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LABOUR’S BETTER PLAN FOR SMALL BUSINESS TAXATIONUNLOCKING THE POTENTIAL OF BRITAIN’S SMALL BUSINESSES
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Labour’s Better Plan for Small Business Taxation
Foreword
The Labour Party has a better plan for a more productive economy, based on the idea that Britain can only succeed when all our businesses have the chance to succeed. Firms need to be supported to develop higher productivity, higher value business models, creating higher skilled and higher paid jobs. This is the route to sustainable growth, living standards rising year-on-year, and to bringing down the deficit.
Labour’s Better Plan for Britain’s Prosperity set out how this will only be achieved by ensuring more smaller businesses fulfil their potential to power future growth.1 That is why we will put small businesses first in line for future tax cuts, meaning that the tax burden on small businesses will be lower with Labour than under the Tories. Labour’s Better Plan for Business sets out the measures a Labour government will deliver to support the whole business community in delivering growth, higher profits, higher pay and higher living standards.2
The Labour Party recognises the essential role that small businesses play, both in our economy and in our communities. But we also recognise the challenges small businesses face, competing against better-resourced corporations that are better able to absorb short-term losses and capitalise on economies of scale. That is why we believe that the tax system should treat small businesses differently to their larger counterparts. We believe that small businesses should pay a lower rate of corporation tax, whereas the Tories have tried to eliminate the distinction between small and medium-sized enterprises and multinational corporations. We believe that business rates should 1 A Better Plan for Britain’s Prosperity, February 2015 2 A Better Plan for Business, March 2015
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be cut on small business properties, whereas the Tories have made property charges an ever-increasing proportion of businesses’ tax burden. And we believe that there should be a simpler tax system for small businesses, whereas the Tories’ botched introduction of Real Time Information (RTI) reporting has made tax compliance more onerous for entrepreneurs.
This paper shows how a Labour Government will improve small business taxation, with a fairer tax burden, simpler rules, and better administration. Our reforms will minimise the burden that the tax system places on small and medium-sized enterprises, freeing up the time, energy and resources of the sector. By doing so, we will unlock the potential of Britain’s small businesses, helping entrepreneurs to build the shared and sustainable prosperity that the British economy urgently needs.
Ed Balls MP and Shabana Mahmood MP
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Introduction
Small and medium-sized businesses account for 99.9 per cent of the UK’s 5.2 million businesses, seizing opportunities overlooked by their larger competitors, and pioneering innovative solutions to emerging demands. They employ over 60 per cent of the British workforce, and have a pivotal role to play in raising skills and productivity, providing good jobs that offer employees good salaries and opportunities to progress.3 They are vital to delivering the Labour Party’s vision of inclusive and sustainable growth, reaching all sectors of the economy and all parts of the country, where everyone has the opportunity to share in the benefits of national prosperity.
The Labour Party has already outlined significant reforms that will remove major obstacles to growth in the small business sector. For example:
• Insufficient access to finance has been a long-standing problem for UK small businesses, exacerbated in recent years by factors ranging from the global financial crisis to the banking sector’s shift away from local managers to centralised and formulaic assessments of loan risks. Through the creation of a British Investment Bank supporting a network of regional banks, we will improve access to finance for many small and medium-sized businesses, empowering them to take on new staff and expand into new markets.4
3 Business Population Estimates for the UK, Department for Business, Innovation and Skills, November 2014 (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/377934/bpe_2014_statistical_release.pdf). 4 The Case for a British Investment Bank, Nick Tott, July 2012 (http://www.yourbritain.org.uk/uploads/editor/files/BRITISH_INVESTMENT_BANK.pdf). Labour’s Plan for Banking Reform, February 2015 (http://www.yourbritain.org.uk/uploads/editor/files/Banking_Reform.pdf).
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• Late payment can tip viable, solvent small businesses into bankruptcy, yet small businesses are often reluctant to challenge the payment practices of their larger counterparts for fear they could lose their custom. That is why the Labour Party will give small businesses enhanced powers to challenge poor practices, driving a cultural shift towards prompt payment that will benefit the economy as a whole.
