Informi is brought to you by AAT, the world’s leading professional body for accounting technicians. Through our Public Affairs & Public Policy team we campaign on a range of issues on behalf of our 140,000 members as well as the small business community. Phil Hall, Head of Public Affairs & Public Policy, takes us through some of the key issues we’re addressing.
The leadership race between Boris Johnson and Jeremy Hunt represented a good opportunity for AAT to highlight some of our key ideas, concerns and solutions.
We met with Boris Johnson to talk about our longstanding proposal to switch Stamp Duty liability from the buyer to the seller and had an exchange of correspondence with Jeremy Hunt about Entrepreneurs Relief.
There are three key areas of small business focus for AAT. These are: Business Rates, Entrepreneurs Relief and the dreaded scourge of late payments.
In the UK, a new business is created every 75 seconds.
However, this success masks a considerable failing. Approximately a third of new businesses don’t make it past their first year of operation and half are gone within their first five years.
The UK is also far from great at scaling up small businesses into something bigger, in fact, it’s middling by international standards.
Yet our tax system rewards those who sell their businesses rather than scale them up to something bigger and better. That cannot be right and it’s why we have been pressing the Government to scrap Entrepreneurs Relief and use the £3bn it costs to support small businesses to grow.
AAT focus groups have consistently found that many small businesses are unaware of Entrepreneurs Relief until the time comes to consider a sale – largely demonstrating that this multi-billion-pound tax relief does nothing to initially encourage entrepreneurialism but instead unnecessarily rewards those who would have sold their businesses anyway.
Despite the findings of its focus groups, AAT acknowledges that some serial entrepreneurs will be aware of the relief and do take advantage of it. However, they are in the minority and AAT questions whether serial entrepreneurs are likely to be discouraged from reinvesting simply due to the removal of this tax relief.
What we’d like to see:
The Government is absolutely right to want to encourage entrepreneurialism but despite the name, this isn’t successfully achieved through Entrepreneurs Relief. AAT has long recommended that this expensive, misguided, ineffective relief be scrapped, and that the savings be invested in other entrepreneurial activity, for example, measures that encourage small businesses to scale-up rather than sell-up.
If the Government is serious about wanting to encourage entrepreneurialism, committing this £3bn of relief to helping small businesses grow and prosper would be a far better investment for UK plc than actively encouraging business owners to simply sell-up.
AAT is not alone in seeking reform. Last year, both left-leaning and right-leaning Think Tanks called for the relief to be scrapped and the independent Office for Tax Simplification (OTS) published a comprehensive Business Lifecycle Report which clearly stated Entrepreneurs’ Relief does not achieve its original objective i.e. it does not encourage entrepreneurialism.
The current Business Rates system is negatively impacting business, the taxpayer and the economy as a whole.
The retail sector is suffering significant problems with ever-increasing rates in a highly competitive and shrinking physical market, but it can negatively impact many other sectors too – from manufacturing and agriculture to tourism and education.
Successive years of tweaks and tinkering at the edges will be costing the taxpayer £13bn during the five-year period 2019-20 to 2023-4. The Government argues this is a sign of their commitment to helping business, but AAT would argue it is a sign that the system is broken, and costly sticking plasters are no longer acceptable.
What we’d like to see:
To combat some of the immediate problems, AAT believes annual revaluations must take place and that plant and machinery should be removed from the business rates equation.
Longer-term, AAT has long recognised that the current system is not fit for purpose but that alternatives offer varying degrees of imperfection. For this reason, the new Chancellor should establish a cross-party, consultative approach to agreeing a fairer, simpler alternative to business rates and set a clear timetable for doing so.
Approximately £16n of late payments are currently outstanding in the UK.
Almost a quarter of business insolvencies are due to late payment issues and for those that can survive there is often an impact on investment whether being unable to hire more staff or retain existing staff or invest in new technology or equipment – having a very detrimental impact upon productivity (and tax receipts).
The amount of time spent chasing payment is another productivity zapping consideration that means time is wasted on this rather than on taking care of the nuts and bolts of the business.
This is to say nothing of the serious mental health issues small business owners, and sometimes staff, can face as a result.
What we’d like to see:
AAT submitted its response to the Government consultation on late payments in October 2018, making three very simple recommendations to finally end the scourge of late payments once and for all.
These are that the Prompt Payment Code:
- be made compulsory for companies employing more than 250 employees
- see maximum payment terms halved from 60 to 30 days
- be supported by a clear, simple financial penalty regime for persistent late payers, enforced by the Small Business Commissioner.