When it comes to the Budget next Wednesday, it’s not faith, hope and charity that the UK’s medium-sized businesses want the Chancellor to grant them, it’s clarity, certainty and simplicity.

While this is true for all taxpayers, business advisory firm Deloitte believes it is vital for medium-sized companies which tend to engage in more complex activities than small enterprises, but without the resources available to large multinationals.

James Ferguson, a Deloitte partner specialising in providing tax and business advice to fast growing companies, believes that by applying these three principles Gordon Brown can radically improve the lot for mid-market firms.

“A push to reduce the complexity of the tax system for medium-sized ventures would be very welcome. On Wednesday we hope the Budget reflects what businesses have told HM Revenue & Customs about aspects of the tax system which place an undue burden on them. An example of this is Form 42, the employer’s annual share scheme return. The recent simplifications have radically reduced the time taken by employers to fill in the form, but it still gives the Revenue the information it needs.

“However, other changes are not so welcome, such as the consultation on the alignment of the filing dates for statutory accounts and company tax returns. While companies don’t find it particularly burdensome to make two filings under the current system, the proposed reduction in the timetable is a major issue. Many groups without public reporting requirements deliberately schedule their audits for summertime, when their auditors are traditionally less busy. Reducing the timetable is likely to result in additional costs in management time and external resources.

“The Government must perform a balancing act to establish fair and reasonable regulation, with easily understood rationale, which provides all the information that the Revenue requires. Businesses shouldn’t be overwhelmed with administration - compliance requirements should be easy to comply with.”

Ferguson believes that introduction of the following five amendments could free up more time for medium-sized companies to concentrate on the business in hand and help drive up UK productivity:

• Pre-transaction tax clearances would help give entrepreneurs more clarity and certainty over some very complex rules and could potentially reduce the burden on HMRC in terms of enquiries into the sale and purchase of businesses;
  
  
• The rules governing share schemes are tortuous to apply in practice. The Revenue’s own guidance on employment related securities has 103 Frequently Asked Questions, indicative of how complex the rules are. More simplification needed, please;
  
  
• The Revenue should explore reducing the impact transfer pricing rules for medium-sized businesses. Companies are currently going as far as to restructure their businesses into one legal entity to mitigate the effect of the rules. Apart from anything else it’s in nobody’s interest to encourage companies to operate a number of businesses in a single legal entity. For clarity of corporate information as well as providing flexibility for sales and acquisitions of businesses it must be in our interests to have single corporate entities with a single business activity;
  
  
• Simplification of the R&D tax credit system. Many companies believe that the lack of clarity on what documentation they must provide to HMRC to prove that their activities are genuine R&D, and the lack of consistency in approach from Inspectors is still putting many people off making claims;
  
  
• Finally, the introduction of simpler legislation on the Enterprise Investment Scheme and Corporate Venturing Scheme, both of which were intended to encourage investment in small companies, but are so tied up in regulations and requirements that many deserving companies can’t get themselves into the rules.

Ferguson believes that the Budget may bring amendments to Business Asset Taper Relief (BATR), which reduces the tax rate on capital gains arising on the disposal of business assets from 40 per cent to 10 per cent after holding the assets for two years. A positive change would be to introduce ‘safe harbours’ so that low levels of non-trading activities within a trading business don’t adversely affect its business asset status. This would eliminate inconsistent guidance on the interpretation of the rules in specific circumstances. There is room for HMRC to allow clearer guidance without prescriptive legislation.

Finally, one change that companies don’t want to see is any move to increase the tax rate on, or even cap, the value of business assets qualifying for the 10 per cent rate. There has been speculation that shares in AIM listed companies might be excluded from qualifying as business assets, bringing them in line with shares in full London Stock Exchange listed companies for most investors. This would not be popular.

Ends

Notes to editor

Visit Deloitte's dedicated Budget website www.ukbudget.co.uk.

About Deloitte

In this press release references to Deloitte are references to Deloitte & Touche LLP which is among the country’s leading professional services firms, providing audit, tax, consulting and corporate finance services. Known as an employer of choice for innovative human resources programmes, it is dedicated to helping its clients and people excel. Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein whose member firms are separate and independent legal entities. Neither DTT nor any of its member firms has any liability for each other’s omissions.  Services are provided by member firms or their subsidiaries and not by DTT.

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The information contained in this press release is correct at the time of going to press.