The report, Stuck in the Middle, found that taxes were disrupting cash flow, taking up management time and dampening export ambitions.
John Cridland, CBI Director-General, said: “Medium-sized businesses have the most potential to drive business growth and job creation. But all too often their resources, management time and ambitions are being sapped by a tax system which disproportionately hits firms of this size.
“We need our growing businesses to invest, innovate and break into new markets to secure the long-term health of our economy. The UK’s tax system should support these entrepreneurs to do this but in many cases it is actually working against them.
The CBI and Grant Thornton are calling on the Government to:
- Raise the threshold for the Quarterly Instalment Payments system from £1.5m to £5m. Under the current tax system, when a business’ annual taxable profits reach £1.5 million it has to pay tax up front on a quarterly basis instead of annually. Many MSBs are caught by these rules even though they don’t have the cash reserves to manage them, diverting their finances away from investment.
- Change the SME R&D tax relief to allow all growing businesses to benefit as long as they do not have a controlling investment stake from a larger company. Equity finance is an important alternative finance product for MSBs to be able to access, but growing firms are sometimes deterred from using it.
- Raise the threshold for exemption from transfer pricing rules from firms with less than 250 employees to firms with up to 500 employees.
- Roll out HMRC proposals to provide a designated named HMRC official to the largest MSBs, on a demand basis, as soon as possible and in the meantime improve digital communications through emails and live chats.
Jonathan Riley, Grant Thornton UK’s national head of tax, said:
“As the UK’s economy continues to gather pace as we emerge from the recession, it is vital that all businesses do not face administrative burdens that impede their growth. This is especially true for MSBs. These organisations face particular challenges in coping with tax law.
“They are not so large that they can self-resource the skills needed to resolve complex tax legislation, or to have the dedicated support that the HMRC CRM affords; neither are they so small that many of the complexities highlighted in this report are not relevant to them. The MSB community often struggle to find a voice, yet when asked they have a lot to say, with tax complexity regularly cited as a major barrier to their growth.”
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