LORD SAATCHI’s suggestion that corporation tax and capital gains tax should be abandoned for SMEs would have to be compensated for elsewhere, according to Grant Thornton national head of tax Jonathan Riley.
Last week, Saatchi said he expects such a policy to cost the public purse £10.5bn in lower tax receipts, but the capital SMEs retain as a result would allow them to compete more effectively with larger businesses, he argued.
Speaking to Financial Director following the publication of a report from GT and the CBI that slams the “raw deal” mid-sized companies receive from the tax system, Riley said Saatchi’s proposal would have to be offset elsewhere.
Nevertheless, he agreed some mid-sized companies should be removed from regimes such as transfer pricing and R&D. “They don’t have the help available to small businesses, or the voice of larger ones. They’re literally caught in the middle,” Riley said.
GT and the CBI also call on the government to raise the threshold for the quarterly instalment payments system from £1.5m to £5m. Under the current tax system, when a business’ annual taxable profits reach £1.5m it has to pay tax up front on a quarterly basis instead of annually.
Many mid-sized businesses are caught by these rules even though they do not have the cash reserves to manage them, diverting their finances away from investment.
Mike Younger, finance director of Ian Macleod Distillers, a mid-sized business producing Scotch whiskey, said the system was punishing companies that “had the temerity to grow”.
“It brings forward your tax liability by a significant amount. That is cash that might be needed to invest in stock,” Younger told Financial Director.
The report suggests that HMRC provide a designated named HMRC official to the largest medium-sized businesses, on a demand basis, as soon as possible and in the meantime improve digital communications through emails and live chats.
“Medium-sized firms are not able to benefit from the incentives that small firms do and at the same time most cannot afford to have an army of tax consultants on speed dial to help them wade through the complexities of the system,” said John Cridland, director-general of the CBI.
GT and the CBI also said they would like a “roadmap” to reduce the tax burden of National Insurance contributions.
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