Former senior Government adviser calls for urgent simplification of small business tax regime in a major new report on small businesses.
- YouGov polling of both the public and small business owners/managers shows that they overwhelmingly believe the Government is not on the side of small business – but also agree it should be.
- In particular, the tax and administration regime for small businesses is seen as far too complicated, costly and bureaucratic.
- The Centre for Policy Studies (CPS) therefore recommends a small reform to business taxation. Companies with revenue of under £1 million should be given the option of replacing the four main taxes they face – corporation tax, business rates, VAT and Employer’s National Insurance – with a simply levy on turnover.
- Extensive modelling by Capital Economics has shown this would be revenue-neutral for the Treasury at a rate of approximately 12.5 per cent, and polling shows it would be hugely popular with small businesses.
- 72 per cent of small businesses who expressed a preference said they would move to the new system if the amount of tax they had to pay remained the same. More than a quarter said they would move to the new system even if it meant paying more tax.
Small businesses are at the heart of the British economy. There are 5.6 million of them, employing almost 13 million people and generating three quarters of all new jobs.
Unfortunately, while Britain has a very strong track record in terms of creating businesses, it is harder than it should be to run – and grow – one. In particular, small companies complain about the burden of tax and administration, which is costly in terms of both money and time.
75 per cent of small business owners and managers polled on behalf of the CPS said the current system is too complicated.
‘Think Small’ is a new report which looks to make life a lot easier for small companies. It is authored by Nick King, Head of Business at the Centre for Policy Studies and a former special adviser at the Business Department for the Rt Hon Sajid Javid MP. The report calls for the Government to adopt an emblematic policy to champion small and family businesses: the Simple Consolidated Tax.
This report, endorsed by West Midlands mayor Andy Street, who has written the foreword, argues that companies with revenue of under £1 million should be given the option to replace corporation tax, business rates, VAT and Employer’s National Insurance with a simple levy on turnover, charged on a cash basis: the Simple Consolidated Tax (SCT).
The report will be launched on Thursday at a reception in central London addressed by the Rt Hon Sajid Javid MP.
Because the SCT would be voluntary, no firm would have to lose out – those which would be worse off under the new system could simply keep to the old.
Extensive modelling by Capital Economics shows that the SCT – for which there are encouraging precedents – would be revenue-neutral for the Treasury at a rate of between 11.5 per cent and 13.5 per cent, depending on the underlying assumptions used. The report suggests that its introduction could be phased in, to ensure the system was working as intended.
In the final section of the report, Nick King also suggests a range of other measures that the Government could and should adopt to help small businesses and sole traders, including a three-month National Insurance holiday on new hires for any business with eight or fewer employees and tax relief for self-funded training for sole traders.
Separate polling by YouGov among more than 2,000 owners and managers of small businesses – to go alongside YouGov’s polling of the general public for this project – confirms that the SCT would be popular with its target firms. Some 72 per cent of those who expressed a preference said they would move to the new system if the amount of tax they had to pay remained the same, because of its greater simplicity. Furthermore, more than a quarter of respondents said they’d move to the new system even if it meant paying more tax.
However, the polling also showed that both business owners and the public at large believe that the Government is not currently on the side of small businesses.
Among small business owners and managers:
- 75 per cent said that the current tax regime is too complicated, and just 1 per cent that it is too simplistic
- 62 per cent said that the Government is not on the side of small business, compared to just 24 per cent who felt that it is
- 68 per cent said that the current tax system is not sympathetic towards the needs of small business, vs 22 per cent who disagreed
Among the general public:
- Only 47 per cent felt positively about the role of businesses in Britain today, vs 33 per cent who felt negatively – but support was far higher for small, local businesses (62 per cent)
- However, 60 per cent of the public felt that the Government was not on the side of small businesses, vs 14 per cent who felt that it was.
- Twice as many Conservative voters (49 per cent) felt their own party was not on small businesses’ side as felt that it was (24 per cent)
- Overwhelming proportions of voters, of all parties, felt that the tax system should a) aim to help small businesses grow (71 per cent – 10 per cent), b) be simple for small businesses to understand (80 per cent to 5 per cent) and c) that tax and reporting systems should be simpler for small businesses than large (64 per cent to 19 per cent)
Nick King, Head of Business at the Centre for Policy Studies, said: “Small businesses are the backbone of the British economy making up more than 99% of all businesses, Government has a duty to protect their interests so our economy can continue to thrive.
“But the current one size fits all model is failing small business – too many of them are strangled by paperwork, bureaucracy and administration, costing them time and money.
“The polling commissioned for this report shows both the public and owners and managers of small businesses do not think the Government is on the side of small businesses – but that it should be.
“This report proposes a new ‘Simple Consolidated Tax’ which removes the need for the overwhelming amounts of paperwork and makes life so much simpler for small business owners. It offers a way for current Government to show it is truly backing small business and small business owners.”
Andy Street, elected mayor of the West Midlands and former managing director of John Lewis, said: “During my decades in industry I have seen up close the challenges faced by those setting up small businesses such as getting people with the right skills, accessing the capital they needed to grow, and in particular dealing with the paperwork and administration now required by Government departments and agencies.
“I therefore warmly welcome Nick King’s excellent report which is aimed at supporting any and all small businesses – a laudable ambition that should be shared by anyone within local or central Government.
“I strongly urge the Government to examine the central recommendation, The Simple Consolidated Tax, which would offer a significant simplification of the tax landscape for small firms, and many of the other ideas in this report would be hugely welcome.”
Speaking prior to publication The Rt Hon Sajid Javid said: ‘Small businesses are the engine of the British economy and the millions of people who run businesses up and down the country deserve the Government’s full support. This report shows how bureaucracy and paperwork are stifling the growth of our small businesses and offers a series of compelling ideas for how Government can roll back the tide and show that the Conservatives are backing entrepreneurs.”