Surely no-one can dispute that small businesses are vital for the economy:

  • In 2013, there were 4.9 million businesses in the UK, over 99% of which were small and medium enterprises.
  • Small and medium enterprises employed 14,424,000 people in the UK in 2013.
  • The European Commission’s SME Performance Review estimates the Gross Value Added of SMEs as €473 billion or 49.8% of the UK economy.

Given all these statistics, why does it seem like running one is getting harder?

Survival rates for small businesses are lower than before the financial crash according to a recent survey by British commercial insurer RSA.

The survey looked at barriers to growth in the UK and according to the report, the biggest growth barrier is the UK tax system, with 44% of SMEs citing it as their main concern. This was followed by too much red tape at 36%.

Complicated Tax System

There is no denying that the tax system in the UK is complex. The main issue with the system is that it has been built, much like a cake, in layers over the years. There has never been any grassroots reform of the UK tax system, so each year a new layer of rules and legislation adds to the complexity.

The tax system is also affected by the nature of UK politics, each government using the tax system to implement policy and this further complicates matters.

A real world example is the Auto Enrollment Pension changes being imposed on small businesses right now. Everyone knows that we need to provide for our pensions and that we are facing a time bomb as the population grows older but is the solution really another tax?

Instead of having a new deduction to add to the burden why didn’t the government simply add a few percentage points to National Insurance (Employees and Employers)? This would have been the simple approach but I suggest it might not have been the best political solution for a government that promises “low tax”.

So instead we have another layer of complexity to deal with.

Another major issue is that HMRC are now effectively in control of large parts of the benefits system, when did that happen? Why should the Tax Department get involved in dishing out benefits?

The Office of Tax Simplification (OTS) is tasked with helping the government to simplify tax. But this year alone the chancellor has piled on complexity with the advent of the new dividend tax and the rental property interest adjustments.

Don’t worry though, if you are finding taxes too complicated you can always call HMRC?

Well no actually you can’t. Of the calls attempted to be made in QE 31st March 2015, only 68.3% were answered – this has been steadily dropping each quarter for the last 6 quarters. So as the tax rules get more complicated, getting help becomes harder.

Too much red tape

If you asked someone in government, they would tell you that they are working hard to reduce the burden of red tape for business. This is not the feedback I get from clients!

Here are some of the measures being put in place to supposedly reduce the burden.

  • Building and planning regulations: increased regulation for compulsory consultations between wind farm developers and communities and the introduction of the most up-to-date Radon mapping. There are measures to make the planning appeals process faster and measures to ensure the smoother installation of 4G networks for providers.
  • Employment tribunals: simplification of procedures to make tribunals more efficient, flexible and proportionate for small businesses. This includes making settlements easier and the introduction of a salary-based compensation cap.
  • Health and safety: simplified reporting processes for injuries and removal of employers’ strict liability for employee injuries.
  • Vehicle regulations: simplification of requirements regarding vehicle ownership, insurance checks and removal of annual statutory off road notifications.
  • Environmental regulations: simplifying requirements to make them easier to understand and rationalising information requests for regulators. Estimated to save businesses more than £1 billion over 10 years.

Despite the reduction in regulations as claimed by the Government, the Forum of Private Business (FPB) revealed that SMEs are spending substantially more on compliance costs compared with two years ago.

Of course these steps are welcome but in reality how many of these reduce your day to day burden.

We argue that small businesses need more help and a more favourable trading environment. Things such as more exemptions from employment law, a lower corporation tax, a higher VAT threshold, a reduction in employment taxes, exemption from business rates are all things which we believe would support the backbone of our economy.