UK Business News

If you are among the many small business owners who feel that they get a raw deal acting as unpaid tax collectors for the Treasury, you may be interested to read the latest publication from the Institute of Economic Affairs (IEA), Taxation and Red Tape.

Sub titled The Cost to British Business of Complying with the UK Tax System, the authors claim that tax related red tape costs UK business £20 billion a year.

The book reveals that the UK has the longest tax code in the developed world, running to 8,300 pages of primary legislation compared with 1,700 in Germany and 1,300 in France.

The report also reveals that the average Finance Act in the 2000’s has been three times as long as the average Finance Act in the 1980’s – a damningindictment of New Labour’s record on red tape. The UK is one of only 3 out of 43 most advanced economies where the cost of tax collection is not falling.

It is suggested that the impact on small businesses is particularly devestating, with the costs of tax collection bearingaround sixteen times more heavily on the smallest business than on the largest.

The authors consider that this acts as an impediment to competetion and to the expansion of employment among small firms.

The report calls for a radical reform of the tax system and the book contains examples of how this could be achieved. Examples of this would be:

• Definitions and procedures should be consistent across all taxes
• Taxable and accounting profits should be aligned
• Special tax reliefs on company investment should be abolished
• Investments returns that are disguised as capital gains should be taxed in the same way that income is taxed
• Taxes generating minimal revenue with high compliance costs (eg inheritance tax) should be scrapped

The report further argues for the abolition of the annual Finance Act to reduce the political pressure on Chancellors to complicate further the tax sysyem with headline – grabbing measures in eacj Budget.

Director General of the IEA, Mark Littlewood comments:

“Often debate focuses on the overall level of taxation, but this report clearly shows that merely complying with tax laws is an enormous burden on the British business. Not only do we need to slash tax, we need to simplify it to allow enterprise ro thrive.”

The publication Taxation and Red Tape is available in PDF format here.