The continual changes to employment and tax regulations are leaving companies confused, stifling the country’s competitiveness and hindering job creation.

61% of businesses are unclear as to what is classed as tax avoidance and what constitutes legitimate tax planning and 33% believe they are treat as guilty by HMRC until they can prove their innocence, according to BDO LLP.

A large proportion of UK companies think the current tax framework is to complex and the situation is made worse by HMRC’s aggressive stance. Companies feel they now need to spend more time on their tax affairs instead of focusing on growing their business. Dealing with the Revenue has become more of a burden in the last five years, according to 65% of business leaders and 88% think things would be much easier if the tax rules were simplified.

Employers also have to fight their way through a ridiculous amount of employment legislation. David Frost, the director general of the British Chamber of Commerce, said that there was a growing consensus that employment law is weighted in favour of employees. A lot of employee rights have been implemented as a result of EU legislation but European labour markets are very different to ours.

The UK government should be prioritising job creation as this will lead to future prosperity. Mr. Frost said the coalition must desist from implementing any new employment laws for the next three years and cancel the 1% increase in employer NICs in order to encourage companies to recruit more staff.

Over the next four years, BCC estimates show that new legislation and tax will cost UK employers £25.6 billion.

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Contractor accountants should be aware that the government is planning to overhaul the UK’s employment laws in order to help the economic recovery.

One of the proposals, which has already provoked fury, is to allow firms to fire employees who are underperforming during their first two years of employment, without the threat of facing an unfair dismissal tribunal. Under the current regulations, an employee can seek redress from an employment tribunal if they are sacked after 12 months.

The coalition is also looking into the system of tribunals at present. Business groups, such as the BCC are urging for immediate reform but the TUC suggested that workers could be discouraged from seeking justice if major changes are implemented.

Union leaders are also concerned that increasing the qualifying period to two years could give a green light to unscrupulous employers to break the law.

The coalition is likely to launch a consultation into the future of tribunals after business groups complained that there was a 56% increase in the number of cases in 2010.

One possible solution would be to charge claimants a deposit of up to £500 which would be refunded if the case was successful. But the TUC argues that this will deter low-paid workers from seeking justice.

Meanwhile, Vince Cable, the business secretary, has been asked to look into whether small businesses could be exempted from some employment regulations but any such changes could see the government in hot water from the EU.

David Cameron wants to see new jobs created this year in order to boost the economic recovery and whilst large companies have promised to do exactly that, smaller firms need more encouragement. Reforming the employment tribunal system and reducing the red tape for small businesses could go a long way towards providing it said David Frost from the BCC.

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The government has promised to help 40,000 new businesses start up during the course of the next 3 years.

Last week, David Cameron announced that the government run Business Link service is to be overhauled in order to provide more support to British entrepreneurs, a move that could also benefit accountants for contractors.

The Government currently provides various online resources to support businesses but there have been complaints that it’s time consuming to trawl through different websites looking for information. 170 publicly-funded websites will now be condensed into a single Government business resource site.

The new Business Link website will allow companies to register online, sort out their tax affairs through the business tax dashboard, search for public sector contracts and find information on legislation and training.

The news came as the coalition looks for additional ways to stimulate job creation and boost economic growth.

The Prime Minister said that during 2011 and beyond, the government will focus on driving job creation and supporting growth. In order to transform the economy and create many thousands of new job opportunities, the government must help new firms start up and SMEs grow.

The government also intends to offer grants and loans, under the New Enterprise Allowance scheme, to help 20,000 unemployed people start their own business if they can demonstrate a robust business plan. Back in October, the coalition said it would offer this help to 10,000 individuals but it has now doubled the figure.

Under the scheme, people wanting to become self-employed will receive £1,725 in allowances over a six month period. They will also be paired with a volunteer mentor who will examine their business plan and if it is robust, the individual will receive a loan from Jobcentre Plus, up to a total of £1,000, to cover business start up costs.

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VAT rose to 20% on Tuesday and over 70% of small firms think this will impact negatively on their business.

