The Budget and the Business Tax Roadmap offered a unique opportunity for the Chancellor to reform the tax system, making tax less taxing for small businesses.
Ian Cass, CEO of the Forum of Private Business said, “the disproportionate burden of tax and regulatory adherence for small businesses is a limiting factor on their growth, and the Chancellor has partly demonstrated that he recognises this. We will continue to lobby for more simplification and more encouragement for investment in small private and family owned enterprises.”
Ian continued: “the Chancellor has listened to our calls to create a level playing field by taxing multinationals and looked to reinvest the money in small businesses. The changes to business rates were more positive than we could have expected given the circumstances”.
Within the constraints of the current economic climate, there are a number of positive elements in the budget most notably the changes on business rates, but also commercial stamp duty, corporation tax and much needed infrastructure improvements after construction activity ( a key indicator of investment) has slowed significantly.
We are still concerned about how our members and other UK employers will be able to grow the economy given the increases in red tape caused by the enforcement of quarterly returns, the increase in the cost of doing business caused by the national living wage, increased insurance premiums and the rise in fuel tax. The increased tax on dividends taken by directors has limited the rewards of growing a business, which can only be bad for the economy.
82% of our members agreed that the tax system should be not be ring-fenced from deregulation drives such as “Cutting Red Tape” and it is hoped that the Business Tax Roadmap will add transparency and certainty to the tax system. As always the devil will be in the detail.
Costs (staff costs etc)
Staff costs in some industries were rising even before the announcement of the National Living Wage as employers focussed on staff retention. Removing some remuneration packages and the ability for small firms to provide a cost effective work package that creates staff loyalty is in effect another cost on responsible employers.
Research by the Forum reported that the decline in the incentivisation of labour was 3 times greater than the increase in the incentivisation of investment in machinery and equipment since 2014.
Changes to the tax status of termination payments has changed – which highlights why members should contact our helpline
The increase on insurance premiums from 6% to 10% will also hit responsible businesses and the affordability of key insurance products will ensure business continuity and robust sustainable employers as well as combating the issue of underinsurance. The Forum believes that rather than making insurance products more expensive, there is a greater need to investigate 51% success clauses on some products that make them cheap but do not offer protection when it is needed. Forum membership is one of the few insured advice services in the UK to offer this service.
Although the cost of oil has reduced significantly since the last rise in fuel duty, low fuel prices are needed by to kickstart the economy. It has been a positive step to leave them as they are for the moment.
Business rates have been in the top four barriers to development amongst Forum members since we started asking the question in 2011.
58% of our members wanted a doubling of small business rate relief and we have campaigned in the Business Rate review in 2015 to remove smaller firms from payment completely, which has now happened for 600,000 businesses Simplification of the appeals process was sorely needed with 45% of Forum members reporting that this was a key way to make the tax more palatable.
Quarterly returns will increase the cost of tax compliance by 15% from £2,900 to £3,300 and push some business owners out of their comfort zone and onto unfamiliar accountancy programmes. This may lead to mistakes and the need for a supportive HMRC has never been greater. However 42% of our members now feel that the aggressive stance of HMRC has led to them being viewed as a potential adversary rather than a key support service for their business.
Small firms are already finding auto-enrolment challenging and any changes to the pension system such as the removal of the National Insurance exemption of pension contributions is not helpful.
The government has responded to complaints from ourselves, accountants and business owenrs and is recruiting an extra 800 people to answer the phones.
Poor payment practices add time and cost onto businesses that have to chase up what is owed to them. Progress on this issue is sorely needed and the announcement on the Small Business Commissioner is welcomed. This will bring impetus to other payment initiatives such as getting the government’s strategic partners to sign up to the Prompt Payment Code and the reporting of payment days by the UK’s largest companies.
Business tax roadmap
The Forum recognises that tax simplification is a hard to do, particularly as taxation is now global as indicated by the OECD’s Base Erosion and Profit Shifting recommendations. Tax simplification is sorely needed as Tolley’s Tax Guide now runs to over 11,250 pages and is far more than any individual business owner can be expected to read and digest.
The focus on companies who exploit their international status and on larger corporations is welcome. The creation of a roadmap in itself will help the requirements of small firms in providing stability and certainty.
Capital Gains Tax, NICs and VAT
The government will cut corporation tax further, so the rate will fall to 17% in 2020. More immediately from 6 April 2016, the higher rate of Capital Gains Tax (CGT) will be reduced from 28% to 20%, and the basic rate will be reduced from 18% to 10%.
Entrepreneurs’ relief will be extended to long term investors in unlisted companies.
National Insurance is also being reformed. From April 2018, Class 2 NICs will be abolished. This represents an annual tax cut for 3.4 million self-employed people of £134 on average. The government will also reform Class 4 NICs, so that self-employed individuals continue to build entitlement to the State Pension and other contributory benefits, following the abolition of Class 2 NICs.
The government will increase the VAT registration threshold in line with inflation to £83,000 from 1 April 2016.
Download the Forum of Private Business Budget Wish List 2016