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Prioritise tax cuts for entrepreneurs and small businesses in Budget, urges IoD

16 Mar 2015

The Chancellor must take steps to boost entrepreneurialism and support SMEs in the Budget, the Institute of Directors has urged today (15 March).

Low inflation and signs that tax receipts are picking up have given George Osborne some room for manoeuvre in the final Budget of this Parliament, and business leaders have singled out a cut in the employers’ rate of national insurance as their top priority. Currently, employers pay national insurance contributions at a rate of 13.8 per cent on an employee’s earnings above £153 a week.

In a new survey of over 1,000 IoD members, employers’ NI was singled out as the most popular target for a business tax cut, with nearly two-fifths (38%) choosing it over other options. 

Stephen Herring, Head of Taxation at the Institute of Directors said:

“As the economy recovers, the private sector is hiring at a record pace and real terms pay rises are finally around the corner. But many businesses are still concerned by the high taxes on employment. A cut to national insurance would send a clear message that the Coalition supports business and is committed to backing those who create jobs and deliver pay rises.”

In the IoD’s survey, a further 17 per cent of businesses said a cut in corporation tax should be Osborne’s first priority, and eight per cent called on him to freeze business rates.

In total, nearly two-thirds (63%) of IoD members wanted Osborne to take action to ease the tax burden for businesses, while 30 per cent called for an increase in spending on infrastructure.

Business leaders also want to see action on personal taxes, with 61 per cent pressing the Chancellor to raise income tax thresholds or reduce the headline rates. More than a quarter (28%) of IoD members prioritised an increase to the higher rate tax threshold (i.e. the basic rate tax band). Reductions in the basic rate of income tax and a new flat rate of inheritance tax were also popular proposals with business.

Full survey results are below.

The IoD is also calling for:

A dynamic ‘triple lock’ system to be introduced which would see income tax thresholds rise automatically each year by the highest of prices, earnings or 2.5 per cent, as happens with the state pension. After accounting for the planned increases to the personal allowance, such a policy would only cost the Treasury £12.50 for each higher rate taxpayer in 2015/16. Stephen Herring:

“The beauty of the triple lock proposal is it will cost next to nothing this year, but will protect earners from stealth tax rises in the future. While the Conservatives have outlined proposals to raise the personal allowance and higher rate tax threshold by the end of the next parliament, we would like to see these proposals guaranteed in law.”

Deferral of the Diverted Profits Tax (‘Google Tax’) until a much more in-depth and comprehensive consultation has been launched, in line with the Coalition Government’s own guidelines for tax reform outlined in the ‘Corporate Tax Roadmap’. Stephen Herring:

“Proposals for a Diverted Profits Tax are a major new addition to the UK tax code and could affect every business which has operations in more than one country. The proposed tax is extremely complex and rushing it through Parliament without an adequate period for consultation to please tub-thumping, anti-business campaigners is severely misguided. Abusive tax avoidance must be stamped out, but acting hastily and without sufficient consultation is a recipe for disaster.”

An increase in the Annual Investment Allowance to £1m and a pledge to fix it at that level for the next parliament. The AIA currently stands at £500,000 for this year, but is set to revert to £25,000 at the end of 2015. Giving businesses certainty that the allowance will remain at £1m for the next five years will give more medium-sized companies the confidence to invest. Stephen Herring:

“The Coalition should be applauded for increasing the rate of AIA substantially in this parliament, but with the economy recovering, the Chancellor should be using the allowance to target steady investment and growth by fixing the allowance at a higher level.”

Survey results

In a survey conducted between 27 January and 12 February 2015, 1,186 IoD members were asked:

Assuming there is scope for modest fiscal relaxation in the Chancellor’s pre-election Budget on 18 March 2015, which one of these do you think he should prioritise?

Freezing business rates paid on all commercial properties

8%

Further reducing the proposed 20% rate of corporation tax

17%

Reducing employers’ national insurance contributions

38%

Reducing the stamp duty paid on share acquisitions

1%

Reducing the stamp duty / land tax paid on commercial property acquisitions

1%

Increasing public spending on infrastructure projects

30%

None of the above

6%

Assuming there is scope for modest tax reductions aimed at personal taxation in the March 2015 Budget, which one of these would you recommend to the Chancellor?

“Triple-locking” the tax bands each year to the highest of the consumer price index, earnings growth or 2.5%

7%

A 0.5% reduction in the basic rate of income tax or employee national insurance contributions

15%

A 1% reduction in the higher rate of income tax from 40% to 39%

8%

A reduction in the additional rate of income tax from 45% to 42.5%

4%

An increase in the basic rate tax band (i.e. the higher rate tax threshold) of £2,000

28%

Introduction of a flat rate of capital gains tax at 15%

5%

Introduction of a flat rate of inheritance tax at 15%

11%

More rapid consolidation of the national debt

17%

None of the above

4%



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