Notable tax announcements include continuing to clamp down on tax avoidance, cutting the main corporation tax rate to 22% by 2014 and the Government’s commitment to reforming the tax system to make it simpler for small firms – including exploring merging income tax and National Insurance (NI) and changing tax rules to calculate tax for firms with a turnover of £77,000 on a cash basis.
The Forum also welcomes the Chancellor’s headline decision to cut the 50p top rate of income tax to 45p by April 2012, following figures from HMRC showing that the tax has raised just £1 billion of the £3 billion it was expected to raise.
Balanced by raising the minimum earnings threshold for paying income tax to £9,205, the Forum believes the move will stimulate inward investment, boost entrepreneurship and encourage job creation.
On finance, the Forum is in principle welcoming the Government’s National Loan Guarantee Scheme (NLGS), a £20 billion ‘credit easing’ initiative to reduce bank lending costs – but warning that the smallest firms in most need of affordable funding must benefit from the scheme, amid concerns it is more relevant to large companies and medium-sized businesses – a similar criticism levelled at the £1 billion Business Finance Partnership scheme for mid-cap firms.
Making tax simple and proportionate is one of the main pillars of the Forum’s Get Britain Trading campaign and a key element of the not-for-profit small business organisation’s 2012 Budget submission. The other areas are improving cash flow, creating employment and improving skills, reducing business costs and creating opportunities for growth.
The Forum’s Get Britain Trading campaign and Budget submission have been supported by research to reveal the fears, hopes and desires of small businesses across the UK, with taxation and the tax system featuring prominently.
A total of 44% of business owners on the Forum’s tax and budget panel called for wholesale changes to the structure of the tax system, 24% expressed a preference for the removal of certain tax breaks to simplify the system and 13% wanted a moratorium on tax changes.
The organisation’s Get Britain Trading campaign supporters were asked how the business environment could be improved. The top two requests were making the tax system fairer to allow firms to compete on a level playing field (69%) and simplifying the tax system to make it more easily understandable (64%).
HMRC was also seen as needing to improve its targeting of tax avoidance schemes, its tone of communication with business owners and general support for businesses. In all, 32% of panel members felt that HMRC could improve the service offered to small and micro businesses by embracing more easily understandable communication methods. Better support at key steps in the business lifecycle would help, according to 29%, and 23% wanted to receive reminders about imminent payment deadlines.
In its Budget submission, in addition to the continuing reduction of the main corporation tax rate, the Forum has called on the Government to cut the small firms’ rate at a similar level in order to reward successful businesses.
Fuel duty, business rates and National Insurance are aspects of the tax system considered too high by small businesses, who also called for targeted cuts in VAT to help labour-intensive industries, and for the Government to reduce the cost of compliance with tax bureaucracy.
The Forum called for greater incentives for family-run businesses and measures which incentivise investment in UK firms, including reducing the tax on interest received during the lifetime of a loan to 0% instead of the 50% top tax rate, additional tax relief if a business fails before the loan is repaid and a short term cut in VAT in the housing sector in order to stimulate the construction industry.
In order for small firms to compete on a level playing field, the Forum is calling for a 2% cap on business rates starting in April 2012 for the duration of this Parliament and backing a review of the unpopular Business Records Checks regime.
The organisation has welcomed the Chancellor’s intention to defer 60% of the rates for two years, announced in the Autumn Statement, but believes this further step is still necessary.
The Forum also pushed for tax incentives to reduce the cost of employment, namely that the existing scheme of offering a £5,000 NI holiday for the first ten employees of a new business should be changed. Instead, the Government should offer a £5,000 holiday for the first two extra employees taken on by all businesses. Widening the accessibility of the scheme whilst reducing the extent an individual business could benefit will encourage much greater take up.
In parallel to the Chancellor’s Budget statement the Government has published a report entitled ‘Making tax easier, quicker and simpler for small businesses’, which contains a series of pledges it hopes will create the most competitive tax system in the G20 and make the UK the best place in Europe to start and grow a business.
The report is a response to a review of small business tax carried out by the Office of Tax Simplification, which published its final recommendations in February, and is part of the Government’s Plan for Growth.
The main points include changes in the tax rules to allow new cash basis for calculating tax for up to three million small unincorporated businesses, rolling out RTI, following a pilot scheme, with full implementation by October 2013, an April, 2012 launch of HMRC’s Business Tax Dashboard to allow businesses to quickly and easily see their tax payments and what they owe, consultations on integrating NI and income tax, and simplifying NI for self employed, and improving HMRC’s services – such as online support, call handling and postal responses as well as making it easier to register and pay.