• Many high-performing small businesses are finding their growth plans obstructed by a skills shortage, the result of the Tories’ policy of pursuing a low-skill, low-pay economy that has been designed to compete in a global race to the bottom. A Labour Government will introduce a new gold-standard Technical Baccalaureate for young people, and reform apprenticeships to ensure they offer both businesses and trainees a minimum Level 3 qualification – equipping the British workforce with the skills we need to earn our way out of the cost-of-living crisis.
But in addition to lack of finance, late payment and the skills shortage, small businesses face major challenges navigating their way through the UK tax system. Despite paying lip-service to tax simplification, the Tories presided over the longest Finance Bill in UK history, saddling UK businesses with the longest tax code in the world.5 The UK tax regime is unwieldy enough for large companies, who can afford to employ expert advisers to keep them up-to-date with the latest developments. For many small businesses, it is simply overwhelming.
In June 2014, we announced proposals for a principle-based reform of business taxation. This document, focusing in particular on the taxation of small and medium-sized enterprises, is guided by the same vision: a tax system that promotes long-term investment,
5 ‘SMEs need break from “constant tweaking”’, Economia, April 2013 (http://economia.icaew.com/news/april2013/government-‐needs-‐lesson-‐in-‐how-‐businessworks).
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supports enterprise and innovation, provides a stable and predictable policy framework, and which is founded on fairness. To achieve this, small businesses need:
• A fairer tax burden. While the headline rate of corporation tax for the UK’s most profitable companies has been reduced, small businesses face a range of fixed tax costs that take no account of their ability to pay: ranging from direct charges such as business rates, to the indirect costs associated with expert advice. The Labour Party is committed to a fairer distribution of the tax burden, which recognises the diverse needs of the business community as a whole.
• A simpler tax system. Dealing with a complex tax system is particularly onerous for smaller businesses who are faced with a choice between hiring in expensive specialists, and trying to navigate the longest tax code in the world on their own. We will deliver a simpler tax system for small and medium-sized enterprises that is transparent, comprehensible, and predictable: allowing entrepreneurs to devote their time and money to creating genuine value.
• Better tax administration. While the last ten years have seen significant advances in the administration of tax, there is still more that can be done to improve how HMRC interacts with the small and medium-sized enterprise sector. By continuing to reform and invest in our online and offline services, we aim to make tax compliance as painless as possible.
Labour will also conduct a review into HMRC processes for managing investigations, prioritising resources and the focus of HMRC’s leadership on tax avoidance and evasion.
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Building on successes and learning from mistakes
The Tory-led Government claim to have reduced the administrative burden on smaller businesses, but in fact they have given with one hand only to take away with the other. The Labour Party’s approach to this legacy is straightforward: where there has been success, we will build on it, and where there have been failures, we will set them right.
The Labour Party has supported the introduction of the National Insurance Contributions Allowance after three wasted years in which the Coalition’s previous policy – a National Insurance Contributions holiday restricted to new businesses operating in certain specified locations – proved so ineffective that only six per cent of its allocated budget was ever claimed.6 We believe the administrative expense of complying with the tax system should never be an obstacle to business expansion and job creation, so we will maintain the National Insurance Contributions Employment Allowance.
We will also build on the ongoing programme of improvements to HMRC’s digital services, which began under the last Labour Government. Updates to online help, including video tutorials and webinars, have made filing tax returns easier for the uninitiated. Individual web-based accounts have been improved, allowing businesses to calculate and pay a wider range of taxes online more easily than ever before. These services are not without their problems, but a Labour Government will ensure continued investment in digital services, aiming to save money for both HMRC and the taxpayer.
In contrast to these positive developments, the way that the Tories introduced Real Time Information (RTI) has made tax compliance
6 George Osborne's National Insurance Holiday Plan Helped Just 24,000 Firms, Not 400,000, Huffington Post, 12 August 2013 (http://www.huffingtonpost.co.uk/2013/08/10/national-‐insurance-‐holiday-‐flop_n_3737200.html).
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more onerous for the small and medium-sized enterprise sector. While RTI has the potential to improve the integration of the tax and benefit system, the additional administrative burdens, and the expense of expert advisers and compliant payroll software, have been particularly costly for small businesses. The launch timetable for RTI was not driven by consultation with employers, but rather by the Tories’ policy commitment to introducing Universal Credit in October 2013. Yet despite pledging that over a million people would be claiming Universal Credit by April 2014,7 only 40,100 people were on the caseload ten months after that deadline had passed.8 While there have been some belated concessions to the small and medium-sized enterprise sector, such as postponing of mandatory RTI reporting for established micro-businesses until 2016, the private sector is still being held to a timescale that Government itself is unable to meet.
