Institute of Directors calls for tax overhaul to help startups soar
Complications in the tax system are a blocker for startup firms to take on more staff and pitch bigger contracts, a new report has found.
Research from the Institute for Directors (IoD), Prelude Group and Grant Thornton calls for an overhaul of the system to make it simpler, including recommendations to merge income tax and national insurance, raise the small business rate relief cut off point and allow companies to pay corporation tax annually rather than quarterly.
It urges the government to increase awareness of tax relief, cut red tape by simplifying the system for paying taxes and introduce greater flexibility for startups during periods of growth.
Often problems with tax for small businesses are connected to timing or administration, rather than the tax bill itself, the report said.
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Almost half of the businesses reported spending one to five days a year sorting out the taxation of their business, and almost one in three wanted more advice on qualifying for tax relief and tax planning.
One in seven of the UK workforce is self-employed, and are required to submit their own taxes to HMRC on a regular basis.
In 2015, over 600,000 businesses were set up, but the number that are successfully growing and scaling is still relatively small.
Stephen Herring, head of taxation at the IoD, said more needed to be done to help create a tax system that works for all companies.
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“Government should focus on creating simple and fair taxes that boost innovation and business creation,” he said. “There is no such thing as a perfect system, but in this report we put forward measures which will help a wide variety of entrepreneurial businesses become job-creating machines, increasing economic growth and revenues for the Treasury.”
Jonathan Riley, head of tax at Grant Thornton UK, said the tax regime was a central component in a vibrant economy, and would become crucial for the UK post-Brexit.
"An effective and efficient system which makes it easier to pay – and collect – the appropriate levels of tax from companies of all sizes would free up resources to enable growth across the economy,” he said. “This is even more important for entrepreneurial start-ups now, as we start to redesign our economy for a post-EU world."