The Federation of Small Businesses is calling on the Government to protect small businesses from unfair profit-seeking behaviour from Make Tax Digital (MTD) software providers and other recommendations to avoid economic hardship for freelancers, contractors and other self-employed workers.
The move comes alongside a list of recommendations to The Chancellor of the Exchequer, Rishi Sunak, including raising the VAT threshold to £100,000 to encourage revenue and recruitment growth and tax credits for revenue fluctuations. Which recommendations could impact you?
- Federation of Small Businesses (FSB) sets out need for reform as compliance costs and time lost to reporting soar
- Illustrates how the Value Added Tax (VAT) threshold is serving as a disincentive to grow for more than a million firms
- Calls for increase in Employment Allowance to mitigate impacts of rising costs with Budget 14 days away
FSB’s new report on tax, A Duty to Reform: Making tax work for small businesses in a digital world, finds that tax admin costs £25 billion and 300 million hours for UK small businesses. That the burden is higher for those firms which have switched to the Making Tax Digital initiative, the lobby group. The report comes after The Freelance Informer reported that Making Tax Digital was not fit for freelancers.
VAT-registered businesses with a taxable turnover below £85,000 will be required to follow the Making Tax digital rules for their first return starting on or after April 2022.
“As things stand, more than a million firms say they’ve stopped growing their turnover because of the VAT threshold,” said FSB chairman Mike Cherry.
“If we want the economy firing on all cylinders again, reform of this levy – seen as the most burdensome of all by firms – is a must. We must stop the £85,000 turnover threshold serving as a ceiling to the growth we desperately need,” he said.
How much will MTD cost?
Small firms are each spending an average of £4,100 and 52 hours a year on tax compliance, the FSB has reported. For those that are participating in the Government’s MTD programme – designed to fully digitalise the tax reporting process – the average cost of compliance (£4,562) is considerably higher than for those yet to migrate (£2,960).
“We’ve always said that – rolled-out in the right way – MTD could mean productivity gains over the long-term. However, for many of those who’ve already taken the plunge, the programme has so far yielded higher costs and greater complexity.”
Here are the FSB recommendations put forward to Chancellor Sunak
Click each recommendation to read more.
- The basic VAT taxable turnover threshold should be raised from £85,000 to £100,000 to encourage suppressed economic activity.
- Given the significant burden of tax compliance for small businesses, the Government should not exclude tax administration costs from regulatory oversight, and should ensure that any changes in regulation policy do not add to the burden already faced.
- The Government should introduce a system whereby the self-employed can smooth their income tax liabilities over a three-year rolling average through the availability of tax credits.
- The Government should expand reliefs on investment to ensure that businesses are no longer deterred from investing more in the economy.
- The Government should reform the Super Deductions investment incentive.
- The Government should promote greater awareness of the tax reliefs available to small businesses, both externally and through Making Tax Digital software.
- The Government should commit to ensuring that the software providers of MTD do not increase prices in a rent-seeking manner
- The Government must provide a free online tool for Making Tax Digital to ensure that small businesses have the choice not to be burdened by additional costs to file their taxes
- HMRC must work with software providers to ensure that the Making Tax Digital software does streamline, simplify, and create greater efficiencies in tax compliance, and ensure that Making Tax Digital actually provides additional value.
- The Government should increase the Employment Allowance to £5,000 for eligible small businesses to alleviate some of the job losses from the planned National Insurance contributions increase