As early as July 2013, the Forum for Private Business estimated that the Coalition’s policy decision burdened companies with £318m in RTI-related costs.9 With the staggered rollout of the scheme, the true sum is likely to be significantly greater. The Office for Tax Simplification predicted that RTI may well increase the amount of time a typical medium-sized enterprise would need to devote to tax compliance.10 And, unsurprisingly, the World Bank’s most recent league tables of
7 Department for Work and Pensions Press Release, 1 November 2011 (https://www.gov.uk/government/news/iain-‐duncan-‐smith-‐sets-‐out-‐next-‐steps-‐for-‐moving-‐claimants-‐onto-‐universal-‐credit). 8 Universal Credit monthly experimental official statistics to March 2015, (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/413549/universal-‐credit-‐statistics-‐to-‐march-‐2015.pdf). 9 The Cost of Compliance, FSB, July 2013 (http://www.payerti.org/news/view/rti-‐causes-‐sme-‐compliance-‐costs-‐to-‐rise). 10 Review of the competitiveness of the UK Tax administration: final report, Office of Tax Simplification: paragraph 5.7 (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/362302/competitiveness_review_final_report.pdf).
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international tax competitiveness show the UK losing ground, down two places since RTI was introduced.11
The introduction of RTI is typical of a broader trend towards increased complexity in the tax system. The Conservative-led Government, despite its supposed commitment to simplification, was responsible for the longest Finance Bill in UK history. According to the ICAEW, the UK now has the longest tax code in the world.12 Confronted with this complexity, many entrepreneurs feel obligated to spend a significant proportion of their profits on specialists to keep track of the burgeoning range of incentives, exemptions and penalties embedded in the tax system. By contrast, the Labour Party is committed to genuine simplification, empowering small businesses to take control of their own tax affairs.
The Tories gradual elimination of the cross-party consensus that less profitable companies should pay a lower rate of tax than multinational corporations also contradicts Conservative claims to be on the side of small business. Since its introduction in 1973, the small profits rate has recognised that tax compliance imposes disproportionate costs on small and medium-sized enterprises. Yet in 2013, the Chancellor announced his plan to merge the rate of corporation tax paid by small businesses with the rate that applies to the biggest companies in the country. A Labour Government will reverse this decision, ensuring that the tax system recognises the special role small businesses play in the UK economy, and the unique challenges that they face.
11 Paying Taxes 2015, PwC (http://www.pwc.com/gx/en/paying-‐taxes/pdf/pwc-‐paying-‐taxes-‐2015-‐high-‐resolution.pdf). 12 SMEs need break from “constant tweaking”, Economia, April 2013 (http://economia.icaew.com/news/april2013/government-‐needs-‐lesson-‐in-‐how-‐business-‐works).
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A fairer tax burden
The business tax system in Britain today has generally been designed with the capabilities and interests of larger companies in mind. As a result, its impact on small and medium-sized firms is often arbitrary, onerous, and unfair. The sources of unfairness include the introduction of additional fixed costs (whether directly through taxes such as business rates, or indirectly through compliance costs such as accountants’ fees); the favourable tax treatment of debt, at a time when smaller firms are struggling to obtain loans; and the fact that only companies able to invest in expensive expert advice are able to access the full range of reliefs and incentives buried in the tax system today.
Minimising fixed costs in the tax system
Business taxation in the UK imposes a range of fixed costs on businesses, which often comprise a far greater proportion of the tax and compliance burden for small and medium-sized enterprises than profits-based corporation tax. The additional costs that kick in upon reaching certain milestones in the growth of a small business, such as breaking through the VAT threshold, hiring your first employee, or renting dedicated premises, can make the difference between profit and loss. This is one of the reasons we are committed to maintaining a lower rate of corporation tax for small businesses: differential rates recognise the economies of scale available to larger corporations, and the disproportionate costs that the tax system imposes on small and medium-sized enterprises.
