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Helpful alternatives to cutting Corporation Tax

As part of The Entrepreneurial Audit (a joint project from the RSA and Crunch) twenty policy ideas have been proposed to strengthen self-employment in the UK. Among them is a recommendation that the Government shelve the planned 3% reduction in Corporation Tax, and aim the cuts at more universally bothersome taxes instead.

The audit notes that a cut in Corporation Tax “mainly benefited larger corporations and does little for start-ups that are usually loss-making in the first few years”.

Only Limited Companies who are turning a profit are required to pay Corporation Tax, so small firms who aren’t in profit, and of course Sole Traders will find the proposed reduction much less helpful.

The RSA suggest in the report that it “is possible that the Government recouped the funds lost in the Corporation Tax cut through its uplifting of the dividend tax and changes to the Flat Rate VAT system.”

We’ve been separately campaigning against these two hikes, as analysis suggests they disproportionately burden lower and middle earning business owners.


What are the alternatives to Corporation Tax cuts?

When surveyed for the 2015 Small Business Survey (BEIS, 2016), small business owners predictably said they considered VAT, business rates, National Insurance, Income Tax and PAYE more problematic (see below).

Types of taxation considered to be obstacles to business successAll businesses with no employeesAll SME employers
Income tax20%18%
Business rates18%31%
Corporation Tax12%20%
Vehicle tax / fuel duty12%9%

The British Chambers of Commerce (BCC) have also previously referred to smaller firms wanting to reduce “the input costs that hit businesses before they make a penny of profit, such as business rates and the cost of pensions auto-enrolment. BCC’s Head of Economics Suren Thiru elaborated “It is those upfront costs that are stopping businesses from investing, as no matter what stage of the economic cycle we’re at, or how your business is performing, you are paying these costs”.

“Open for business”?

The UK already has one of the lowest Corporation Tax rates of all the world’s major economies.

If we’re really so ‘open for business’ as the Government love to say, should we not be making life a bit easier for people looking to start their own? Rather than focussing on the tax which matters most for big business, are the RSA right to suggest a broader review of business taxation?

Let us know what you think in the comments below.

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