The Institute of Directors has criticised the coalition for failing to reduce the burden of tax on small businesses. Tax – the Weighty Burden, the annual report from the Institute, calculates that the true burden of taxation for SMEs is between 32% and 43%.

This burden is unlikely to reduce even when corporation tax rates decrease in 2014 because employers have to pay additional fuel duty, national insurance and business rates.

The head of taxation at the IoD, Richard Baron, said the burden of taxation is weighing growth down. Although it is not possible to make radical cuts at the moment, the government should already be making plans to reduce the heavy burden of business taxation.

Baron believes corporation tax needs to be lower than originally planned and employers’ NICs should also be reduced.

However, a recent report from the TUC suggests that cutting corporation tax further would have an adverse effect on the economy and job creation.

George Osborne believes that reducing the rate of corporation tax will entice companies to set up in the UK, which will help drive the recovery in the private sector. But Brendan Barber, the TUC chief, says this argument does not stand up.

The rate of corporation tax in the UK is already amongst the lowest in Europe. The OECD average is 26.5%, but in excess of 90% of small businesses in the UK pay 20% and the average for large organisations is 23.2%.

Barber said that we have extremely competitive corporation tax rates already. He went on to point out that some people, including Osborne, have been talking about emulating the aggressive low tax policies of Ireland, but the current economic problems there suggest that this is not a sensible option.

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As I write, it appears that we are headed for a Hung Parliament as no party has achieved an overall majority in yesterday’s election.

Many business people have tax policy high up on the shopping list when it comes to casting their vote in a general election. So, as there has been, in effect, no result, does that mean that there will be no change in tax policies?

In the very short term, that will be the case. All taxes as reported in the recent Budget will still be the same. However, in the next few weeks and months this will be subject to change.

There will now commence the horse-trading and side-deals between politicians and their parties that comes with the territory where no party has power. Each party will now need to start discussions with any other party that they feel they can ‘do business with’ in order to form the coalition government that will form policy going forward.

On the basis that the Conservatives and Labour will not be working together, it will be down to each of those parties trying to do deals with the Liberal Democrats. Picture the scene …….. in any one of the 20 or so bars in the Houses of Parliament, party officials will be haggling over a bottle of claret. ‘ If we could agree to work with you, you would need to support our tax policy on ………. You scratch my back and I’ll scratch yours.’

This is not really the way to develop coherent tax policies to encourage business growth.

For instance, the Lib Dems have been proposing increasing the capital gains tax rates up to 50%. For most gains currently, they are taxed at either 10% or 18%. Bringing in this sort of policy could be very damaging to contractors who have been considering closing their businesses and taking a capital repayment.

It is the uncertainty of things that is also disturbing. In the UK, coalition governments rarely last long and another election could be called later this year. That could then herald more changes in the direction of tax policies.

Gloomy stuff, I know, but it does look like we are headed into a bit of a tunnel. Let’s hope there is some light at the end of it.

John Mumford is the Accounting Director of Carrington Accountancy
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HM Treasury has recently published a draft Tax Framework that could benefit businesses in a wide range of industries. However, the principles stipulated in the document will not be automatically applied.

This has caused concern to the Chartered Institute of Taxation (CIOT) as well as many contractor accountants, who say the principles will only be applied “where possible”.

The Framework hopes to provide businesses with a degree of certainty concerning the tax regulations for businesses. But although Andrew Hubbard, the CIOT president, welcomes the theory, he believes questions whether the government will be able to put these principles into practice.

The government hopes to secure stability, competitiveness and fairness for UK businesses and ensure that they do not suffer any new burdens or complexities.

Alistair Darling, the Chancellor, wants to keep the UK as a good place to conduct business and believes these proposals will ensure it stays that way.

The draft framework was put together by the Treasury and the Business-Government forum on Tax and globalisation and the government is now calling for feedback on the proposals.

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