An overhaul of “the complex patchwork” of tax charges and reliefs, that may impact upon businesses at various stages of the business lifecycle, is urgently required to inspire growth among small and medium-sized enterprises (SMEs), the Office of Tax Simplification (OTS) has said.
In a report, published midway through April, the OTS examined business taxes, charges and reliefs and identified as many as 32 areas where it believes that simplification or streamlining ought to be considered.
12 of these were highlighted as priorities for immediate consideration including, amongst others, the Entrepreneur’s Relief (ER) scheme.
The OTS reasoned that the scheme was ‘disincentivising’ some founder shareholders from bringing in external venture capital by requiring shareholders to hold a minimum of five per cent of a company’s share capital to be eligible for the relief.
Its report also criticised the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS). It said that these, along with the Venture Capital Trust (VCT) scheme, were not necessarily aligned with the capital needs of future businesses and that ‘complexities’ built into the legislation governing them often instigated confusion.
The OTS added that, while those who invest in start-up businesses through such schemes can benefit from several tax reliefs, these schemes do not currently provide any reliefs for the actual founders of the emerging businesses involved – something which the OTS said must be examined.
In addition, the report recommended that a ‘one-stop shop’ registration and filing facility be introduced for small incorporated businesses. Under existing rules, such businesses need to register separately with HM Revenue & Customs (HMRC) and with Companies House.
Paul Morton, Tax Director at the OTS, described the report as “a significant first step towards meeting the pressing need to undertake a detailed review of the tax system as it operates across the business lifecycle”.
He added that the paper was “aimed at helping the businesses that are the lifeblood of the UK economy to maximise their opportunities” by making Britain’s business tax system clearer and more “simple to understand and use”.
Richard Dilley, Partner at George Hay, said: “No matter what stage of development a business is at – whether just starting out or otherwise making plans to sell up – tax charges and reliefs are a key consideration.”
“The complexities business owners face as they strive to expand and grow can too often be a barrier to them really fulfilling their true potential, as quickly as they might like.”
“Any ‘overhaul’ should be carried out with the intention of eliminating these barriers wherever possible and making the UK tax system easy to use and accessible for everyone.”
The report in full can be accessed here.
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