However, we need to do more to reduce the burden of business taxation across the board, and in particular on small and medium-sized enterprises. That is why we are committed to the reform of business rates: one of the most burdensome parts of the tax system
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confronting small businesses. The Tories’ delaying of the revaluation process has made the system less sensitive to wider economic trends. That has led to business rates comprising an ever-greater proportion of the tax burden for many small companies. The Tory-led Government tacitly recognised the unfair impact of business rates on small and medium-sized enterprises through short-term reliefs. But any tax that is so damaging and unfair to small businesses that we need to keep granting them exemptions is a tax that is in need of urgent reform. Governments should not force entrepreneurs to gamble their livelihoods on the outcome of annual political decisions.
In the last Autumn Statement before the general election, the Chancellor belatedly moved away from short-term fixes, announcing a review of the future structure of business rates to report by Budget 2016. By contrast, the Labour Party has already demonstrated that it is genuinely committed to relieving the burden of business rates, which is why we are proposing immediate action. We recognise that the current system weighs particularly heavily on small and medium-sized enterprises, which is why we have pledged to cut business rates and freeze them the following year on over 1.5 million small business properties with a rateable value of less than £50,000.
Furthermore, we recognise that this is only the first step in addressing the inequities of a system that taxes companies the same rate in both good times and bad, and which penalises businesses that are at the heart of our high streets and communities. Whereas the Government has only committed to a review of business rates in isolation13 the Labour Party has embarked upon a fiscally neutral review of business taxation as a whole, as outlined in our June 2014 policy paper on Delivering Long-term Prosperity. Only by seeing business rates as a component within the wider system of business taxation can we
13 Autumn Statement, 3 December 2014.
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understand the choices and the trade-offs that radical reforms require.
Taxing financing fairly
The financial crisis has seen a contraction in the level of lending from banks to other businesses, which has starved otherwise viable small and medium-sized enterprises of vital working capital.14 Despite Government programmes such as the Funding for Lending scheme, the Bank of England’s January 2015 data shows an ongoing decline in the net value of bank and business society loans to UK businesses.15 This has forced small businesses to rely on alternatives such as credit card debt, peer-to-peer lending and crowdfunding.
The Labour Party supports alternative finance, but we also believe that there is still more work to be done to increase access to bank lending. Our proposals for a British Investment Bank and improved regional banking will increase the funding options available to small and medium-sized enterprises. However, we also recognise that small businesses are increasingly forced back on to their own resources to finance growth – whether that involves injections of cash from friends and family, or entrepreneurs funnelling retained earnings back into their businesses. While the interest costs of bank loans and other forms of debt can be deducted from a company’s corporation tax bill, no such allowance exists for the cost of equity. This means that small
14 The Impact of the Financial Crisis on Bank Lending to SMEs: Econometric Analysis from the UK Survey of SME Finances, Department for Business Innovation and Skills, July 2012 (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/34739/12-‐949-‐impact-‐financial-‐crisis-‐on-‐bank-‐lending-‐to-‐smes.pdf). 15 Trends in Lending, Bank of England, January 2015 (http://www.bankofengland.co.uk/publications/Documents/other/monetary/trendsoctober14.pdf). See also FSB Voice of Small Business Index, Federation of Small Businesses, Quarter 4 2014 (http://www.fsb.org.uk/policy/assets/fsb-‐index-‐q4-‐2014-‐final.pdf).
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businesses unable to access other sources of finance are further disadvantaged by the tax system itself.
In 2014, we launched a consultation on the potential for introducing an Allowance for Corporate Equity. This would enable businesses to offset an annual amount, based on the amount of equity invested in the company, against their corporation tax costs. While our consultation is ongoing, we are exploring the possibility of piloting an Allowance for Corporate Equity for small and medium-sized enterprises in the first instance. This phased approach would help to level the playing field for small businesses that are currently unable to access adequate levels of debt finance, and are thus unable to obtain the associated tax benefits. Those who rely on their own retained earnings to fund ongoing operations could receive a tax deduction reflecting a normal return on that investment. Furthermore, for medium-sized businesses looking to raise funds from the equity markets, this allowance has the potential to offset some of the costs associated with an IPO, reducing barriers to expansion and growth.
