Experts Share: What Business Tax Changes Are SMEs Hoping To See From Andy Burnham?

Small business owners have many tax deadlines to manage this year, but anyone expecting an immediate rewrite of the tax system after Andy Burnham became Prime Minister will have to wait.

The Corporation Tax system has not changed and HMRC will still apply the same rates introduced in April 2023. Companies with taxable profits of £50,000 or less pay Corporation Tax at 19% and companies with profits above £250,000 pay the main rate of 25%. Businesses with profits between those thresholds pay the main rate with Marginal Relief, which slightly increases the effective rate.

The current structure came from the Spring Budget 2021. The government announced the main Corporation Tax rate for non ring fence profits would increase to 25% for companies making more than £250,000 in profits. A small profits rate of 19% also came into effect for companies making £50,000 or less.

Does A New Prime Minister Automatically Change Business Taxes?

A new Prime Minister cannot rewrite tax law immediately – Corporation Tax rates, Self Assessment rules and other business taxes stay in force until the government introduces legislation through a Budget or Finance Bill and Parliament approves it.

SMEs should continue planning around the current tax system because no new tax legislation has been announced. Existing rates and tax deadlines continue to apply unless Parliament passes new laws.

Business owners often keep an eye out for government tax announcements because future Budgets can introduce new rules. Until Parliament approves any legislation, the current system continues without any changes made for now.

Which Tax Deadline Is Catching Many Business Owners Out?

The 31 July Self Assessment deadline continues to catch many taxpayers by surprise.

According to Ridgefield Consulting, millions of Self Assessment taxpayers face a payment deadline on 31 July through HMRC’s Payments on Account system. The accountancy practice said many first time self employed workers, landlords, freelancers and people earning money through side businesses do not realise a second payment may fall due six months after the main 31 January deadline.

HMRC says Payments on Account generally apply when a Self Assessment tax bill exceeds £1,000 and less than 80% of the tax has already been collected through methods such as PAYE. Each payment is normally 50% of the previous year’s tax liability.

Simon Thomas, Managing Director of Ridgefield Consulting, said, “Every year we see business owners, landlords and self employed workers experiencing the stress of an unexpected HMRC bill, particularly where payments on account increase what they’re expecting to pay.

“The key issue is often cash flow rather than compliance. People aren’t necessarily doing anything wrong; they simply haven’t planned for how the system works or realised another payment is due in July.

“The good news is there are practical, legitimate ways to make tax payments more manageable and reduce that pressure, whether that’s budgeting throughout the year, reviewing whether payments on account are still accurate or speaking to HMRC early if you’re struggling to pay.

“Payments on account are designed to help taxpayers spread their tax liabilities, but they can create challenges when people are not aware of how the system works or have not planned for the additional payment.

“As the July deadline approaches, taxpayers should review what they owe, consider whether their circumstances have changed and seek advice or support early if they have concerns. Taking action before the deadline can help avoid unnecessary financial pressure.”

 What Do SME Leaders Want From The New PM?

As much as Burnham cannot immediately make changes, business leaders have spoken on their expectations should he eventually make changes. Here’s what they want…

Our Experts:

• Vipul Sheth, MD, Advancetrack
• Eamon Shahir, Co-founder and Co-CEO, Taxd
• James Poyser, CEO and Co-founder, The inni Group
• Ben Westoby, Senior Business Consultant, Forbes Burton
• James O’Leary, Corporate Tax Director, Kreston Reeves

Vipul Sheth, MD, Advancetrack

“The new Prime Minister has inherited an incredibly difficult set of economic choices, but top of his in-tray should be this: giving businesses the certainty they need to plan for the future. Entrepreneurs make investment decisions over years, not months, and constant speculation over tax policy risks holding back that ambition.

“If the Government wants to unlock growth, it should focus on creating the conditions for businesses to expand, recruit and innovate. That means avoiding measures that discourage entrepreneurship and instead backing the firms that drive jobs, productivity and economic growth.

“I’d like to see a clear commitment to supporting the UK’s entrepreneurial economy, whether that’s protecting Business Asset Disposal Relief, encouraging investment in skills and technology, or creating a stable environment for firms to scale. Our latest Accounting Talent Index found that 73% of firms still expect to grow over the next 12 months, despite the challenges they’re facing. The ambition is clearly there – Government policy should be helping to unlock it.

