A report produced by the Institute of Directors said that the tax system in the UK restricts business growth, preventing the creation of jobs and limiting business expansion. The report, called ‘Tax – The Weighty Burden’, was released towards the end of June and relates the impact of business taxation to potentially negative behaviour in business, including not taking risks.
The main focus behind the report is that if the rate of tax is too high, then investors won’t get a profitable return on their capital investment. According to the report, although companies are taxed between 20 and 24 per cent on profits, they also pay additional taxes, including VAT, National Insurance, Corporation Tax, fuel duty for transportation and business rates. The report calculates that a typical SME will actually pay a figure between 32 and 41 per cent in tax. The IoD also estimated that the larger a company becomes the more tax it pays. To demonstrate this, the IoD calculated that a business with five employees will pay all the profits for the first 117 days to HMRC before taking any profit itself. If the number of employees expands to 20, it would be 140 days before the company took any profit.
Proposals by the IoD include the rate of Corporation Tax being cut to 15 per cent and employer’s rate of National Insurance reduced to 10 per cent. A business can legitimately reduce its tax bill by ensuring all expenses, tax reliefs and allowances are claimed where relevant. A small business accountancy firm will have all the relevant reliefs and allowance information on hand to advise.