Helping small and medium-sized enterprises to get what they are owed
Specialist expertise is required to navigate the complex web of interlocking reliefs, exemptions and incentives that comprise the UK business tax system. All too often, the financial benefits of the Exchequer’s tax expenditures flow to companies with the resources necessary to employ expensive accounting experts, rather than the individuals and enterprises that these funds are intended to reach. Small businesses may be unable to capitalise on these opportunities; many of them will be simply unaware they exist.
Part of the solution to this problem is tax simplification, discussed in more detail in the following section. However, it is also important from the perspective of fairness that smaller businesses which focus their
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limited resources on productive growth rather than tax efficiency are not disadvantaged. We have heard of multiple instances where innovative small businesses investing heavily in research and development have not been aware of, or equipped to claim, R&D tax credits. By the time they have the awareness and resources to make such a claim, significant amounts of previous expenditure may no longer be eligible.
The Labour Party is proud to have introduced tax credits for research and development conducted by small and medium-sized enterprises, and we want to ensure that these funds reach the many innovative small businesses operating in the British economy today. Consequently, we will launch a consultation on increasing the length of time in which small and medium-sized enterprises can claim tax credits for research and development, presently restricted to two previous accounting periods.
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A simpler tax system
The Coalition Government has burdened British businesses with the longest tax code in the world. While the Chancellor claims to be in favour of a simpler tax system, the Office of Tax Simplification that he himself established shows that he has introduced over 150 new special exemptions in the last four Finance Acts.16 The Labour Party is committed to genuine simplification, which involves abolishing unnecessary legislation, while also offering small and medium-sized enterprises the option of a simpler tax system. Instead of the relentless meddling of the recent past, we are in favour of evolutionary change that is coherent, structured, and predictable, freeing up entrepreneurs’ time and resources to focus on what matters most: the future of their businesses.
Reforming tax reliefs
The UK has the longest tax code in the world, in part because the tax system is burdened by a vast range of exemptions, loopholes and privileges for those in the know. This is a gift to tax advisers, who can extract a finder’s fee for pointing their clients in the direction of lucrative tax breaks, but it does not encourage an efficient or productive use of resources within individual businesses, or within the economy as a whole. This system unfairly privileges those companies that are able to pay for advice.
The proliferation of tax breaks in the UK tax code risks undermining the ability of taxation to influence behaviour, as the cost of mastering the system becomes ever greater. As of July 2014, the Office of Tax Simplification counted 1,140 separate tax reliefs applicable to
16 Office of Tax Simplification data, July 2014 (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/341230/ots_tax_reliefs_list_updated_july_2014.xls).
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everything from the aggregates levy to employment zones. Small businesses cannot be expected to know what parts of this legislation apply to them, and how the myriad taxes and reliefs fit together. Moreover, entrepreneurs are generally inclined to make decisions based on what their businesses need, rather than what tax breaks are available.
The National Audit Office has criticised the Tory-led Government for its failure to monitor and evaluate the uptake and effectiveness of tax reliefs.17 The result has been spiralling costs to the Exchequer without any clear social benefit in return. The Labour Party aims to simplify the tax system by cutting unnecessary reliefs, based on an open-ended consultation with business. Our objective is a tax system containing the minimal level of complexity needed for a robust regime capable of supporting investment, enterprise and innovation. To assist in this process, we will review the role of the Office of Tax Simplification, to assess whether its impact could be enhanced by transforming it into a truly independent entity, with its own dedicated staff and budget, outside the framework of the Treasury.
A tax system tailor-made for small businesses
At present, both large and small businesses are confronted by the same system of corporation tax, and the same volume of legislation to master. The relative burden of compliance is thus greater the smaller the size of the business. One option for radical reform would be to introduce a distinct system that smaller businesses could opt into, governed by more straightforward rules and procedures. This would not only reduce the wider economic cost of time and energy lost to
17 The effective management of tax reliefs, National Audit Office, November 2014 (http://www.nao.org.uk/wp-‐content/uploads/2014/11/Effective-‐management-‐of-‐tax-‐reliefs.pdf).
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unproductive activities such as tax planning and form-filling; it could also raise Exchequer revenues, by increasing the level of voluntary compliance among smaller businesses. If designed correctly, such a system would be easier and cheaper for HMRC to administer, monitor and enforce.
