Dated: 7 June 2011

The IoD today publishes the second edition of its annual report, ‘Tax – the weighty burden’. This shows that the tax burdens on business are far greater than the corporation tax rates of 20 and 26 per cent suggest. Small and Medium sized enterprises (SMEs) suffer true tax rates of between 32 and 43 per cent.

Key points:

• The burdens have not got significantly lighter in the first year of the new Government. They will still be very heavy even after the planned cuts in corporation tax rates down to 2014 have taken effect, and those cuts will do little or nothing to help smaller businesses.

• One reason for this dire position is that corporation tax is only half of the story. There is a whole host of additional burdens, including employers’ national insurance, business rates and road fuel duty.

• The consequence of the tax burden is that profits made in the first four or five months of the year are drained away by the state, instead of being available to re-invest in the business.

Richard Baron, Head of Taxation at the IoD, commented:

“The private sector is going to have to drive the recovery. But tax burdens remain a real drag on growth. There is limited scope for radical cuts in the short term, but we should lay plans now to reduce this heavy burden sharply in the medium term. Plans to reduce corporation tax rates need to be much more ambitious than they currently are, and the rate of employers’ national insurance contributions also needs to come down.

“It is also no use shifting the burden around and placing it on other parts of the economy, as with the Budget decision to tax North Sea oil companies more heavily in order to reduce fuel duty. All this will do is crush productive sectors of the economy which the Government should be nurturing. Instead, the tax burden must come down across the private sector as a whole in order to encourage economic growth.

“Above all, everyone needs to understand the true size of the tax burden. Campaign groups like UK Uncut would be more likely to achieve their objectives if they spent more time understanding the consequences of high taxes, and less time complaining about companies that legitimately seek to minimise their tax liabilities. If businesses cannot thrive because of a high tax burden, funding for public services will dry up.”