TaxMar 2 2020

Business leaders back tax hike in exchange for simplicity

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Business leaders back tax hike in exchange for simplicity

The government is being urged to simplify the UK's tax system as business leaders across the country back a rise in taxes in exchange for a less complex system. 

New chancellor Rishi Sunak is set to make his Budget debut next week, facing calls from across the industry for changes to pension taxes and the contentious topic of IR35 rules. 

But in research published today (March 2) business leaders voted in favour of a rise in taxes, on the condition a hike would lead to a simpler tax system. 

Accountancy and tax firm BDO surveyed more than 671 business leaders in February, with 66 per cent of respondents indicating they would accept a rise in taxes in exchange for a simplification programme. 

The pre-Budget poll found one in four of those in favour of a rise would not introduce a cap on the tax increase and 41 per cent would accept an increase in taxes of no more than 3 per cent.

Only 12 per cent of respondents claimed they did not find UK tax complex, leading BDO to urge the government to "prioritise" simplifying the system. 

For many SMEs, swapping complexity for a slightly higher tax bill would be a welcome trade-off...George Bull

Paul Falvey, tax partner at BDO, said the survey showed many businesses would accept a tax increase in exchange for "clarity and a clear movement" towards simplicity.

Mr Falvey said: "It is promising that businesses are looking to the future and appear to support our view that tax simplification is needed to help organisations tackle the challenging landscape.

"The UK tax system has its roots in the 19th century and has grown by adding taxes, reliefs and complex rules. Now is the time for the government to make business easier by simplifying tax.

"It requires progressive steps to be taken and an end to back-door tax increases engineered by changing the rules for tax reliefs and allowances."

George Bull, senior tax partner at RSM UK, said SMEs were the "backbone of the British economy" and any move to simplify the tax system in their favour would be welcome. 

Mr Bull said: "Most of them are straightforward businesses but they have to pay tax according to a set of rules designed with the largest corporations in mind.

"This additional red tape ties businesses up in extra record-keeping and higher professional costs. For many SMEs, swapping complexity for a slightly higher tax bill would be a welcome trade-off."

Yesterday (March 1) FTAdviser's sister paper the Financial Times reported the Chancellor planned to scrap entrepreneurs' tax relief in a bid to redirect funds towards public services. 

The proposal to ban the relief also featured in Labour's general election manifesto last year, and was met with criticism at the time amid warnings it could lead to a "less business-friendly" landscape. Labour intended to replace it with targeted grants.

Entrepreneurs’ relief currently entitles sellers who founded their company to pay 10 per cent tax on capital gains, as opposed to 20 per cent.

Mr Bull said: "While this tax relief is widely criticised for being expensive and badly targeted, the policy objective of encouraging entrepreneurial business owners remains entirely valid.

"It would be a big mistake to completely abolish the relief or to make instant changes effective from Budget day.

"If major change is required, then the Chancellor should conduct a careful consultation to determine how the tax system can be used to encourage successful entrepreneurial businesses."

rachel.mortimer@ft.com

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