ICAEW urges Chancellor to use Budget to encourage business investment

 

In a letter to the Chancellor ahead of this month’s Budget, ICAEW has asked for incentives that will encourage businesses to invest as a means to helping drive economic growth.  ICAEW’s recommendations are also intended to help rebuild business confidence, essential to sustaining and accelerating the UK’s recovery from a year of slow growth.

Last month’s ICAEW/Grant Thornton Business Confidence Monitor showed that businesses expect capital investment to grow by just 0.9% over the next 12 months. Additional ICAEW research also shows that 64% of companies are holding on to cash and that 30% of businesses with no current cash surplus intend to create one this year. This suggests a caution amongst businesses, worrying for government when attracting new investment is so critical.

ICAEW is urging the Chancellor to abandon plans to reduce the Annual Investment Allowance (AIA) from 100k to 25k when real business investment has only grown by 1.1% in the last year, compared with the Office of Budget Responsibility’s forecast of over 8%.

Michael Izza, ICAEW chief executive, said: “At a time when businesses should be investing some of their reserves in their economic future, Government is cutting back on the allowances which encourage them to do so. That’s why we think the Chancellor should retain the Annual Investment Allowance and send a signal to businesses that they can feel a bit more confident about the economic outlook.

ICAEW is also calling on government to take additional steps that will accelerate improvements in the levels of service that businesses receive from HMRC. As one of the primary points of interface between business and the state, HMRC continues to struggle and is affecting businesses’ ability to ‘get on with the job’. Simple measures such as more use of email and quicker responses to postal queries could make a significant difference.

Michael Izza added: “Every extra hour that a small business spends dealing with HMRC is an hour that could be invested in growth. Poor levels of service at HMRC create a burden on businesses of all sizes, especially SMEs. Even HMRC has admitted that it does not have enough people with the right skills in the right place. Government must ensure that it gives HMRC the resources it needs to collect tax and support business.”

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John Stokdyk's picture

Similar messages from the FPB

John Stokdyk | | Permalink

 

Forum of Private Business research from its tax and budget member panel shows a strong desire for tax reform. While 54% of business owners feel the current deficit reduction programme is ‘about right’, 44% called for wholesale changes to the structure of the UK’s tax system, 24% want certain tax breaks removed to simplify the system and 15% would welcome a moratorium on tax changes.

In all, 53% of respondents believe HMRC is doing a poor job in supporting them. Further, 52% feel its tone of communication is poor, 45% that it is doing a poor job over targeting tax avoidance schemes, 33% criticised its lack of definitive answers to tax questions and 32% the lack of clarity in its communications.

A third (32%) of tax and budget panel members believe that HMRC could improve service levels via more easily understandable communication methods, reducing bureaucracy in the process, a total of 29% said better support at key steps in the business lifecycle would help them and 23% wanted reminders about imminent payment deadlines.

Looking to the Budget, business owners prioritised reducing fuel taxes to ease costs, a VAT reduction for labour-intensive industries and removing barriers to employment, such as cutting employers’ National Insurance. They also want less emphasis on measures devoted to short-term revenue-raising – including many of HMRC’s activities and business rates increases – and more business investment to stimulate demand, and more done to reform red tape.

“In particular, our members want a level playing field on tax, and the UK’s tax system to be conducive to business growth and success rather than a hurdle that is a struggle to overcome,” said the Forum’s Chief Executive, Phil Orford.

“It is also time to see genuine tax incentives to boost employment and investment in small businesses – including more encouragement for private lenders to compete with banks and stimulate funding for all firms.”

The Forum is calling for tax measures that will help small firms drive job creation and economic growth - including:

  • changing the existing £5,000 National Insurance holiday for the first ten employees recruited by start-ups to apply to the first two new staff taken on by all firms
  • tax breaks for private lenders to boost available finance
  • 20% income tax relief on loans (a loan of £100,000 would cost a lender paying top rate of tax £80,000); with additional tax relief if a business fails before the loan is repaid – the lender could claw back up to 50% income tax relief (at the top rate) on money lost if the firm fails, in addition to tax saved when the loan was issued.
  • a short term cut in VAT in the housing sector to stimulate construction; the government could also cut VAT on home improvements.  

To "reward business success", the FPB wants:

  • small firm corporation tax rate cuts similar levels to the reductions in the main rate to reward successful small businesses
  • scrap the 50% income tax rate, balanced by raising the minimum earnings threshold for paying tax to £10,000.

Several FPB proposals address the issues raised in its research about HMRC:

  • review the Business Records Check scheme given the burden it puts on small businesses
  • implement a review of fines for late payment of PAYE amid concerns that the policy of accumulated fines was not adequately promoted to small businesses either before or during the last tax year;
  • work with business groups to improve HMRC’s methods and address the perception that small firms are being seen as ‘easy targets’ for revenue-raising at the expense of longer-term economic sustainability
  • with Real Time Information and mandatory online VAT filing on the horizon, the Government should undertake a stock check of business capability for handling new online services. A simple, easy-to-use regime should be in place, coupled with proportionate and lenient HMRC monitoring of the schemes in their early years
  • encourage innovation by introducing R&D tax credits as well as a Patent Box. The measures announced in the 2011 Budget to extend the rate of relief for small and medium-sized enterprises (SMEs) were particularly welcome. This move, plus the decision to remove the NIC/PAYE cap and the current minimum spend amount of £10,000, will further encourage SMEs to innovate, particularly start-up firms.
  • create a tax system which is simple enough for small businesses to understand. In order to achieve this, the tax system must be reviewed, and, as a medium- to long-term goal, completely overhauled. This would include a government commitment to merge National Insurance and PAYE.

 

robertlovell's picture

ICAS calls for cash Budget

robertlovell | | Permalink

 

ICAS, the professional body of CAs (Chartered Accountants), is urging the Chancellor to focus on Budget measures that will quickly put cash into household’s pockets and strengthen business’ confidence.

 

According to ICAS there are prescriptions which would help the economy now, without needing a new regime or taking a couple of years to filter through.

 

These include introducing targeted reductions in national insurance contributions (NIC) for 16-25 year olds to help tackle the record levels of youth unemployment; by making it cheaper for employers to hire younger employees.

 

The personal allowance increase to £10,000 would be a welcome measure to keep money in household pockets instead of the tax pockets.

 

“A prompt promise to raise the threshold to £10,000 would help those on lower incomes and the squeezed middle”, said Derek Allen, tax director at ICAS.  “This would require a balancing act at a time when the Government is trying to reduce the deficit.  However, it makes more administrative sense than currently taxing at a lower level and then having to give back in tax credits.”

 

The Institute urges the Chancellor to resist cutting the annual allowance for tax-free pensions from £50,000.  Allen said:  “Saving for the future needs to be encouraged.  You could question if any revenue raised would be enough to counter act the damage it would do to confidence and the public who are already struggling to put aside money for the future.  Any tinkering in this area would create further uncertainty.”

 

Allen continued:  “The Chancellor needs to keep it simple, keep it cash and keep it soon.  People are increasingly worried about what's happening to employment, the economy and the deficit, as well as their own living standards.  Whilst sticking to its’ long-term vision, the Government has the opportunity to ease the strain now with a few simple measures.”

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