The FSB conducted a survey of its members and 71% of the 1,600 respondents said the increase will not be beneficial to their business. 52% said they would have to increase prices, 45% expect turnover to decrease and 36% believe the rise will result in a loss of customers.

George Osborne says the increase is here to stay but the FSB is urging him to return VAT to 17.5% once the fiscal deficit has been reduced significantly.

SMEs will be hardest hit by the VAT increase as they are unable to absorb it in the way larger organisations can. The majority of small businesses will have to pass on the full rise to their customers, reduce their level of stocks or look to implement alternate cost saving measures.

The Federation has also called on the coalition to raise the threshold at which firms start to pay VAT to £90,000 from the current £70,000 rate. It says this move would help SMEs and could generate up to 35,000 additional jobs.

The chancellor has defended the rise, saying it shows the government is determined to tackle the budget deficit and this should lead to increased employment. Ed Milliband, on the other hand, believes the increase will cost 250,000 jobs.

Meanwhile, Jason Collins, a partner at law firm McGrigors, has warned that carousel fraud may make a comeback due to the VAT increase.

Carousel fraud occurs when a business purchases VAT-free products from one country, sells them on in a different country and then vanishes before settling the VAT liability. This type of fraud had died down in the UK but Collins warns that the increase could see VAT fraud doubling to £4bn this year.

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Contractor accountants may be interested to know that Britons will not start earning for themselves until May 30th this year, due to the VAT increase which comes into force today, January 4th.

The Adam Smith Institute has said that all monies earned between the 1st of January and the 29th May 2011 will belong to the taxman. On May 30th, Britons then begin working for themselves; a date coined Tax Freedom Day by the Institute.

This year, Tax Freedom Day is three days later than it was in 2010 and this is largely attributed to the increase in VAT from 17.5% to 20%.

The executive director of the Institute, Tom Clougherty, said the impact of the VAT rise will affect every household in the UK, denting consumer confidence and putting a dampener of the country’s economic recovery.

The coalition is correct to prioritise spending cuts and repairing the budget deficit but people in the UK remain seriously overtaxed. We spend nearly five months working solely to support the state and only seven supporting our families, which is a shocking indictment of a large and wasteful government, he added.

The OECD revealed last month that the tax burden in Britain is higher than in many of its peer countries, having increased since 1995. Taxes exceeded 34.8% of the OECD GDP in 2008, even though they have fallen in recent years.

Canada, Ireland, New Zealand and the U.S. have all reduced their tax burden in the last fifteen years and even countries like Denmark and Sweden, which levy high taxes, have reduced them. But the burden of taxation in the UK has risen by about 1.5%.

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Contractor accountants with clients operating in or relying on a number of UK sectors will be pleased to hear of some positive growth.

For example, new research from the EEF shows that the UK’s manufacturing sector reported strong output and good order balances in quarter three.

Manufacturers have already started hiring new staff and making new investments which will undoubtedly come as welcome news for contractors. Ms Lee Hopley, the chief economist at EEF, said that the manufacturing industry was ending 2010 on a high and this will provide the sector with a strong footing to begin the New Year. EEF also predicts that manufacturing and engineering will outperform other contributors to the UK economy in 2011.

It’s not only the UK that has witnessed this welcome boost in manufacturing either. Markit Economics recently reported that last month, the manufacturing sector across Europe increased at its fastest rate for 4 months.

But manufacturing isn’t the only sector planning to expand next year. Research by PwC shows that 28% of firms in the UK intend to increase recruitment in 2011. In addition to manufacturing, the technology and services industries should see vigorous recruitment, the study showed.

The recent Growth Review from the government also contained encouraging news for a lot of UK contractors.

David Frost, from the British Chamber of Commerce, said that enterprises will be reassured now that the focus is to return to balanced, sustainable growth. The review talks about creating a framework for growth and also acknowledges the vital contribution made by SMEs. However, it remains to be seen whether the coalition can bring down the barriers that have been preventing firms from thriving.

