Acareo Ltd

Focusing on the main thing!

Taxation, austerity and small business – life or death?

So, with effect from 1st April the flat rate VAT Scheme is changing.It seems our business is now caught by what HMRC term as a “limited costs business”.  Essentially, because our costs of goods is less than 2% of turnover we will have to pay an additional 2% VAT. This coupled up with a reduction in the dividend tax threshold from £5000 to £2000 and increases in national insurance contributions alongside changes to IR35 in public service contracts compounds the onslaught by the government on contractors and interims. The workforce of the UK is changing, of that there can be no denial; there is a huge swing from PAYE single job employment to self employment/single director companies and that this has had an adverse impact on the total tax take. However, to punish those who are entrepreneurial enough to take the risks associated with branching out alone whilst allowing the big beasts and the wealthiest to avoid tax or negate liability whilst never increasing their share of the pie is taking the biscuit!

UK Tax take 2016-17 per the Office of Budget Responsibility

UK Tax take 2016-17 per the Office of Budget Responsibility


That tax need to be raised is not denied and willingness to pay doesn’t come in to it – without adequate taxation we have no public services – but if only the government were prepared to raise the tax threshold more in other areas of the economy (and indeed increase the total tax take in order to limit the impact on public services). Instead, their strategy seems to be to pick off small groups – the self employed (although that has now been back-tracked), the disabled (recent changes to PIPs criteria will ensure that thousands of otherwise eligible claimants will no longer receive their mobility or care allowance elements of PIPS (formerly DLA). Why always prepared to take on the little guy but never the multi-nationals? Maybe because we are easier meat, less likely to resist in a coherent fashion, fewer allies in the media etc etc. Whilst the unemployed and disabled can be labelled scroungers, contractors can always be labelled tax dodgers and neither group have a loud enough collective voice to argue to the contrary. But what is really disconcerting is that whilst the government is struggling to provide basic public services to the elderly, the infirm, the ill and to our children we never seem to fail to raise the finds necessary for fighting wars. I don’t recall cost being an issue with wars in Iraq or Afghanistan – government just found the money. Likewise, with the continuous bombing of Syria costing us billions whilst our public services wither on the vine. Why is this possible? Why is it that we can always find the money to take life but never to save life or improve the quality of life of those least able to help themselves in our society.

As a small business we don’t begrudge paying our taxes – but we do begrudge the government wasting it on wars we should have no truck with and wasting it on inefficient services. But equally we are aghast at the government not spreading the load more directly across the corporate world so that the burden is more on the bigger businesses, especially those who take their income from the public sector. How is it ever right that a shareholder dividend for a large business can be made from public service contracts (i.e. HP, CapGemini, BT, G4S, Capita, Virgin Healthcare and many, many more taking billions of pounds of tax revenue as profit – HP alone took £1.9bn out of the UK treasury in just one year in 2014!) but a single director company providing services to a public sector body now has to be treated as an employee for tax purposes because we are somehow considered to be fiddling the system? Whilst no formal analysis has been done I’d wager that the top 3 or 4 companies by value of public contracts make far more in profit than all of the single director company contractors in the sector combined.

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