Consolidated tax for business suggested by think-tank

20 May 2019

The Centre for Policy Studies’ (CPS) new Think Small report calls for the government to adopt an ‘emblematic’ policy to champion small and family businesses: the Simple Consolidated Tax (SCT).

his would be a simple levy based on turnover that should be offered to all business with revenue under £1 million as an alternative to corporation tax, Employer’s NICs, VAT and business rates. This would obviate the need for reams of paperwork and the vast number of days swallowed by administration, tax preparation and compliance, argues the report. “The system would be easy to understand, the revenue easy to collect for the taxman and it would not have to cost the taxpayer a penny extra.”

The report accepts that there would be some firms for which this system is unlikely to work, for example those which rely heavily upon tax credits and other allowances, or have high turnover but low profits. That is why the system should be optional – following the precedent already set by the Flat Rate VAT Scheme. Companies preferring to operate within the current system of taxes and reporting rules would be able to do so, explains the report.

To reach a ‘revenue neutral’ figure – one which will raise the same amount that is currently received by the Treasury through the aforementioned four existing taxes – the SCT should be introduced at a rate of 12.5 per cent, say CPS. This means that a company with a £300,000 turnover would pay an SCT of £37,500. Modelling by Capital Economics shows that the SCT would be revenue-neutral for the Treasury at a rate of between 11.5 per cent and 13.5 per cent, depending on the underlying assumptions used. The report suggests that its introduction could be phased in, to ensure the system was working as intended.

The report is authored by Nick King, Head of Business at the Centre for Policy Studies and a former special adviser at the Business Department for the now Home Secretary Sajid Javid. CPS partnered with Capital Economics, an economics consultancy, to examine the concept.

The CPS claims the impact of the SCT would be significant:

Latvia saw participation in such a scheme increase from 7,194 firms to 47,169 within five years Because the SCT would be voluntary, no small business need end up worse off If just 250,000 companies opt in to the SCT, the total administration saving could amount to £450 million ·If business owners were able to devote just 10 per cent more of their time to helping their companies grow, £4.7 billion could be added to the economy The SCT would not just make life easier for small businesses, but show that the government supports small firms and the people running them.

The report says: “The benefits of the SCT are not just financial. Its introduction would make it clear to people around the country – whether they own small businesses or not – that the Government understands the challenges that small and family businesses face and is willing to take bold decisions to back people who have taken a risk and are working hard.”

The report can be found here.

OTS report

On the same day, the OTS also published a report on tax for small business. Simplifying everyday tax for smaller businesses was commissioned by the Chancellor. It contains ten recommendations, including that a fresh review of areas where the PAYE/RTI system should be improved should be carried out, possibly by the OTS. Another recommendation is that HMRC should routinely build agent awareness and needs into system design and improvement and its related guidance. The report can be found here.