One piece of not so positive news regarding the service sector has come from the CBI. Although professional and business services have remained steady over the past few months, consumer services have tumbled. The CBI cited reduced consumer discretionary spending as a contributory factor along with rising costs and falling prices.

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The Autumn Statement from the government showed a revised prediction for economic growth next year. Previously the coalition has predicted growth of 2.3%, but this figure has now been lowered to 2.1%.

However, the IoD disagrees with this, claiming that economic growth in 2011 will be much lower. It likened the recovery cycle to a square root sign which has witnessed a temporary spurt in 2010 but will level off next year.

The IoD commented that the Comprehensive Spending Review has caused too much doom and gloom and the UK needs to realise that there are also other weaknesses in the economy. Lower than expected growth could cause George Osborne to increase taxes, a move which would affect contractor accountants and other freelancers. In fact, if the government’s predictions for GDP are accurate, the chancellor will have to choose between tax increases or further spending cuts if the coalition is to meet its budget deficit targets.

In other related news – although the government has committed to reducing corporation tax, the IoD claims that the new moves still do not go far enough towards attracting more foreign invest in the UK.

The IoD’s head of taxation, Richard Baron, said that whilst the Institute welcomed the fact corporation tax is set to reduce to 24% that still leaves the UK in the bottom half of the list of countries with an attractive rate.

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George Osborne delivered the government’s Autumn statement on Monday and laid out new plans for the multinational tax regime in the UK.

Designed to provide certainty for businesses and contractor accountants, the new controlled foreign companies’ rules will be legislated for in the 2012 Finance Bill.

The coalition plans to introduce an entity-based system and levy a CFC charge on overseas profits artificially diverted from this country. Attention will be focused on high risk entities and the government intends to devise specific rules for financial institutions such as banks and insurance companies as well as property industries.

An exemption will be made to allow groups to manage their overseas operations efficiently, while at the same time protecting the UK tax base. It will work by assessing the debt-to-equity ratio of the finance company and levying the CFC charge on any excess equity.

Businesses have suggested to the Treasury that the CFC rate should be less than 10%. The current government proposal is a debt/equity ratio of 1:2; meaning two thirds of income from overseas finance would be exempt from the tax. With a 26% rate of corporation tax, the levy on overseas finance income would be 9%.

Next year’s Finance Bill will contain an interim step of exempting foreign to foreign group transactions that do not affect the UK tax base.

Other proposals laid out on Monday included annual phased reductions of 1% to the main corporation tax rate, leading to a rate for a limited company of 24% in 2014. The government also intends to introduce a “Patent Box” scheme in April 2013 whereby profits arising from patents will be subject to a 10% tax.

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HMRC should take extreme care when taxing people retrospectively otherwise people lose confidence in our taxation system, says the CIoT.

The Institute commented that although it is still a reasonably unusual; there has been a growing trend for the government to introduce tax rules with retrospective effect. The coalition should clearly state when retrospective action is valid, the Institute pointed out in a paper handed to the government. Retrospection damages confidence in the taxation system as it undermines certainty and stability, which in turn has the knock-on effect of damaging the economy.

The paper states that the fundamental principle that taxpayers are taxed based on the legislative wording in place at time of the Revenue’s actions must remain. The government must make a clear statement of when it sees retrospective action as appropriate. The CIoT thinks this should form part of a new protocol when legislative changes come into effect immediately.

The Institute is not totally opposed to retrospective action but thinks extreme care should be taken if it is to be implemented and there should be lengthy justification in Parliament for such a move. The general presumption should be against retrospection but that principle could lay out some very limited instances where it is considered essential as opposed to desirable.

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It’s not all doom and gloom in the business sector. In fact some firms believe that they will profit from the government austerity measures.

Admittedly many businesses are going to lose public sector contracts, but the job losses could well create outsourcing opportunities. Last week, the government announced that £236bn of public sector contracts would be made more accessible to SMEs. In a bid to ensure that 25% of public sector contracts do in fact go to smaller businesses and limited company contractors, all government departments will be required to publish details of all the contracts they award, and how many go to small firms.

