By Richard Godmon, tax partner at Menzies LLP

On 29 November George Osborne will deliver the government’s autumn statement and outline the coalition’s economic plan. Menzies’ Richard Godmon outlines the proposals he would like to see included in the Chancellor’s autumn statement for small and medium-sized businesses. In his opinion, business owners need clear incentives to invest, plan for growth and take on new employees.

Simplify the tax system to encourage sound business planning, not tax avoidance
The UK offers excellent corporate tax incentives, especially for R&D and capital allowances, but they are too complex. Uptake has been so low you would be forgiven for thinking they are a national secret. We have the curious paradox where people are put off at the first sign of complexity from official government schemes, but many will pay for complex tax products that offer no guarantee of success, only a high chance of a tax investigation.

The complex system and high income tax rates encourage schemes to exploit flawed legislation and loopholes in the law at the expense of solid business planning. It has resulted in a stalking game with HM Revenue and Customs that has distracted business owners from seeking strategic advice on achieving long-term growth.

Measures to make it easier for companies to take on new employees
Business owners are not recruiting because they are frightened of the cost. SMEs account for 59% of private sector employment (Source: Department for Business Innovation and Skill, May 2011), yet they are given little encouragement to recruit. In the last ten years employers’ NI has increased by 16% (from 11.9% to 13.8%).

The gradual increase in NICs should be reversed. Businesses think twice about taking on additional staff because of the NIC cost and outside investors are put off by the high rates, which are unattractive compared to other countries.

Reduce personal tax — it is the “seed capital” for stimulating growth
We hope to see cuts in income tax in order to increase consumer and business spending. As well as scrapping the 50% rate, we would like to see personal allowance increased to £15,000 and the 20% rate threshold increased to £45,000.

This would give low and middle-income earners much more disposable income and provide a feel-good factor that should translate into more spending. Removing the 50% rate, regardless of how much revenue it raises, will send a clear message to outside investors that the UK is open for business.

Enhanced corporate tax breaks for infrastructure investment
Corporate tax rates are falling, but more is needed to encourage investment in infrastructure. We would like to see the Capital Allowances scheme enhanced by providing higher allowances for spending on infrastructure such as mass transport, broadband, public housing, etc. This could be operated in a similar way as the R&D tax credit scheme.

Tax breaks to encourage self-investment
We would like to see tax breaks for companies that use their own funds to finance investment. The current system encourages borrowing because interest payments are tax deductible — using savings provides no tax benefit. If companies received tax relief for reinvesting their own funds, they might be more inclined to invest, rather than seek out bank debt or leave funds earning next to nothing.

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