Given that SMEs (small & medium sized enterprises) and MMEs (mid market enterprises) account for more than 99% of UK businesses and approximately 70% of UK economic activity* it’s important that the Chancellor supports them and helps them to keep building on the great contribution they already make to our economy in next week’s Budget says KPMG’s Enterprise Tax Partner, Samantha Vanags:
“Creating conditions that stimulate innovation, investment and employment has got to be the primary objective of any government’s tax regime. Our Middle Market and SME clients are broadly pleased with the direction of travel in UK legislation: they don’t want headline grabbing initiatives - certainty and the rather dull lessening of the burden is what they're after. So the message to the Chancellor is to focus on improving and simplifying.”
“From April the corporation tax rate for businesses across the board will be 20%; the lowest in the G20. This not only encourages investment and employment but, in matching large and small company tax there will also be welcome consistency, so I am keen to see this take effect.
“A greater commitment to capital investment would be welcomed by the many businesses with growth on their agenda. An extension to the 100% tax relief on plant and machinery spending of up to £500,000, which is due to expire at the end of this year, would be a positive move.
“Meanwhile, those bold enough to expand or upgrade into a new property should get even more relief. It’s currently rare for building costs to secure relief unless the spend is on property in an enterprise zone or a designated area. On the subject of property; if the Chancellor were to build on the Autumn Statement’s rate relief easing and discounting while the structural review takes place, there would be cheers from some high street businesses.
“The current R&D relief system, introduced by the previous administration, and improved further when the coalition moved it above the line, is a great example of the tax regime encouraging positive behaviour.
“While the increase in the R&D allowance to 230% for SMEs should help to stimulate innovation in this part of the economy, the complexity of the system is constraining its accessibility. Our recent survey of SME’s found only 5% have used R&D tax credits which seems too low. We would like to see a single gateway for all business help initiatives, as they are currently dispersed across HMRC and government departments. Additionally, securing the tax benefit is not as simple as it could be which risks putting off busy entrepreneurs and directors.”
“Since it was noted by commentators some years ago that the UK’s tax legislation is the world’s most lengthy, there has been talk of simplifying the tax regime. It’s pleasing that it has been on the agenda and, yes, the removal of a significant sum of redundant legislation during the current term is welcome, but the size of the most recent finance bill is still far too unwieldy. It is sure to be one reason why reducing red tape came top of the SME wishlist of measures from government, according to our survey, notably ahead of rate reductions.”
Commenting on the priorities for start ups and small businesses, Bivek Sharma, who leads KPMG Enterprise’s Small Business Accounting Services, said: “We are seeing a maze of funding options that entrepreneurs must navigate in order to access much needed finance in the right form for their business. In fact, according to our SME survey 70% have not used any of the government reliefs available to them. This suggests, not that help funding growth isn’t welcome, but that it’s too much of an uphill battle for a busy entrepreneur to track down and secure the best initiative for helping to boost their business. Any simplification of the process of accessing alternative finance will be well received by those running small companies.
“Cashflow remains a critical matter to the economy’s smallest and therefore most vulnerable, enterprises so any support that can be offered in relation to ensuring they don’t suffer due to late payment will not only be welcomed but could mean higher survival rates. This was cited by more than one in five SMEs we questioned as a matter they felt should be a top priority for the government.
“Finally further incentives for employment growth will be a positive boost to this dynamic part of the market. So many small business owners teeter on the edge of becoming an employer or adding to their employee numbers but hold back, due to the risk of committing to such a responsibility, fixed cost and administrative burden. The exemption of NICs for businesses employing under 21s and apprentices under 25 is a really positive gesture but small business owners would welcome more substantial measures.”
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Note to Editors:
*Department for Business Innovation and Skills growth dashboard January 2015, reporting on 2014 data and Hidden Impact-the vital role of Mid Market Enterprises, from HSBC.
Alison Anderson, KPMG
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KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 12,000 partners and staff. The UK firm recorded a turnover of £1.9 billion in the year ended September 2014. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 162,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.