The Business Hub Podcast Archive
The Business Hub is a weekly radio show broadcast on Star Radio Cambridge each Sunday morning from 9-10 am covering topical business issues to help anyone in business succeed. It is also available online and for download at www.thebusinesshub.fm
Insight Associates are the main show sponsor and also sponsor a feature on ‘helping businesses to better manage their money’ with Garry Mumford giving an interview each week on all aspects of money management for business.
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The Business Hub Show - 1 July 2012
Is Business Tax Fair?
The Business Hub Show - 1 July 2012
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I recently read an IOD article called ‘Tax the weighty burden 2012 ‘ which highlighted the actual tax businesses pay, and also wrote a blog post about my thoughts on the issue
Most people think of business tax being 20-24% (i.e. corporation tax) but actually businesses pay a lot more tax than that when you include business rates, employers NIC, road fuel duty, vehicle excise duty, insurance premium tax, the list goes on.
The IOD report pointed out that all that adds up to somewhere between a 32% and 41% tax burden on businesses which is interesting because that’s a huge number. Their argument is that this tax is counter-productive and causes people not to invest in business.
Many of the taxes we don’t focus on like business rates and Employers National Insurance are not dependent on whether the business is making money or not. They are payable regardless and some argue businesses are being penalised by those costs whether they are doing well or not doing well. At least with Corporation tax you have to be making a profit.
Most business owners aren’t focussed on these areas but they are costs to your business and therefore need to be managed.
Mark - So it’s not about not trying to pay tax – everyone accepts they need to do so – but at a time when businesses should be being incentivised they’re not, they’re being stifled?
One of the areas that has always bugged me is business rates, because business rates are actually quite a heavy burden on most. I’ve seen instances where businesses are paying a higher amount of rates than rent. But a business is not using all the local services that people that are resident in that area are using. Libraries, Schools and all those other services. In fact if you are a business you have to pay extra to have your rubbish taken away – on top of the rates you already pay – so how can that be perceived as fair? I know businesses in the area need the infrastructure and the roads.
Mark - What happens when the business owner wants to take money out of the business for himself? Surely there’s another level of tax potentially to pay there?
We touched on this before, if you take out a dividend this is taken out after the company has paid all its taxes, and if you are a higher rate tax payer you pay a bit extra at that time. If you take out a salary it is an expense on the business so will reduce the amount of profit that’s taxable. But at the end of the day if you’re taking a reasonable chunk of money out of your business you are going to be paying out a basic rate of tax 40% or if you are doing really well 50% tax. It’s a huge amount and some of that money has already been taxed.
If you are taking income out and you are doing really well and paying 40/50% tax and you want to sell your business you will get taxed again as capital gains tax because you started with nothing and you now have something to sell. You would expect to pay something but with entrepreneurs relief which now goes up to £10M you only pay 10% - surely that’s an incentive to sell your business rather than take income out of it – because if you want to continue to run your business and take a good income out you will get taxed on 20/30/40/50%
Because the system is like it is a lot of business owners and high profile figures run their affairs through their own little companies which is them and selling their brand as a business, they are being pushed down the route of finding avoidance schemes to overcome this problem, because the system isn’t perceived to be that fair and in the last budget The Chancellor announced that there is going to be a general anti-avoidance rule (GAAR) which has been in place in a lot of other countries for a long time.
So basically there will be one rule that says avoidance schemes are out-lawed. So it will make people think is it worth it? Shall I take all this risk?