A simplified system could take the form of the cash basis recently introduced for unincorporated businesses below the VAT registration threshold, only with its availability extended to encompass a larger proportion of the small business population. Alternatively, a more nuanced system could be introduced that would be available to the overwhelming majority of small and medium-sized enterprises, along the lines of the enterprise tax proposed by the Federation of Small Businesses.18 Such a system would need to be self-contained and standalone, to achieve genuine simplification, and sufficiently beneficial (both in terms of compliance time and tax burden) to encourage widespread adoption. It could be integrated from the outset with online self-reporting tools, available free through the HMRC website. A well-designed enterprise tax could save the average small business over £3,500 per year in professional fees and software subscriptions.19
A Labour Government will therefore launch a consultation on the design and implementation of a simplified tax system for all small and medium-sized enterprises.
18 FSB Business Manifesto for the 2015-‐2020 Government, Federation of Small Businesses (http://www.fsb.org.uk/pressroom/assets/fsb_a4_manifesto_final_web.pdf). 19 Voice of Small Business Survey Panel, Federation of Small Businesses, September 2013 (http://www.fsb.org.uk/policy/assets/tax%20for%20website.pdf).
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Predictable tax reform
The Tory-led Government has failed to provide the certainty which businesses need, meaning that keeping up-to-date with the latest developments in tax has become a full-time job, forcing small business leaders to rely on expensive tax professionals. This Government has presided over a 10 per cent net increase in the volume of tax reliefs, and has been responsible for the longest Finance Bill on record.20 The Annual Investment Allowance (AIA) that the last Labour Government introduced was first slashed to a quarter of its original rate, only to be multiplied by ten and then doubled again within the space of 16 months – and its long-term future remains uncertain.
Not only has the development of the UK tax system under the Tory-led Government been both arbitrary and anarchic; on several occasions reforms have flatly contradicted public promises that the Chancellor has made to British business. As the Institute for Fiscal Studies diplomatically noted, “this does little for the credibility of such commitments”.21 The Carbon Price Floor, intended to bring certainty for investors in green energy, was overhauled a mere 12 months after its introduction. The Chancellor’s 2011 announcement of a fair fuel stabiliser, to address the shortfall in Exchequer revenues from the North Sea in the event of falls in the oil price, unravelled the instant it was called into action. The Chancellor could not even adhere to his own corporation tax roadmap, changing the milestones year after year.
Frequent changes of tack in fiscal policy are particularly disadvantageous to the small business community, who generally do
20 Finance Bill 2012 receives royal assent, Wolters Kluwer, August 2012 (https://www.cch.co.uk/content/finance-‐bill-‐2012-‐receives-‐royal-‐assent). 21 Autumn Statement Briefing: Introductory Remarks, Institute for Fiscal Studies, December 2014 (http://www.ifs.org.uk/uploads/publications/budgets/as2014/as2014_johnson.pdf).
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not have the in-house expertise necessary to master the additional complexity that these innovations introduce, and who lack the resources to absorb sudden changes to their tax burden. They will thus be the primary beneficiaries of Labour’s business taxation roadmap, to be drawn up in the first year of the next Parliament. Unlike the Coalition roadmap, which focused on the headline rate of corporation tax for Britain’s largest businesses, this document will set a direction for the wider business taxation system over the next Parliament, including corporation tax, capital allowances such as the AIA, and business rates.
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Better tax administration
Tax simplification is not, in and of itself, sufficient to empower entrepreneurs to navigate the tax system themselves. In the absence of information, support and assurance, small businesses will continue to resort to expensive external advisers, for fear of incurring penalties or worse as a result of accidental non-compliance. To enable business leaders to focus fully on growing and improving their companies, thereby helping to bolster growth, increase productivity, and improve the balance of trade for the British economy as a whole, they must be assisted through the compliance process. This means continuing to invest in online services, but also simplifying payment mechanisms and improving other forms of support such as the HMRC helpline. Underpinning reform of the UK’s tax administration is a clearer conception of the role of the tax authorities. HMRC must be first and foremost a partner in tax compliance.
