The tax system is preventing us from growing, say medium-sized firms

Small businesses get government help. Big businesses can afford tax accountants. Everyone else is stuck in the middle.

by Rachel Savage
Last Updated: 02 Mar 2015

Medium-sized companies are ‘stuck in the middle’, trapped by a tax system that favours small and large businesses, according to a new report by the CBI and accountants Grant Thornton.

The time-consuming tax system is dragging down growth, interrupting cash flow and stopping companies from exporting. While small businesses get government support, medium-sized firms ‘cannot afford to have an army of tax consultants on speed dial’, CBI director general John Cridland said.

Businesses are holding back from growing profits above £1.5m, as they would have to pay corporation tax quarterly instead of annually, but don’t have the cash reserves to do so, the research found. The CBI wants the threshold raised to £5m.

Meanwhile, medium-sized companies said transfer pricing (allocating profit or loss to the country its actually made in) rules are discouraging them from exporting. The lobby group wants the threshold for exemption to be raised from less than 250 employees to up to 500.

Some are also holding off from taking on investors, as companies don’t qualify for small business R&D relief if they are more than 25%-owned by someone else. That level should be 50%, the CBI argued.

Finally, HMRC isn’t picking up the phone to medium-sized firms, so the CBI is proposing revolutionary solutions such as emails and live chats, along with a new official dedicated to solving their tax queries.

‘I want to create a British Mittelstand that compares to Germany,’ Cridland told the Telegraph. But despite their tax woes, our middling companies are actually taking on the might of the Mittelstand – even if the government has forgotten about its former favourites.

British ‘mid-market’ companies, with turnover of £15m-£800m are set to post sales growth of 6.1% in the next year, according to GE Capital. That’s faster than those in Germany, Italy and France. Now imagine what it could be if we sorted out those darned taxes…

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