The future of SME businesses and the rapidly changing environment in which they operate is under much consideration at the moment.
The RSA (Royal Society for the encouragement of the Arts, Manufactures and Commerce) has recently published a report on self-employment and microbusinesses in the UK, entitled The Entrepreneurial Audit. This review has been carried out by the RSA’s Action and Research Centre in partnership with Crunch, an online accountant service for the freelancers, contractors and small businesses.
They certainly seem to be busy at the RSA in considering the future of the small business and work environment. At the behest of the government, RSA chief executive Matthew Taylor is undertaking a major review of Modern Employment Practices, to which the ICAEW Tax Faculty is contributing. The Taylor review is ongoing and separate from this recent RSA report.
The Entrepreneurial Audit looks not only into the tax issues but also into wider aspects that affect small enterprises such as welfare, pensions, business support and regulation. the authors make 20 recommendations for further debate.
On the recommendations concerning tax, there is in our view a mixture of old chestnuts and some interesting new points raised for consideration. The report suggests closing the national insurance contribution differences between employed and self-employed earners on the grounds that this is the cause of much bogus self-employment and confuses the workers’ rights situation. We’ve thought that there are easier and better ways to address these issues.
The report also explores the topic of business rates, an area of concern for many small businesses and deserving of more consideration. Its historic background as a business property tax which approximated to a business’s size, specifically for contributing to services to the operational site, was created in an age when businesses had more physic presence. The suggestion that business rates as a system should be reviewed by the Office of Tax Simplification (OTS) and possible replacements considered has merit.
A recommendation to extend the cash basis of accounting to companies as previously advocated by the OTS is in fact actively being considered by government. One issue here is that accruals-based accounts will still need to be submitted to Companies House unless any reform is extended to the statutory published accounts as well.
The report picks up on the problems which the universal credits system presents for the self-employed (a topic the Tax Faculty has previously raised with government) and recommends changes so that the system does not hinder potentially viable businesses.
Other proposals to assist in the welfare of the self-employed – such as a paternity allowance, compulsory earnings protection against illness and a more self-employment friendly lifetime ISA – are all interesting proposals.