In its submission to the Chancellor of the Exchequer in advance of the 2016 Spring Budget Statement,  the Federation of Small Businesses (FSB) has called on the Government to strengthen small business confidence by clearly and consistently backing enterprise. The FSB’s recent quarterly survey shows small business confidence is cooling in the face of deteriorating global economic headwinds and domestic policy decisions which are coming into force.
Our members are being tested by a series of significant challenges which will drive up costs and increase burdens over the coming months. These include the introduction of the National Living Wage in April, pension auto-enrolment and changes to the tax treatment of dividends. On top of these, small firms still face an unreformed business rates system and the prospect of compulsory quarterly digital tax reporting.
Three weeks ago, the Chancellor spoke to FSB members at our Policy Conference stating he would back small business. FSB calls on the Chancellor to use his Budget to do just that – to boost business confidence, to deliver fundamental reform of business rates and to simplify the tax system.
Mike Cherry, Policy Director for the Federation of Small Businesses, said:
“In the face of a number of emerging global and domestic pressures, small businesses are looking to the Chancellor to back them through what are set to be challenging times ahead. Many are struggling to get to grips with the cumulative impact of a series of new tax and regulatory changes that are due to hit their business.
“In this climate, it’s crucial that the Chancellor uses the Budget to reassure small firms and boost their confidence so that they invest, create jobs and drive economic growth. This means no new major challenges that drive up costs and burdens. In addition, Mr Osborne must deliver on his promises to overhaul the business rates regime and simplify the tax system.”
Business rate reform
FSB has led the debate for fundamental reform of the non domestic rates (NDR) system. In our Autumn 2015 Statement submission  we provided a range of suggested options for reform. The Chancellor is set to report back on the Government’s structural review of business rates at Budget 2016. While we broadly welcome existing plans to devolve business rates receipts to local authorities, this cannot be a substitute for far reaching reform to an outdated system. Our members are looking for tangible and fundamental changes to business rates as a whole - to deliver a system that secures business contributions to local government finance that are fair, flexible, transparent and efficiently administered.
Mike Cherry continued: “Ahead of the 2015 General Election, the Prime Minister and Chancellor both made unequivocal commitments to FSB members that they would make significant and fundamental changes to the business rates system. The current system is not fit for purpose, is unresponsive to economic circumstances, and is viewed as deeply unfair by the business community. While the Chancellor pushes ahead with plans to decentralise business rates, it’s absolutely vital the opportunity to introduce a fair nationwide system is not lost.”
FSB has put forward a recommendation which would see businesses occupying low value hereditaments with an assessed value of less than £12,000 being removed from the rating system entirely. This would free up the appeals system from high numbers of low value claims, helping to support cash-strapped local authorities.
In addition FSB has suggested the following measures:
- For those business premises which remain in the NDR system, we recommend more frequent valuations and a fixed national multiplier . This should allow for a more rapid response to changes in economic conditions.
- The current proposals for reform of business rates appeals will increase the burden on small firms. Fundamentally, ratepayers should know how their rateable value is calculated before lodging an appeal.
- Removing the disincentive to invest in new or improved business premises, which is a major design flaw with the current system. The Government must address this if it wants small and growing businesses to play their part in boosting productivity.
- An alternative option to removing the lowest value hereditaments would involve radically improving the operation of small business rate relief (SBRR). We suggest replacing SBRR with a small firms’ property allowance which would work in a similar way to the personal allowance for income tax and be available to firms with multiple properties.
FSB keenly awaits the findings from the Office for Tax Simplification (OTS) review of small company taxation. We support this work and have ourselves commissioned EY  to deliver a series of ambitious options for policymakers. Each would result in a far simpler, more user-friendly and ‘tax-payer centric’ system than at present. Together they draw on the insight that if designed optimally, will reduce costs to businesses and Government. One option we propose is to create a simplified small business tax regime centred on a single tax payment. This would provide a proxy of a business’s overall tax liability, essentially combining many taxes into one and therefore removing the complexity of applying a number of different taxes, as is the case under the current system.
Mike Cherry continued: “Simplifying business taxation must now be a major priority for policymakers and we call on the Government to take a bold approach. The current tax system for small businesses remains overly complex, bureaucratic and hard for businesses to navigate. Many feel either forced to pay for expensive tax advice or run the risk of failing to comply. Tax administration is often cited by our members as a major burden on their businesses and acts as an unnecessary brake on economic growth and job creation.”
In order for the Government to succeed with its “Making Tax Digital” agenda, tax data must be accurate and businesses need to be confident they have provided the right information online. This must go hand-in-hand with a simplified system in order for digital reform to achieve its aim of lowering costs for taxpayers and businesses. Streamlining the system will achieve the Government’s aims of saving tax costs, increasing receipts and reducing errors.
Supporting growing businesses and new entrepreneurs
FSB believes small businesses can play a key role in helping to address the UK’s weak underlying productivity performance. In turn, this requires Government to address historic underinvestment in our roads, rail and energy infrastructure. It must also deliver on its pledge to provide high-quality broadband connectivity with a minimum Universal Service Obligation (USO) of 10Mbps to businesses of all sizes by 2020, with small businesses as a specific element of this commitment.
In order to help small firms realise their full potential for growth and tap into new markets, the Government must provide support that is easy to find, access and navigate. Given the Government’s decision to refocus UKTI’s role and make exports a priority across key departments, we now urge Ministers to embed the need to support small businesses and first time exporters in their respective plans. We are pleased to see the UKTI’s digital offering being updated but emphasise the need for all digital support to be effectively marketed and robustly monitored.
On supporting new entrepreneurs, we have welcomed the recently published independent review of self-employment in the UK and encourage the Government to take on board its recommendations. In particular, FSB is keen to see improvement to maternity pay and access to more flexible finance solutions such as mortgages and pensions for the self-employed.
Mike Cherry concluded: “FSB supports the Chancellor’s efforts to repair the public finances. But this must go hand-in-hand with a policy environment that facilitates and rewards wealth creation. Our members are seeking reassurance that no additional tax burdens are introduced and that the Government continues its push on deregulation, in order to reduce the cost of doing business.”