Improving online services
The Labour Party will drive forward the ongoing programme of improvements to HMRC’s digital services, which began under the last Labour Government. With enhanced functionality, and enhanced guidance, investment in digital will save HMRC and the taxpayer both time and money. Central to this vision are easy-to-use personalised online accounts for all taxpayers – individuals and companies alike – as outlined in HMRC’s digital strategy.22 A Labour Government will champion HMRC’s reform agenda, and engage with small businesses to ensure that benefits to the sector are maximised. A single dashboard will bring together guidance as to what information needs to be submitted and when, a clear schedule showing the timing and
22 HMRC Digital Strategy: 2014 (https://www.gov.uk/government/publications/hmrc-‐digital-‐strategy-‐2014/hmrc-‐digital-‐strategy-‐2014).
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amount of upcoming payments, as well as access to videos and webinars that will help taxpayers to understand and meet their obligations across the entire range of taxes.
At the same time, it is important to ensure that adequate contingency plans are made in the event of service failures. When the HMRC website is down or its functionality restricted, the helpline becomes inundated with calls, and taxpayers risk non-compliance through no fault of their own. A Labour Government will ensure that there is a strategy in place to communicate swiftly and effectively with taxpayers in the event of service outages, and provide rapid reassurance that deadline extensions will be granted where necessary.
Consolidated and predictable payments
Many small businesses and sole traders struggle to estimate their overall tax liabilities for VAT, PAYE, and income taxes accurately. The unpredictability of tax payments has a knock-on effect on cashflow projections and business growth. Companies that set aside significantly more than they owe are missing the opportunity to invest, whereas those that underestimate their tax burden may find themselves facing liquidity problems or even bankruptcy.
Part of the solution to this problem is a simpler system of taxation that is easier for individual taxpayers to understand. However, there is also scope to improve the administration of tax to enhance the predictability of payments. A Labour Government will work with HMRC and small businesses on whether small and medium-sized enterprises could be offered the option of a fixed monthly tax payment, similar to that levied by utility companies, which would cover all their various tax obligations. As with utility bills, the level of payment due will be reviewed on a periodic basis to ensure that no individual account falls into excessive surplus or deficit, with rebates
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or top-up payments where accounts diverge significantly from the level of tax due. Subscribers to the scheme can then focus on running their businesses, with greater visibility of their month-to-month costs, confident that they are fulfilling their tax obligations.
Reassurance and support
The HMRC helpline remains one of the most important points of contact for many small and medium-sized enterprises, yet the Tory-led Government has allowed waiting times to double over the last 12 months.23 Even when callers get through, the advice they receive is sometimes unhelpful, inaccurate, out-of-date or contradictory, prompting additional calls and more wasted time. Improved training and staffing levels are important long-term measures to address these problems, but it is vital that taxpayers are provided with the reassurance they seek in the short-term as well. One possibility is the introduction of automatic confirmations after every call, whether via email or user-accessible messages on online profiles, containing an overview of both the original enquiry and HMRC’s response. By automatically offering businesses an audit trail of their interactions with the tax authorities, it may be possible to allay taxpayer concerns that additional contact is necessary, reduce the number of repeat queries, and thereby improve helpline response times for all users.
23 http://www.bbc.co.uk/news/uk-‐30650568.
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Conclusion
Small businesses are the bedrock of the UK economy, and the cornerstone of our communities. They are vital to the availability of goods, services, and employment across the country, and constitute an essential part of the UK’s innovation ecosystem. Only by unlocking their potential for growth can we deliver the sustainable prosperity necessary to lift living standards for the many, not just the few.
That is why the Labour Party is determined to do everything in its power to support the sector. We have already outlined ambitious plans for improving access to finance, tackling the problem of late payments, and addressing the skills shortage. We have commissioned Simon Franks, co-founder of Lovefilm, to review the enterprise environment in the UK, and we look forward to his recommendations for supporting entrepreneurs and fostering the growth of innovative new businesses. And we believe that the tax system itself should be more responsive to the unique circumstances and challenges facing small businesses.
Small businesses do not have the same resources or tax-planning opportunities as their larger competitors. A tax system that fails to recognise this fact is fundamentally unfair. Yet, over the last five years, the Tory-led Government has ignored these differences, subjecting small businesses to the same tax rate that applies to multinational corporations. Small and medium-sized enterprises deserve better: a simpler tax system that seeks to reduce the disproportionate burden that they presently bear. Only a Labour Government will deliver.
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Housing
Reproduced from electronic media, promoted by Iain McNicol, General Secretary, the Labour Party, on behalf of the Labour Party, both at One Brewer’s Green, London SW1H 0RH.
