More help for entrepreneurs, tech start-ups and exporters – and a better-funded HMRC – are among the items on the wish lists of Bristol experts ahead of this week’s Budget.
Chancellor George Osborne will present the last Budget of this Parliament on Wednesday with many commentators expecting him to announce a few pre-election sweeteners.
Barclays corporate director for Bristol, David Goodall, pictured, hopes some measures will be aimed at helping growing businesses in recognition of the vital role they are playing in the economic recovery while Smith & Williamson, the accountancy, tax and investment management group which employs around 170 people at its office in Bristol, believes HMRC needs to be adequately resourced so it can run an efficient tax system. 
This would benefit taxpayers – be they individuals, businesses, charities or others – as well as government.
Smith & Williamson said, as an example, HMRC’s front line tax teams were currently under-funded.
“It has insufficient staff with the necessary skills to provide clearances for businesses and taxpayers trying to navigate the complexities of the system and get their tax affairs right. If HMRC were suitably funded, the authorities would be more able to ensure taxpayers pay the correct amount of tax,” the firm said.
Speaking about Barclays’ wish list, Mr Goodall said: “This Budget is an opportunity to think positively about how to create the right conditions for long-term, sustainable success for the UK by focusing on a few key areas,” he said.
“A small number of interconnected factors have the potential to make a big difference to the economy. We do not claim to have all the answers but we believe business needs to get together to call for these positive steps”.
Based on his team’s work with businesses and customers, he is proposes the following wish list to boost the economy and support business growth:
- Explore the inclusion of entrepreneurial skills within mainstream learning and create specific learning opportunities through both qualifications and extracurricular activities.
- Create an interactive map of the UK to help small businesses see all of the funding and support options in their area.
- Take steps to encourage national tech start-ups by establishing local hubs in major cities across the UK.
- Continue the roll-out of high-speed fibre optic across the UK.
- Create a dedicated government website which collates and rationalises all the business support schemes.
- Create within UKTI a specific unit tasked with developing a world-class global business-to-business network, connecting business ecosystems for mutual benefit.
- Introduce Export Tax Credits for entrepreneurs undertaking export activity.
- Deliver a more effective transfer of information and partnership between SMEs, larger businesses and the government to ensure our smaller businesses are able to respond quickly and effectively to potential trading opportunities.
- Create a truly integrated and single market in UK public sector procurement to reduce the cost and bureaucracy of bidding for local contracts.
Smith & Williamson’s Bristol office Budget wish list has been drawn up by head of private client tax services, Imogen Hilton-Brown, head of corporate tax Mike Lea, pictured above, and Nick James, its head of financial services.
Business tax
- Commitment to capital allowances / annual investment allowance – Commit to keeping these allowances at the current rate to help businesses plan investment and prevent the pitfalls of a continually changing allowance. Let’s not forget that certainty helps businesses to plan and develop, which can only be good news for the economy.
- Leave entrepreneurs’ relief alone – It is true that amounts paid out through Entrepreneurs’ Relief have risen in the last Parliament, but we think this is a sign of its success and shows how it can incentivise business people to set up and develop enterprises. With record numbers of people engaged in self-employment, the relief’s active support of the entrepreneurial economy is surely appropriate.
- Lower business rates for SMEs – With business rates one of the largest ‘tax’ expenses for SMEs, surely it is time for a proper review of the burden these place on growing businesses.
- Extend national insurance allowance for SMEs – Broaden the lower rates of NIC, currently applying to under 21s, to young graduates as a means to moderate youth unemployment.
- Allow the research and development tax system to settle down – This would help to give businesses confidence to plan ahead! While recent changes have had a mixed reception, it is now important that the rules are left alone to encourage businesses to make appropriate investment potentially leading to economic growth.
- Reform employment taxes – The operation of two separate tax systems for EMI schemes and CSOP plans is unnecessary duplication. A simple reform would be to abolish CSOPs but permit £30,000 of options to be granted to any employee of any suitable employer.
Private client
- Introduce progressive income tax rates – The current system of income tax rates includes anomalous peaks and troughs in the marginal rates of tax. The withdrawal of personal allowances for incomes above £100,000pa leads to a band of income taxed at a marginal rate of up 60%. The marginal rate then dips to 40% and rises to 45% on incomes above £150,000pa. These pinch points can distort taxpayers’ behaviour so we favour a more progressive approach which smoothes transition from one rate of income tax to the next.
- Increase the higher rate income tax threshold – Continue to increase the threshold at which the 40% tax rate applies by gradually moving it upwards in line with the PM’s promise to take more middle income families out of higher rate income tax. Similar increases should be made to where the high income child benefit charge starts to apply to ensure that fiscal drag does not mean more families will start to be hit each year. Anything to simplify this system must be attractive!
- Improve rules on the inheritance of ISAs – The current plans for transferring spouse allowances on death of one party are incomplete and complicated. We would like to see it possible to make a simple transfer of ISA savings via the estate to a surviving spouse or civil partner. This process needs to be simplified, ideally by permitting estates to hold ISAs and allowing the assets to be inherited by a spouse or civil partner under the terms of a will without any tax consequences.
- Introduce relief for long term capital gains – Provide relief for assets held over the long term to encourage long term ownership of assets such as shares and enterprises.
- Maintain pension contribution allowances – Review the present annual and lifetime limits on pension contributions, the associated tax relief and maximum pension fund once and for all as these are unduly complex and made worse with constant fiddling. These continual changes in rules turn the public away from committing to long-term pension savings. Why limit both the amount that can be put in each year and the size a fund can grow to? If the amount that can be contributed to the pension pot is limited to the current £40,000pa, why also limit the size of the fund? The result is, in our view, primarily a tax on good fund performance – how can that be justified?
- Increase inheritance tax thresholds - Review the IHT system including gifts and exemptions. The allowances for annual, wedding and small gifts have been in place for over 30 years and have lost relative value. Many families would welcome an increase in these. Alternatively, simplify the whole system by abolishing these small reliefs and replace with a higher nil rate band.
- Merge National Insurance Contributions with income tax – Align all NIC and income tax bands. While income tax only begins at £10,000pa for most people, National Insurance applies to earnings from £7,956 upwards. This anomaly hits hardest at those on short-term or seasonal contracts as NICs are levied according to weekly earnings, rather than total annual earnings. We recognise that the long-term wish to amalgamate the two systems may not be possible in the short-term, but a first step towards integration would be to align all thresholds.
- Raise rent–a-room relief – Increase the threshold for this relief to cover the amount a householder generally receives from renting out a room. The £4,250 limit has not changed since it was introduced in 1992. Raising it to reflect the increases in rents over the last 20 plus years would take many people, often those on low incomes, out of tax or reduce the need to submit tax returns. Such a move could be particularly helpful in London and the South East where accommodation is in short supply.
- Simplify tax rules for visiting international sports people – Involvement of top sports people at UK events helps to attract a large gate, which brings business to a local area. The full economic implications are unclear but it would be helpful to cut the need for so many one-off exemptions to attract more large-scale sports events to the UK.
General
- Permit the general anti-avoidance rule (GAAR) to settle down – This needs to be tested before bringing in further changes. In practice it appears to be working in terms of providing a healthy deterrent to abusive avoidance. If further changes are to be considered, the GAAR should also apply to benefit of taxpayers. As a result, taxpayers who are not trying to avoid tax could use it to protect themselves from falling foul of double taxation and other bear traps.
Bristol Business News will have extensive coverage of the Budget on Wednesday, including live tweets on key points at @bristolbiznews and on www.bristol-business.net plus full analysis and local reaction.
