The Institute of Directors is today calling on all parties to commit to updating the tax system to take account of changes including the growth of online shopping and the gig economy. In the third instalment in its Let’s Push Things Forward series of business manifesto papers, the IoD puts forward proposals including more business rate relief for high-street businesses, to stop them being treated more harshly than out-of-town warehouses, and a fairer balance of national insurance between employees, employers and the self-employed.
In the paper, titled ‘A Tax Code for an Enterprising Country’, the IoD urges all parties to commit to:
- Initiate a ‘day one’ consultation into reforming business rates. The incoming government needs to accept that the existing business rating system is not responsive to the modern economy and needs broad-based, affordable reform focussed upon smaller and medium-sized businesses. The system is wildly complex, unfair to SMEs and will need real consultation to ensure we get it right. The current Chancellor has promised a review in the next Parliament, but the next government needs to move forward as soon as possible.
- Create a level playing field for employed and self-employed individuals by reforming National Insurance Contributions. The increasingly flexible labour market means it is time to review the national insurance treatment of different business structures. The IoD believes that tax should not be the main driver in the decision on how a business is set up. In a survey conducted after the Budget U-turn on national insurance contributions, nearly 6 in 10 members of the IoD [58%]* said that employees and the self-employed should pay roughly similar levels of NI contributions.
- Raise the Annual Investment Allowance and review tax reliefs available to SMEs. The easiest step an incoming government can take to boost investment from small and medium-sized companies is to raise the Annual Investment Allowance to £1million a year. It was cut to £200,000 from 2016, but a higher level would encourage SMEs to bring forward productivity-raising capital investment. The next administration should also expand take-up of reliefs for investing in start-ups and consult on simplifying – or replacing – Corporation tax for smaller companies.
- Develop a tax planning ‘white list’ to remove confusion from the tax code. Although the IoD has supported global initiatives to combat aggressive tax abuse and avoidance, authentic tax planning arrangements should be accepted.
- Simplify the business and personal tax regimes, with a target set to reduce the complexity of the tax code by the end of the Parliament. The UK’s tax system is excessively complex and is ridden with inconsistencies, disincentives and politically driven reliefs and anomalies. The incoming government ought to address these issues and implement reforms after, where appropriate, genuine consultation with taxpayers.
- Recognise that tax competition will certainly continue and probably increase during the next Parliament. For the UK to secure more foreign direct investment and global entrepreneurs, its whole tax system must competitive, not just its corporation tax rate.
Stephen Herring, Head of Taxation at the Institute of Directors, said:
“A new Parliament offers the time and political scope to embark on much-needed reform to ensure our tax code is as competitive as it can be in the 21st century. Changes to how we work, shop and live in recent years have left the tax system looking woefully behind the times. As absolute priorities, the next Government must review the business rates and national insurance systems, two areas where advances in gig working and online shopping has moved much more rapidly than the taxman. New business models and ways of working show the UK economy is one of the most dynamic in the world, and should be celebrated, but they also throw up challenges for policy-makers.
“One of the most important acknowledgements the IoD is looking for from the next government is that we cannot continue to treat multinational businesses and small and medium-sized companies in the same way. Targeted reliefs and simplification of Corporation Tax for SMEs would really put rocket boosters under the UK’s growing companies.”
*Survey completed by 748 IoD members between 22 March and 6 April 2017A Tax Code for an Enterprising Country