By Claire West
Some small business owners are so frustrated with the complexity of the UK tax system that they would pay more just to see it simplified, new research has found.
Well over half (57%) of business owners surveyed by the Forum of Private Business said they would be willing to pay more tax in exchange for a simplified system — providing the system led to greater rewards.
Meanwhile, 50% said they would be prepared to pay more under a simplified system if that system cut down on tax avoidance among their competitors. Tax avoidance is typically carried out by bigger businesses with the resources to exploit geographic loopholes.
And 45% of business owners on the Forum’s Tax and Budget member panel said they would tolerate a higher tax bill under a simplified system if it was accompanied by a general reduction in legislative red tape.
The findings come after the Coalition Government announced the creation of the Office for Tax Simplification last summer. The Office is a Treasury department which is currently working on tax simplification proposals ahead of the March budget.
Forum chief executive Phil Orford said: “The cost of complying with Britain’s hugely complex tax system is such that, if simplification and profitability result, most businesses believe a little more tax would be a price worth paying.
“Clearly, if the Government is serious about stimulating small business growth, streamlining tax administration must be a priority.
“In addition, small businesses are deeply concerned that the tax system favours large companies and is deeply unfair. Plans to clamp down on tax avoidance, for example, seem to fall short in several areas.
“How can the Government continue to allow major retailers to set up shop in the Channel Islands to deliberately undercut small shops and internet businesses by exploiting a VAT loophole that clearly distorts competition and leads to tax abuse?”
Mr Orford added: “Tax policy directly influences business behaviour.
“We desperately need reforms that incentivise small business growth by freeing up time and money to invest in future planning and expansion, rather than a system that impedes it, as the present one does.”
Other key findings of the Tax and Budget panel included:
• Small business owners have strongly differing views concerning the purpose of the tax system. At 59%, many respondents felt that the priority of tax is simply to raise revenue to pay off the UK’s national debt, however a significant 33% said the tax system should prioritise the regulation of economic behaviour.
• Business owners also have very mixed views of the recent VAT increase. 48% of respondents felt that the VAT rise would create minimal problems for their business but 21% said it would have a significant impact. Additionally, 9% believed it would give some competitors an unfair advantage and 6% considered the administrative burden associated with price adjustment in light of the increase to be a barrier.
• 78% of businesses felt that the tax system deters smaller firms from employing due to the complexity of payroll taxes and the repeated increases in National Insurance. A further 45% said the tax system hinders financial planning and 41% said it impedes prompt payment.
• 57% said the tax system should be incentivized to allow businesses to employ more people. Panel members also said they want to see a reduction in unemployment and felt that the Government should reward individuals who are prepared to work by increasing the number of workers taken out of the tax system, as well as taking measures which would encourage businesses to employ. Respondents also said they would like to see taxation rates for employees and the self-employed more closely aligned in any reform of the IR35.
In response to the panel findings, the Forum plans to investigate the possibility of a radical overhaul to the tax system.
This could include the abolition of business tax reliefs and allowances if corporation tax were to be cut to internationally-competitive rates and employment taxes (particularly employers’ National Insurance Contributions) were significantly reduced or abolished.
The Forum will also continue lobbying against tax avoidance schemes exploited by bigger businesses, such as the Low Value Consignment Relief loophole for goods mailed from the Channel Islands.
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