The coalition is also looking into a more open framework to tackle the closed procurement system which generally means contracts are awarded to preferred bidders which are usually bigger organisations.

Other good news came recently when figures were released showing the economy grew at twice the expected rate in quarter 3. Experts say a double-dip recession is less likely as data from the ONS showed the economy is growing at the fastest rate for 10 years.

However, these figures do not take into account the public spending review and the impact it will have on the country.

Nevertheless, the better than expected picture could encourage investors to start thinking about expanding their portfolios. The stock market can seem to be contradictory in times of economic crisis. In 2009, the UK was in recession and yet the stock market rose by around 30%.

Before contractor accountants rush out and pile all their money into stocks and shares, they may want to consider talking to a specialist financial advisor.

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Vince Cable confirmed this week that 24 local enterprise partnerships have been given the go-ahead, a move welcomed by the Federation of Small Businesses.

Whilst the FPB is pleased by the announcement, it has called on the LEPs to make sure SMEs are put at the heart of local communities. The policy chairman at the FSB, Mike Cherry, said the Federation has always encouraged local businesses and local authorities to work in partnership and therefore the setting up of these LEPs is a logical step.

Cherry believes that small businesses must have a genuine involvement in decision making and business activity if the partnerships are going to be successful. LEPs will not work if civic leaders simply pay lip service to the SME sector, he added.

The Regional Growth Fund, which is designed to support private sector job creation in areas that currently depend on the public sector, was also declared open for business this week. The fund has a pot of £1.4bn and Vince Cable said he was delighted to see so many imaginative proposals to help drive economic growth in local communities.

David Frost from the BCC thinks these moves are a good start but explained that LEPs must concentrate on getting the basics right in order to give businesses greater confidence to invest and create new jobs.

However, not everybody is confident that the new initiatives will be successful. Mark Prisk, the business minister, believes that many LEPs lack focus and will fail to help economic growth. In a leaked letter to Vince Cable, Prisk said that the business community felt many LEPs do not have the ambition necessary to make an economic impact.

Shadow business secretary, John Denham, is also critical of the government’s plans saying that almost 800,000 businesses have been excluded. 60 local partnerships applied to become LEPs and because only 24 have been approved in the first wave, 21 million people will not be covered. Denham said the plan for growth is a shambles and leaves massive areas with no organisation to support economic development. He thinks that this proves the coalition has given up on growth.

More than 75% of inhabitants in the North-west and Yorkshire and Humberside will be covered by an LEP whilst only 26% of people in already depressed areas like the North-east will be in an LEP area.

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The Forum of Private Businesses is opposed to the plans of a number of councils to introduce a tax on companies that provide parking for employees.

A workplace parking levy was given the go-ahead in Nottingham last year and at that time the FPB expressed concerns that this scheme would be introduced by other towns. It seems that this will now become a reality. A spokesman for the FPB, Chris Gorman, says the WPL is a stealth tax which small businesses and contractor accountants will struggle to pay.

If an employer has more than 10 staff parking spaces they will face an annual charge of up to £250 for each space and this could increase to £350 in two years. Companies have the option of whether or not to pass the charge to the employees.

The labour government introduced the scheme a year ago but it was hoped that the coalition would abandon it. However, councils such as Bristol, Leeds and York are now actively giving it consideration. In London, Cambridge, Milton Keynes and Oxford councils are examining the idea.

The workplace parking levy is meant to discourage motorists from driving into towns and encourage them to make use of public transport to ease city centre congestion but opponents of the scheme fear councils will simply use it as an alternative revenue making measure in the face of the government’s austerity drive.

It is thought that the WPL will be both easier and cheaper to collect than city congestion charges as it will not affect shoppers and motorists who are not driving into cities for work.

Nottingham council is still hoping to push ahead with its planned scheme, after a five day public examination which will start on October 1st, and if approved it will come into force later this year at a rate of £185 per employee parking space.

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