As part of his speech at the Federation of Small Businesses policy conference, George Osborne highlighted some measures being introduced for small businesses that will help them to save money. In particular he highlighted the Employer’s National Insurance Tax Break, which he claims will lift 400,000 businesses out of the requirement to pay any Employer’s National Insurance.
So can we really believe that the next Budget, on March 19th, will have real tax breaks which truly benefit small businesses?
The question really is — what is a small business?
When I refer to a small business I mean “the self-employed”; whether operating through a sole trader or limited company business structure, according to a recent news report from the BBC, there are some 4.3 million of us who earn a crust through self-employment.
Does the Budget ever really help real small businesses?
Having been involved in the small business space for a number of years now I can say, hand on heart, that the tax landscape has become progressively more complicated in recent years. The Government seems to be adding to and not easing the red tape administrative burden placed on those businesses who often struggle to afford administrative help with the business owner taking care of the various forms and returns during their “spare time”, what little they have of it.
Let’s take a whistle-stop tour of some examples
Whilst the cash accounting rules for small businesses were an attempt to simplify the annual accounts preparation process they introduced a number of pitfalls such as a business not be able to claim more than £500 in bank or loan interest if they used this method of accounting.
The £2,000 Employer’s National Insurance Tax Break is not all it seems with some employers being excluded from claiming the benefit for no obvious reason whatsoever.
And then of course there is Real Time Information (RTI), which has brought about more U-turns than I ever did when I was learning to drive. Fines for non-filing have been delayed because of system troubles and the date for RTI compliance has been extended to April 2016 for employers with fewer than 10 employees. However, telling businesses this in December 2013 was ludicrous given that the system was supposed to be implemented by the previous April, so most had already complied!
Large Company Tax Rate decreases
Let’s put this in context of what is happening with big businesses; they have seem a corporation tax cut over the past few years; from 26% in 2011 to just 21% in 2014 with a promise of this being 20% (the same rate as for small businesses) from 2015.
A 5% tax cut in four years – that’s a saving of £50,000 on a profit of a million pounds.
Should small and big businesses pay the same rate of tax? Many argue that people and businesses should pay a “fair rate” of tax often with a push for those higher earners to pay a higher rate of tax. So why is the same argument not applied to big businesses? Not only can they afford teams of tax advisors to help them work out the best “tax minimisation strategy” but the government is helping them with that tax minimisation strategy by reducing the rate of corporation tax.
What I don’t understand is why the anti-tax avoider and evasion campaigners aren’t in uproar about this!
Just too cynical?
By now I think I have become rather cynical about the promises thrown around about helping small businesses and reducing the red tape burden. For me that record is well and truly stuck in the groove.
But why should small businesses get a break? Well, the small business owner may not set the world on fire or aspire to be the next Richard Branson but generally they do endeavour to do a hard day’s work for a hard day’s pay. They should be admired, encouraged, helped and supported as the backbone of the UK economy.
Forget the promises — actions speak louder than works. Give the self-employed a real tax break!
Award-winning chartered accountant Elaine Clark is an expert contributor to Start Up Donut and the founder and managing director of www.cheapaccounting.co.uk, an online accounting service aimed at small businesses with big ambitions.
Picture credit: Altogetherfool on Flickr