The Forum is calling for key measures on tax to help small firms drive job creation and economic growth - including changing the existing £5,000 National Insurance holiday for the first ten employees recruited by start-ups to apply to the first two new staff taken on by all firms, handing private lenders tax breaks to boost available finance and drastic improvements in HM Revenue & Custom's (HMRC's) systems.
According to the research, while 54% of business owners feel the current deficit reduction programme is ‘about right', 44% called for wholesale changes to the structure of the UK's tax system, 24% want certain tax breaks removed to simplify the system and 15% would welcome a moratorium on tax changes.
A third (32%) of tax and budget panel members believe that HMRC could improve service levels via more easily understandable communication methods, reducing bureaucracy in the process, a total of 29% said better support at key steps in the business lifecycle would help them and 23% wanted reminders about imminent payment deadlines.
In all, 53% of respondents believe HMRC is doing a poor job in supporting them. Further, 52% feel its tone of communication is poor, 45% that it is doing a poor job over targeting tax avoidance schemes, 33% criticised its lack of definitive answers to tax questions and 32% the lack of clarity in its communications.
Looking to the Budget, business owners prioritised reducing fuel taxes to ease costs, a VAT reduction for labour-intensive industries and removing barriers to employment, such as cutting employers' National Insurance.
They also want less emphasis on measures devoted to short-term revenue-raising – including many of HMRC's activities and business rates increases – encouragement for business investment to stimulate demand and better red tape reform.
"The Budget is a real opportunity to remove the growth barriers for small firms created by the complexity of the tax system. It is clearly one that should not be missed," said the Forum's Chief Executive, Phil Orford.
"In particular, our members want a level playing field on tax, and the UK's tax system to be conducive to business growth and success rather than a hurdle that is a struggle to overcome.
"It is also time to see genuine tax incentives to boost employment and investment in small businesses – including more encouragement for private lenders to compete with banks and stimulate funding for all firms."
In its Budget submission the Forum is urging the Chancellor to announce progressive measures on tax to:
Incentivise behaviour that encourages investment in UK businesses
- Reduce the tax on interest received during the lifetime of a loan to 0%, instead of the 50% top tax rate, providing the loan is still outstanding after three years;
- Implement 20% income tax relief on loans (a loan of £100,000 would cost a lender paying top rate of tax £80,000);
- Provide additional tax relief if a business fails before the loan is repaid – the lender could claw back up to 50% income tax relief (at the top rate) on money lost if the firm fails, in addition to tax saved when the loan was issued.
- Consider a short term cut in VAT in the housing sector In order to stimulate the construction industry and help boost the industry and create jobs. The Government could cut VAT on home improvements.
Reward business success
- Cut small firms' corporation tax rate at similar levels to the welcome reductions in the main rate in order to reward successful small businesses;
- Scrap the 50% income tax rate, balanced by raising the minimum earnings threshold for paying tax to £10,000, following mounting evidence that it is a barrier to entrepreneurship and inward investment, outstripping the Government's income from it.
Allow smaller companies to compete on a level playing field
- Thoroughly review the Business Records Check scheme given the considerable regulatory burden it can place on small businesses;
- Place a 2% cap on business rates in April 2012. Presently, such rates are due to rise by 5.6%, despite inflation currently falling.
Build trust with HMRC
- Implement a review of fines for late payment of PAYE amid concerns that the policy of accumulated fines was not adequately promoted to small businesses either before or during the last tax year;
- Work more closely with business groups to improve HMRC's methods and address the perception that small firms are being seen as ‘easy targets' for revenue-raising at the expense of longer-term economic sustainability.
Reduce the cost of employment
- Change the existing scheme of offering a £5,000 NI holiday for a new firm's first ten employees. Instead, the Government should offer the holiday for the first extra two employees taken on by all businesses. Widening the accessibility of the scheme while reducing the extent an individual business benefits could encourage much greater take up.
- With Real Time Information and mandatory online VAT filing on the horizon, the Government should undertake a stock check of business capability for handling new online services. A simple, easy-to-use regime should be in place, coupled with proportionate and lenient HMRC monitoring of the schemes in their early years.
- In the long term, the Forum recommends that the Government's commits to merging National Insurance and PAYE.
Rebalance the tax system
- Build on the commitment to encouraging innovation by introducing R&D tax credits as well as a Patent Box. The measures announced in the 2011 Budget to extend the rate of relief for small and medium-sized enterprises (SMEs) were particularly welcome. This move, plus the decision to remove the NIC/PAYE cap and the current minimum spend amount of £10,000, will further encourage SMEs to innovate, particularly start-up firms.
- Create a tax system which is simple enough for small businesses to understand. In order to achieve this, the tax system must be reviewed, and, as a medium- to long-term goal, completely overhauled.
Ahead of the Budget, which takes place on 21 March 2012, the Forum is lobbying to make tax simple and proportionate as part of its Get Britain Trading campaign.