Tax System Improvements Needed To Encourage Enterprise

by Jason Gorringe, Tax-News.com, London

08 October 2007

According to new research published on Tuesday by PricewaterhouseCoopers LLP, perceptions about the UK tax system and its role in supporting and encouraging enterprise are improving, and awareness levels of tax incentives and reliefs available to private companies have increased.

The need for simplicity, however, remains an overriding concern, according to PwC, and low usage of current tax incentives suggests that they are not supporting enterprise.

The report found that although two thirds more respondents than last year believe the UK tax regime is supportive and encourages enterprise (35% from 21%) the figure remains low, and almost half (49%) of private companies want the UK tax system simplified to lighten the compliance and administrative burden. Also, despite higher overall levels of awareness of tax incentives and initiatives this year over last (56% from 41%), levels of use remain low (14% from 11%) and have little influence on behaviour.

Kevin Nicholson, the UK head of entrepreneurs and private companies at PwC observed that: “It is promising to see a more positive view coming from UK privately-owned companies. However, these messages must be balanced against findings that suggest there is still a negative perception of the UK tax system, and its support for enterprise, and that significant improvements are needed. This must be addressed if we are to create a true enterprise economy.”

The survey, of 423 privately-owned companies, demonstrates that the UK private business sector wants simplification. But companies seem confused as to how best to do this. Few offered concrete suggestions about how to simplify the tax system. One suggestion, which seven in ten respondents agreed to, was paying corporation tax calculated by reference to accounting profit.

Nearly three quarters (69%) of companies surveyed characterise themselves as ‘mature/stable’, suggesting that there is a limited proportion of businesses that want to grow.

Mr Nicholson continued: “It is the job of tax advisers, business and government to work together to identify practical solutions to make the tax system work for UK enterprise. This raises the question about whether the current approach of tax reliefs and incentives, designed to encourage their growth, is the right approach. If the tax system is not changing behaviour or positively influencing enterprise - particularly among small business - should investment be focused on simplification instead?"

The report also found that although a higher proportion of businesses are now aware of the tax incentives available, usage still remains low (average use across nine of the main schemes is now 14% compared to 11% in 2006).

On top of this, there has also been a significant increase in use of some reliefs compared to last year, with research and development (R&D) tax credits increasing (15% opposed to 9%); business asset taper relief increasing (13% opposed to 8%), and; the use of enterprise management incentives (EMI) schemes rising to 12% in 2007 from 3% in 2006.

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