2011: What has the government done for small business?

Red Tape reduction

For many business people, employment law is a specific barrier to growth because it puts them off taking on new employees. To kick off the year, the government launched a consultation on reform of the employment tribunal system. By October, the government confirmed that it would extend the qualifying period for unfair dismissal from one to two years, as well as announcing a review of the tribunal rules and procedures.

November’s sickness absence review continued this theme by proposing reforms on the rules for dismissing long-term sick workers and tax breaks for employers who help those workers return to work.

Access to finance

In reality, access to credit is probably the issue that exercises most small businesses, and there was no shortage of initiatives to do something about it, starting with the Project Merlin deal in February under which the high street banks would free up £76bn in lending for small firms. But after three months, the scheme was already falling more than 20% short of its £19bn-a-quarter target. By November, the government renewed its efforts with more finance initiatives for small businesses

Accounting simplification

In the spring, UK and European business ministers announced plans to simplify financial reporting by removing certain accounting requirements for micro companies. The plans included simplified rules for profit and loss account and balance sheet reporting for the smallest businesses. Although firms must still submit simplified balance sheets to Companies House, they will no longer need to file accounts.

Employment minister Ed Davey claimed the move would save 1.5m small British companies up to £300m a year, but the reform was not well received in the accountancy world. Steve Collings reviewed the government’s discussion paper ‘Simpler Reporting for the Smallest Businesses’ and argued that the majority of accountants were not in favour of the reforms.

Audits could also be rarer after Vince Cable announced plans to take smaller companies out of the audit regime, which, he claimed would save 42,000 small firms up to £40m per year.

Tax simplification

In March, the Office of Tax Simplification (OTS) called on the Treasury to suspend IR35 or compel HMRC to make changes to its implementation until wider structural reform. However, Chancellor George Osborne announced in the Budget 2011 the government’s plan to keep IR35 as it is but to introduce changes to HMRC administration and create a new IR35 Forum. Simon Sweetman called the retention of IR35 a bluff that was detrimental to small businesses.

“So after all these years of Tory MPs fulminating about the iniquity of IR35, what do they do when they come to power? Nothing,” he huffed.

In November, Treasury minister David Gauke promised to transform “the customer experience of the personal tax system”, but refused to countenance the merger of income tax and NICs due to the sudden emergence of the contributory principle as a barrier to merger. 

HMRC and the government dashed business hopes in yet another area that had caused concern throughout the year. Whether businesses were ready or not, the Real Time Information system for PAYE would have to be introduced in 2013 to pave the way for the new universal credit, HMRC confirmed in November. “There is no flexibility in terms of the ultimate go-live date of RTI,” it said.

Closing down a business

Perhaps it typifies 2011 that some of the most avidly read articles of the year were to do with dissolving companies. AccountingWEB contributor Jennifer Adams detailed the procedures for striking off a company in November and followed up with a guide to liquidation the following month. 

In between the two, an almighty row blew up around the different circumstances and tax treatments that applied. First, the Treasury Solicitor confused everyone by changing its advice on bona vacantia, which holds that any remaining assets after a company is struck off belong to the crown. Initially, the government lawyers' website said they would withdraw the concession under which they do not chase amounts under £4,000. In early November, the advice was changed again to confirm that they will not attempt to recover any unauthorised distributions prior to dissolution.

Then in a measure introduced alongside draft Finance Bill 2012 clauses on 6 December, the Treasury announced that HMRC's ESC C16, which allows companies to distribute capital in a struck-off business without the recipients incurring an income tax charge, will be put on a statutory basis, up to a limit of £25,000. 

The measure disappointed Andy White from CBW, who had written an analysis of the ESC C16 consultation for us in February, and tax lecturer Paul Soper, who launched a campaign against the repeal. Both of them complained that the new regime, due to take effect from 1 March 2012, will cost small business owners more by forcing them to pay for a liquidation (typical cost estimated by HMRC: £7,500) to escape income tax on any distributions above £25,000.

What are your views on the government's reforms for small businesses? How have they affected your clients and are they proving beneficial?