Small & medium businesses are bearing the brunt of the tax burden

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Prem Sikka, director of the Association for Accountancy & Business Affairs (AABA), a not-for-profit organisation, discusses the problem of small businesses bearing the brunt of the tax burden. He outlines the UK tax regime (summary):

Historically, a company with annual taxable profits of up to £300,000 is considered to be small and pays tax at the small company rate. A company with profits of £1.5m or above pays tax at the main rate. And those with profits between between £300,000 and £1.5m are liable to pay the main rate but can obtain marginal relief, with the result that tax in the band is tapered.

In 2010, when the coalition government came to office, the main corporation tax rate was 28% and small companies were taxed at 21%. But in March 2015, the government announced it was aligning the two rates and as of April 1 2015 the rate has been 20% for all companies. The reduction in the headline tax rate for large companies has therefore been much bigger than the tiny cut for small companies.

Professor Sikka explains that large companies have other ways of securing tax advantages: “Parliamentary hearings have shown that large companies are adept at creating complex corporate structures to shift their profits through transfer pricing, royalty programmes, intra-group interest payments and management fees to low or no tax jurisdictions. They have the resources to hire large accountancy firms to craft novel tax avoidance schemes to reduce their effective tax rate. They can also second staff to HM Treasury working parties to influence tax legislation and secure favourable concessions . . . Small companies do not share this luxury. Their ability to avoid taxes is low and their effective tax rates are likely to be high”.

Sikka reflects that today’s small companies are tomorrow’s business giants. The conventional political wisdom is that they should be nurtured and supported, but instead their effective tax burden has increased. Labour may be able to help small companies by reducing their business rates, but that would not amount to a reform of business taxation in its various guises.

He ends by noting that no political party has put forward a coherent set of policies to address these injustices and adds that the difference in power between large and small companies cannot be addressed by piecemeal measures, ad hoc tax cuts or business rate subsidies.

Read the full article here:


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