In Budget submission, IoD urges ‘level playing-field’ for self-employed and the digital economy
A new Tax Commission is needed to keep the tax system up to date with changes to the economy including the growth of self-employment and the so-called ‘platform economy’, the Institute of Directors has told the Chancellor.
Reporting next year, the government-backed investigation would look into how the tax applied to the self-employed could be brought in line with employees, and how online stores could be taxed fairly in relation to high street shops. Last November, the Prime Minister launched a review of modern employment practices, but the IoD believes that a broader study of the implications of changing business models on tax is required.
The need for a new Commission has been brought into focus by the outcry over the revaluation of business rates, which will see many shop and pubs landed with large increases in their tax bills this year. It is an anomaly in the system that online businesses can operate large warehouses and pay less in rates than businesses with small premises in the middle of town. In the short term, the IoD is calling for small businesses in properties worth up to £100,000 to be granted further reliefs from business rates.
In its Budget Submission, the IoD also calls on the Government to:
- Increase the Annual Investment Allowance (AIA) cap to £1million, to boost investment by small and medium-sized businesses. The only cost to the Treasury is timing, as it would largely just bring forward the tax relief.
- Reiterate the manifesto pledge for the UK to have the lowest Corporation Tax rate in the G7. The tax on company profits is set to fall to 17% by 2020, but if President Trump keeps his promise to cut US corporation tax to 15%, the UK should follow-suit.
- Create a ‘white-list’ for tax-planning that the Government thinks is acceptable, to separate it from aggressive evasion, so that companies have certainty that authentic tax planning remains acceptable to HMRC.
- Consult on creating a simpler tax system for small businesses, with a fixed rate for company owners to pay themselves, rather than the different rates of income tax, national insurance, corporation tax and dividend tax.
- Consult on liberalising investment schemes for start-ups. The criteria for the Enterprise Investment Scheme, Seed Enterprise Investment Scheme and Venture Capital Trusts are too restrictive, and make it unnecessarily complex for entrepreneurs seeking equity funding.
Stephen Martin, Director General of the Institute of Directors, said:
“There is a risk that Brexit distracts attention from the pressing need to make sure the UK economy is fit for the future. The Chancellor must take the chance at his final Spring Budget to re-energise the UK business community, whose confidence has fluctuated since the vote to leave the European Union.
“In the short-term, the Government must take action to relieve some of the pressure on the small businesses facing hikes in business rates, and encourage companies to bring forward productivity-boosting investment. But we should also look to the future, launching a new Tax Commission to look at what the growth of self-employment and online business mean for the tax system. The goal must be a much more level playing-field, which treats both high-street and online businesses fairly, and adapts to the growth of the ‘platform economy’, which is leading to an increase in flexible work.”