“Accountants have a unique view of what’s happening across the economy because they work alongside businesses of every size. The message we’re hearing is remarkably consistent: firms want to invest, hire and grow, but they need a policy environment that gives them the confidence to do so.”
 

Eamon Shahir, Co-founder and Co-CEO, Taxd

“SMEs are unlikely to be looking for wholesale tax cuts alone. What many want most is certainty, simplicity and a tax system that supports growth. For small businesses, unpredictable costs and complex compliance requirements can often be as challenging as the headline tax rates themselves.

“Under Andy Burnham’s administration, many SMEs would likely be hoping for a stronger focus on local economic growth, including reforms that make it easier for businesses to invest, hire (especially in the early days) and expand. This could include reviewing the burden of business rates, improving access to investment incentives, and ensuring smaller firms are not disadvantaged compared with larger organisations.

Alternatively, increasing the NI allowance could help a lot of smaller businesses too. More subsidies from the government would benefit existing SME’s and incentivise new ones. Increasing the age NI allowance starts from is a potential option also.

Cash flow remains one of the biggest pressures facing SMEs, so policies that improve payment times, simplify tax administration and provide clearer guidance would have a significant impact. Many small businesses would also welcome targeted support for innovation, skills development and digital adoption, helping them become more productive rather than simply reducing their tax bill.

The challenge for any government is balancing support for businesses with the need to raise revenue. The most effective approach is likely to be one that creates a stable environment where SMEs can plan confidently, invest for the future and contribute to regional economic growth.”

James Poyser, CEO and Co-founder, The inni Group

“Over the last few years, National Minimum Wage and Employers National Insurance have had a huge impact on our business. It doesn’t just increase the cost of employing junior team members, but it ripples up throughout the organisation, increasing our overheads. We’ve been forced to increase prices, but there’s only so much we can pass on to clients. Cash that would have been spent on growth has to be invested in operations. There are two main paths: outsource overseas to lower cost countries, or invest in AI and automation to drive productivity and efficiency.

“We’re choosing the latter. Our goal is to be a leader in the tax industry, one that leverages AI to support our workforce. But this needs investment, which comes at the expense of top line growth.

“We’d really like to see better support from the government to help us invest in AI so we can drive productivity and meet the government’s high wage economy dream. The current system (R&D tax credits) doesn’t work for these types of improvements. We’d like to see specific tax breaks or grants to allow companies like us to invest in AI. ”

Ben Westoby, Senior Business Consultant, Forbes Burton

“Burnham has already addressed the business rate issue that the hospitality industry has been crying out for over the last five years, and that will need to extend to the high street in order to help many more. Beyond taxation change, though, the majority of the SMEs we’ve been working with would seem to benefit far more from a reversal of the National Insurance contribution rises and more flexible payment options.

“Many of our clients see National Insurance, business rates and VAT bills landing at awkward times with little flexibility in how they’re able to pay them. This has seen scores of otherwise viable businesses closing due to stretched cash flows from a payment structure that’s far too rigid.”

James O’Leary, Corporate Tax Director, Kreston Reeves

“Kreston Reeves acts for hundreds of SME tech founders. They are the engines of the economy and typically share the same three frustrations. These would be a good place for Andy Burnham to start

“The cost of employing staff following the increase to employers’ National Insurance Contributions remains high and hits small tech businesses hard. It makes founders think twice about committing to often good hires. It would be an easy and popular win for the new PM.

“The R&D tax credit regime is a lifeline for SME tech businesses, but we find many are now reluctant to make a claim for fear of HMRC challenge, especially as the cost of defending an enquiry can be disproportionately high and can take too long to resolve. Whilst further reform is not needed, perhaps the decision making inside HMRC could be reviewed to send a strong message that the UK wants to support and nurture SME tech businesses.

“Finally, there is frustration around the curtailment of Business Asset Disposal Relief and increases to the rate of Capital Gains Tax. The tax system is used to incentivise certain behaviours and founders taking risks and building successful tech businesses should be encouraged by the Government.”