The tax system is simply not helping small business

A Treasury commissioned report from the Office of Tax Simplification (OTS) has spelled out all the things that need the Chancellor’s attention such as the tax systems inability to handle self employment, the reform of the national insurance  and taxation of income compared to earnings all these attribute to the UK’s dysfunctional system of small business taxation.

The governments plans of creating growth is at odds with the lack of clarity in the self-employment sector  and OTS strongly stated that the current tax system was undermining the pledge of David Cameron to make the decade the most entrepreneurial in British history.

The OTS said just getting the status of one employee incorrect over a period of time can cause a small business to go out of business causing small business to be in fear of the HM Revenue & Customs and therefore thinking twice before adding additional employees.

Legislation in the run up to the Budget, is being explored and officials are considering using, as a model for other trades, the legislation planned to correct tax evasion in the construction industry.

OTS stated that the rise in employers/employees national insurance, the increase in personal tax allowances and the reduction in small businesses rate of corporation tax in April will significantly impact the small business sector more than the 50p higher rate of income tax.

The OTS added that those earning £50,000 have to be prepared to pay £7,000 additional per year than they would if they filed using a one-man company. A wave of incorporation is expected because of the October introduction of new rights fro agency workers after adopting the European directive. What is key, said the OTS is the introduction of flat rate taxation for businesses with annual sales of less than £20,000 which is 2 million business and the merging of income tax with national insurance contributions.