Forum calls on Chancellor to act on tax simplification proposals in Budget

15 March 2011

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A small business support organisation has called for radical tax simplification proposals to be acted upon in the forthcoming Budget.

The Forum of Private Business is urging Chancellor George Osborne to put in place the small business-friendly tax policies submitted by the Office of Tax Simplification (OTS) last week.

The OTS says its recommendations, which it made in a new report, are aimed at reducing the large administrative burden placed on smaller businesses by the current tax rules.

Chief among them is a proposal to merge income tax and National Insurance for employees of small to medium-sized enterprises (SMEs). Measures to heavily streamline the taxation of sole traders, partnerships and the self-employed are also put forward in the OTS report.

The Forum's Head of Campaigns, Jane Bennett, said: "This review is certainly a good, and welcome, start towards creating a simpler and more proportional tax system.

"We have been calling for the alignment of income tax and National Insurance for a number of years. Most business owners find the continuing distinction between the two baffling, especially given the forthcoming introduction of compulsory pension contributions through the National Employment Savings Trust scheme.

"The OTS has certainly put forward some solid pro-business ideas which will be popular with the SME community. But unless these suggestions are acted on – and soon – business owners will come to see this report simply as a PR exercise. The Chancellor must act on these suggestions wherever possible in his Budget next week and provide smaller firms with some desperately-needed good news."

In its Budget submission, the Forum outlines a series of further ways that the tax system for SMEs could be significantly simplified and improved.

The Forum's tax policies, which tie in with the proposals outlined in the organisation's new ‘Get Britain Trading' campaign, are based on surveys of Forum members' views and experiences.

In a recent poll, (Tax and Budget member panel survey, January 2011) 57% of Forum members said they were so frustrated with the complexity of the UK tax system, they would even be prepared to pay more tax if a radical simplification programme gave them greater opportunity to develop and grow their businesses. A survey carried out by the Forum in 2009 showed that tax administration costs small businesses in the UK £1.8 billion every year, mainly due to internal time costs.

As a result, in its Budget submission, the Forum is calling for tax to be made simple and proportional in order to help small businesses grow and create the jobs needed to foster a private sector-led economic recovery.
The Forum is also calling for fundamental tax principles to be introduced that incentivise businesses to employ staff (including consolidating and reducing employment-specific taxes) and reward them for making a profit.

Further, the Forum is demanding that the tax system be made fairer for SMEs. This means clamping down on tax avoidance – particularly the Low Value Consignment Relief (LVCR) Channel Islands VAT avoidance loophole that has caused many small shops and private online retailers to close. It also means reducing fuel costs via a fuel price stabiliser or a cut in duty.

Additionally, the Forum believes the Budget should help non-employers to take on their first member of staff, and subsequent employees, by consolidating and reducing employment-specific taxes. Specifically, this could include making employment easier through reducing National Insurance by 1% and creating a National Insurance holiday for businesses that take on previously unemployed recruits.

The Forum also wants the Government to make businesses more profitable by reducing corporation tax to 17% for all firms by 2014. A reduction in corporation tax would cost around £8 billion, but this could be reduced to around £5bn if the tax avoidance measures used by larger corporations were removed. Longer-term, increased inward investment would pay for this cut many times over.

Miss Bennett added: "Many business owners feel understandably aggrieved over the amounts of tax they are forced to pay – especially given the recent publicity surrounding the elaborate tax avoidance measures employed by many big businesses.

"We believe this year's Budget provides an opportunity for the Chancellor to level the playing field through some long-overdue changes to the tax system and Get Britain Trading by reinvigorating the UK's vitally important SME sector."

Other proposals put forward by the Forum in its Budget submission call on the Chancellor to:

- encourage high earners to invest in small businesses and social enterprise through tax incentives. This would reinvigorate the business angels network, accelerate the Big Society through private investment and increase competition for the banks.

- cap business rates with a view to removing this tax over the longer term. Incentivising councils to nurture and support local businesses by linking taxation to the profitability of businesses would be the best solution.

- reduce tax for SMEs who patent products or technology so that they can become investment-ready. Currently the cost of creating and defending intellectual property in the UK is much higher than other countries even within Europe. If the UK wishes to rebalance its economy, it will need to support innovation more effectively.

- extend Community Investment Tax Relief beyond April next year, as Community Development Finance Institutions drive investment into disadvantaged communities where mainstream financial support is unavailable. The Forum also believes that CDFIs could be better advertised by banks for businesses struggling to access finance.

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