Could current small business taxes be scrapped in favour of a simpler solution?

A new report urges the government to simplify small business taxation. Could we soon see the current raft of business taxes replaced with a single levy?

Current taxes are too taxing

Running a business in the UK can feel fraught with bureaucracy, and the range of small business taxes can seem bewildering. Small businesses currently have to contend with corporation tax, business rates, VAT, and employer National Insurance rates.

If you feel like navigating all of these levies is overly complicated, you’re not the only one. Three quarters of small businesses say that the current tax regime is too complicated, according to a study by the Centre for Policy Studies (CPS). Apparently, the average small business loses three working weeks a year to the demands of tax compliance.

Partly as a result of this overly complicated tax system, the majority of small businesses (62 per cent) don’t feel that the government is on their side.

The CPS report — written by Nick King, a former special adviser at the government’s Business Department and endorsed by West Midlands mayor Andy Street — goes on to make some suggestions for how the government could get back on the side of small business.

The Simple Consolidated Tax

At the heart of the report is the idea that companies with a revenue of under £1 million should be given the option to replace the current range of levies and taxes with a single tax on turnover: the Simple Consolidated Tax (SCT).

The SCT would be voluntary, so that any firm that would be worse off under the new system could stick with the old system of business taxation. Modelling has shown that it would be revenue-neutral for the Treasury, at a rate of approximately 12.5 per cent. The CPS suggests that it could be phased in gradually.

It looks like the SCT would go down well with small businesses: almost three quarters (72 per cent) said they would move to the new, simpler system if they had to pay the same amount of tax. Meanwhile, more than a quarter said they’d opt for the simpler system even if it meant paying more tax.

A boon for small business?

Report author Nick King, Head of Business at the Centre for Policy Studies, argues that the SCT “removes the need for the overwhelming amounts of paperwork and makes life so much simpler for small business owners”. He encourages the current government to take up the proposal, claiming it would show “it is truly backing small business and small business owners.”

The report claims that simplification of the system would benefit both business owners and the wider economy. The CPS calculates that if 250,000 companies opted in to the SCT, the total administration saving could amount to £450 million. And if business owners were able to devote just 10 per cent more of their time to helping their companies grow, £4.7bn could be added to the economy.

Andy Street, Conservative mayor of the West Midlands and former managing director of John Lewis, has thrown his backing behind the SCT idea, saying:

“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.”

Will the SCT happen?

At the moment, this is just a proposal, and it remains to be seen whether the government will pursue the idea.

However, the report was welcomed by Home Secretary Sajid Javid, who said:

“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.”

An endorsement from the West Midlands mayor and positive noises from the Home Secretary could mean that the proposal receives some serious consideration at government level.  

Other changes that could benefit small businesses

As well as the central SCT proposal, Nick King also makes a range of other suggestions for how the government could improve things for small businesses.

He argues that the government should also simplify the registration process for new companies, provide a more sympathetic set of financing options for smaller firms, and introduce an Employer’s National Insurance and PAYE holiday for all new hires made by businesses with eight or fewer existing employees.

Read the full report

The full CPS report “Think Small: A Blueprint for Supporting UK small businesses” is well worth a read. You can download it for free on the CPS website. What do you think about these proposals? Do you think a simpler tax scheme would make a big difference to your business? Tell us in the comments.

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