New report calls for shake-up of UK tax system to help start-ups scale-up

Report suggests increasing awareness of tax relief schemes and introducing greater flexibility to encourage investment and hiring

The UK’s tax system needs to undergo major changes to help the country’s thriving start-up community scale up, according to a new report from the Prelude Group.

Whilst the number of small businesses founded has seen steady growth – 608,100 were founded last year alone – a relatively small proportion manage to scale.

Using case studies of growth entrepreneurs, Britain unlocked: A Tax Code for Global Ambition examined the impact of the “labyrinth” of taxes, reliefs and administration and made suggestions for improvements to the regime that could boost job creation, business growth and investor interest.

Primarily it has urged HMRC to increase awareness of the various tax reliefs available and include details through regular communication with businesses, simplify the system for paying taxes and claiming relief and introduce greater flexibility for businesses during “crucial periods of growth” to encourage hiring.

The report also suggested some practical improvements for 2017 including extending National Insurance relief, doubling the SEIS threshold to £300,000, simplifying share schemes into one online share allocation scheme and introducing a new markets tax relief to reduce the costs of entering a new market.

It also recommended raising the threshold for quarterly Corporation Tax payments from £1.5m profit to £5m and allowing them to pay annually instead to improve cash flow, removing the cap on Entrepreneurs’ Relief and introducing Business Rates holidays and increase Business Rates Relief. Liberalising EIS would allow entrepreneurs to get relief for cash or equity investment in their own business and allow more people to finance a relatives business.

Finally, the report detailed some recommendations for consideration and consultation. These include replacing corporation tax with a more simple small business tax, combining national insurance with Income Tax for the under 60’s and removing Capital Gains Tax on business assets. As well as introducing a US-style ‘S Corporation’ system where profits are taxed based on shareholders’ shareholding and allowing for additional flexibility for small businesses on quarterly payments to support cash flow during periods of high growth.

Stephen Herring, head of taxation at the Institute of Directors, said:

“Companies have a responsibility to pay into the system on which they depend for their success. At the same time, the Government should focus on creating simple and fair taxes that boost innovation and business creation.

“There is no such thing as a perfect system, but in this report we put forward measures which will help a wide variety of entrepreneurial businesses become job-creating machines, increasing economic growth and revenues for the Treasury.”

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  1. Some very good suggestions especially liberalising EIS. Start ups also need more awareness about the upsides and downsides of crowdfunding and intellectual property protection as the latter increases business valuations and sustainability