The growth ambitions of medium-sized businesses in the UK are being hindered by the UK’s ‘onerous’ tax regime, according to a new report by the Confederation of British Industry (CBI).

The report, compiled in partnership with accountancy firm Grant Thornton, says the UK tax system overwhelmingly favours small and large companies and disrupts cash flow, absorbs management time and dampens export ambitions of medium-sized businesses.

The ‘Stuck in The Middle’ research found that many medium-sized businesses were discouraged from growing profits above £1.5 million, largely due to profitable firms paying corporation tax quarterly rather than annually, which has a negative impact on cash flow.

John Cridland, CBI director-general, said:

“During this difficult economic period, one of the most important things for companies has been the relief from advanced payment of corporation tax. The £1.5 million threshold is too low for fast-growing MSBs. We want to raise it to £5 million.”

Uncompetitive tax legislation is also putting medium-sized businesses off of exporting, the report has found. Mid-sized firms with over 250 employees are penalised under the current transfer pricing rules and the CBI is calling for the threshold on this tax to be raised to 500 employees in order to stimulate a faster rate of growth.

Mr Cridland added:

“MSBs do not have the resources that large companies have to deal with tax affairs and much of the Government support available to small companies disappears when they reach a certain size. MSBs truly are a forgotten army in this country.”

The report also recommends the introduction of a dedicated medium-sized business helpline within HMRC and the provision of a dedicated official in the department, as well as the extension of SME R&D tax relief to mid-sized firms.

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