Radical proposal for small businesses to pay just one tax

The tax system is complicated and confusing so businesses turning over less than £1m should have the option to pay one tax that covers everything, a new report has suggested.

The Think Small study by the Centre for Policy Studies (CPS) said corporation tax, business rates and Employer's National Insurance could be replaced with a simple levy based on turnover.

Named the Simple Consolidated Tax (SCT), it would be voluntary, revenue neutral for the Treasury and set at between 11.5% and 13.5%.

Research conducted as part of the report found 75% of small businesses believed the current tax regime is too complicated with 72% saying they would use SCT if it meant paying the same amount of tax.

Small business 'strangled by paperwork'

Nick King, CPS head of policy, said: "The current one size fits all model is failing small businesses. Too many of them are strangled by paperwork, bureaucracy and administration, costing them time and money."

Andy Street, elected mayor of the West Midlands and former managing director of John Lewis, added: "I have seen up close the challenges faced by those setting up small businesses such as getting people with right skills, accessing the capital they need to grow, and in particular dealing with the paperwork required by government.

"I strongly urge the government to examine the…Simple Consolidated Tax, which would offer a significant simplification of the tax landscape for small firms."

There are precedents for a single tax scheme. In Latvia, participation in a similar system increased from 7,194 firms to 47,169 in five years. The report said if 250,000 UK businesses opted in £450m would be saved in administration costs.

In a tweet about the report, former Downing Street adviser Daniel Korski said: "We tried to persuade ⁦@hmtreasury⁩ of #SimpleConsolidatedTax back in 2012/13 but never made headway. There are tradeoffs but now's a chance to reexamine this."

In other findings from the study, 62% of small business owners said the government is not on the side of small business, with 49% of Conservative voters believed the party doesn't support entrepreneurs.

Other proposals by CPS included a three-month National Insurance holiday on new hires for businesses with under eight staff, tax relief on self-funded training for sole traders, and to deal with late payment, the introduction of holding accounts which would hold money and release it once products or services have been delivered.