revenue each year due to tax evasion by small retailers. The NAO has called for urgent action to prevent this growing issue from spiralling out of control, particularly as the amount of unpaid tax debt continues to climb.

• Widespread tax avoidance: Small businesses, particularly retail chains, are exploiting loopholes to avoid taxes. HMRC estimates 81% of the £5.5 billion in tax evasion for 2022-23 was linked to small businesses, an alarming increase from previous years.

• Phoenixism is on the rise: Many of these businesses deliberately go bust, avoiding tax debts, and reappear under new names, continuing to trade while raking in untaxed profits. This method of evasion, known as phoenixism, cost HMRC over £500 million last year.

• Electronic Sales Suppression (ESS): Retailers are suppressing sales through underhanded techniques like dummy accounts or running tills on "training mode," further complicating efforts to track and recover taxes owed.

Despite HMRC's efforts, including targeting sectors like sweet shops and takeaways, these retailers have become adept at slipping through the cracks. The NAO has criticised HMRC for lacking an effective strategy to deal with this growing issue, citing outdated systems and insufficient use of its powers.

HMRC Likely to Tighten the Net: What Comes Next?

To address this, the UK government is working to tighten registration requirements at Companies House, which came into effect in March 2024. These measures include the verification of directors’ identities, making it harder for businesses to vanish and reappear under new names.

Further government action is expected, with increased funding for HMRC, upgraded IT systems, and stronger compliance likely on the horizon. Closing the loopholes that allow phoenixism and ESS to thrive is essential for restoring fairness to the tax system and ensuring small businesses don’t gain an unfair competitive advantage over those who are playing by the rules.

… and it goes without saying, the crackdown on tax evasion shouldn’t stop at small businesses. Large multinational corporations, long scrutinised for their tax avoidance strategies, must also be held accountable. It’s time to even the playing field. Whether it’s small businesses or corporate giants, everyone must contribute their fair share.

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💼 Why Are 9.4 Million Britons Out of Work?

The UK government has launched a new initiative to address long-standing issues in the labour market, intending to get more working-age people back into employment. This is part of the broader "Get Britain Working" campaign, which aims to achieve an 80% employment rate, which currently sits at 74.80%.

Why is a Large Part of the UK Labour Market Inactive?

• Labour Market Challenges: Post-pandemic, the UK has seen a sharp rise in economic inactivity, especially among young people, driven by long-term sickness and reduced workforce participation.

• Real Wage Stagnation: Wages have remained stagnant for 15 years, impacting living standards and cutting government tax revenues, while living and operational costs have increased.

• Health System Strain: Long NHS waiting times have contributed to higher levels of long-term sickness, with 2.8 million people in the UK unable to work due to health issues by mid-2024.

Why Aren't People Returning to Work? 🧐

Official figures show 9.4 million working-age Britons were not in employment or looking for work. While the pandemic altered the workforce dynamic, with many people reassessing their work-life balance, others are struggling with long-term health conditions or burnout. Experts suggest that higher wages, better job flexibility, and improved mental health support could play key roles in tempting workers back.

The government's plan to improve job centres and devolve employment powers may offer part of the solution, but time will tell if it's enough to reverse the trend.

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