Think Tank Calls for Single Consolidated Tax on SMEs
The Centre for Policy Studies has proposed a new simple consolidated tax (SCT) to replace the four main taxes currently paid by small and medium sized firms.
The radical proposal would see corporation tax, employer’s national insurance, VAT and business rates consolidated into one tax paid by firms turning over less than £1 million.
Small businesses are the heartbeat of Britain’s economy. Some 5.6 million small firms employ around 13 million people and generate three-quarters of all new jobs.
In a new , the Centre for Policy Studies says that the small business-friendly tax should be applied on a voluntary basis, so firms would not lose out if they think they would be better off under the old system.
It would be a straightforward tax on company turnover, paid annually and automatically, with the option for company owners to space out payments throughout the year.
The right wing think tank also said that the tax should be paid on a cash basis, once income has actually been received by the company.
It is modelled on the existing Flat Rate VAT Scheme, where companies pay a percentage of their turnover instead of going through the arduous VAT procedure. But the new tax goes further, covering all four taxes and applying to more firms.
Analysis from the Centre for Policy Studies indicates that 72% of small businesses would prefer the simple consolidated tax to the current system. One in four businesses even said that they would prefer the new system if it meant they paid more tax overall, because of the reduced admin burden.
In a , Centre for Policy Studies Senior Researcher James Heywood said: “People sitting in Whitehall often end up putting together rules which look clever on paper but are impenetrable for the ordinary people who have to traverse them in their daily lives.
“In pursuing the perfect system, which has rules in place to cover every scenario, you can end up with a terrible one.”
An economic consultancy commissioned to look more closely at the numbers suggested that a rate of 12.5% would make the scheme broadly revenue neutral for the Treasury.
Miles Grady, Director of Cloud Accountant said: “Small businesses need all the help that they can get in a system that isn’t designed to meet their needs first. If it is applied correctly, small businesses won’t contribute any less to the tax system, but they will have more free time and mental bandwidth to help grow their businesses.”
Cloud Accountant provides software solutions and accountancy support to make financial administration easier for small firms. Speak to a member of the team to learn more about our products and services. Call: 0808 281 0303.