A poll carried out by the Forum of Private Business (FPB), found more than half of small and medium-sized businesses believe the tax burden placed on them is unfair and unnecessarily complex.

The findings come just days before the January 31 deadline for the submission of self-assessment forms on the HM Revenue and Customs (HMRC) website.

Phil McCabe, a spokesperson for the FPB, commented: “Our members believe that they are bearing an unfair tax burden because of the moderate sizes of their businesses.

“The complexity of the British tax system is not only time-consuming and frustrating, it also puts small firms at an instant disadvantage.

“Big companies have the expertise and resources to understand the system and minimise their tax burden. For most of our members, hiring an outside tax consultant represents a significant cost few can afford, especially in the midst of a recession.”

The FPB is calling for a review of the tax system to be a top priority for whichever party wins the impending general election.

“We would like to see [the winning party] lay the foundations of a bold new tax environment where small firms are rewarded, rather than unfairly penalised, for the huge contribution they make to the British economy,” he said.

The government’s proposed landline tax could cost small businesses £70 million a year, according to The Telegraph.

A new government consultation document proposes that in order to improve Britain’s broadband infrastructure, almost 5 million businesses would have to up to £1,500 a year in a new phone line tax.

The Department for Business, Innovation and Skills, who published the report, say that the 50p a month tax would be “disproportionately greater” on fragile groups, including the elderly.

This new consultation follows Alistair Darling’s Pre-Budget Report, which stated that this new tax would help provide the next generation of broadband to 90% of the UK by 2017.

The Conservatives have calculated that there are about 4.8 million firms in the UK with 250 employees. This works out to around £70 million a year for the SME industry. The Conservatives have called this new tax “staggering”.

Inevitably, the FSB aren’t happy with this proposed new tax either. They’ve said it would put “undue pressure” on SME’s and stifle competition for internet service providers to improve the infrastructure themselves.

The report, by the influential Centre for Economics and Business Research (CEBR), shows that increasing the burden of taxation on the country’s small businesses – which make up 99 per cent of all UK businesses – would plunge the economy further into debt and take its toll in jobs at a time of spiralling unemployment.

Small firms are already bracing themselves for an increase in employers’ National Insurance Contributions (NICs) in April 2011. Using its own economic simulation model, CEBR tested the knock-on effects of adding 1p to employers’ NICs, paid by small and medium sized enterprises.

CEBR found that the NICs increase would cost the economy 57,000 jobs but only make a small dent in the gap in the public finances. In addition, these job losses alone would cost the Treasury around £900m in additional jobseekers allowance and other benefits.

The FSB has been calling for the Government to take steps to make it easier for the country’s 4.8m small businesses to employ staff, and so tackle rising unemployment and drive the economy out of recession. FSB members have already identified cutting payroll taxes as the most important change the Government could make to encourage them to take on another member of staff.

FSB members have also said that a reduction in business tax – such as corporation tax – would give them more of an incentive to take on another staff member.

The CEBR report found that if the Government raised the rate of corporation tax from 21 per cent to 26 per cent – the result of equalising the tax rate between big and small business – would cost around 100,000 jobs from the small business sector and reduce economic output by £4.3bn, while reducing the public sector deficit by only £1.6bn over 10 years.

Ahead of the Chancellor’s Pre Budget Report announcement, the FSB is urging the Government to freeze employers’ NICs completely. This will give them the opportunity to take on more staff and tackle unemployment, thus helping to create the jobs that the UK so badly needs.

Many small businesses are already operating on very small margins and increasing their costs, either through increased corporation tax or NICs would push many of them over the edge, at a time when 120 businesses are already closing every day.

John Walker, National Policy Chairman of the Federation of Small Businesses, said:

“This research by the CEBR shows that taxing small businesses to help reduce the public sector deficit is a dead-end that will instead cost us dearly in jobs and economic growth. The FSB has long been saying that small businesses are the country’s economic drivers and they cannot play their part in pulling the economy out of recession if they are faced with increasing taxes.

“The FSB is calling for a freeze in employers’ National Insurance contributions as the most constructive way of tackling the challenge of rising unemployment and continuing to put small businesses in the best possible position to draw the economy out of recession. We need to see the Government take on these practical proposals at a time when the country faces such financially testing times.”

The proposed tax would take 50p per month from landline owners in order to fun a high-speed broadband roll-out, and has been heavily criticised since it was announced earlier in the year.

Writing in the Daily Telegraph, Nick Herbert, the shadow Environment Secretary and Jeremy Hunt, the shadow Culture Secretary, say the “deeply unpopular” broadband tax will fail to deliver high speed broadband in every home.

“The incentive for operators to invest is destroyed as everyone focuses not on consumers but how to get more state handout”, they said.

Mr Hunt and Mr Herbert added: “The tax has been earmarked to encourage investment in modern fibre optic networks – but telecom operators will have no incentive to make any investment of their own if there is the chance to tap into subsidy.”

The Conservatives propose great deregulation comparable to France Telecom, who were forced to open its ducts, encouraging ISPs to compete to lay high speed networks. Their rural coverage is subsequently better than the UKs.

Last week, Stephen Timms, the Treasury Minister in charge of Digital Britain, said public funding would be made available to ensure superfast broadband connections in rural areas following the Daily Telegraph’s Campaign for Better Broadband for Rural Britain.

NICs are payable to HM Revenue & Customs (HMRC), and fund various state benefits, such as the state pension and various welfare schemes. There are various classes of NICs, and you will pay at least one these depending on your position in the workforce.

Types of National Insurance contributions

Class 1 – Employees

Primary contributions are paid by the employee pay at a rate of one percent of their gross earnings, up to and including the upper earnings limit (UEL), and at a reduced rate for earnings over the UEL.

Class 1 – Employers

Employers pay secondary contributions on their employees’ gross earnings, however there is no UEL for employer’s contributions.

Class 1A

Employers pay these annually on any employee benefits, such as a company car or private medical insurance.

Class 1B

Employers who have entered into PAYE agreement with HMRC to cover expense payments or benefits pay this

Class 2

A flat rate paid monthly or quarterly by most self-employed individuals, unless earnings are below a certain limit.

Class 3

Voluntary contributions, paid by those who want to top up their NICs in order to qualify for certain benefits.

Class 4

Self-employed individuals whose annual profits are over a certain amount may have to pay this.

National Insurance contributions for sole-traders and the self employed

The majority of sole traders pay class 2 contributions, and some will pay class 4 NICs in addition.

If you earn more than £5,075 p/a as a sole trader, then you will need to pay Class 2 NICs. Class 2 contributions are currently set at a flat rate of £2.40 per week, and are deducted from your gross earnings either monthly or quarterly.

You will be exempt from making class 2 contributions if:

- you are under 16

- you are over 60 (females) or over 65 (males)

- you are a married woman or widow (you will be entitled to a reduced rate of class 1 contributions)

- your yearly earnings are less than £5,075 (you will need to apply for a Small Earnings Exception Certificate).

If you are self-employed in your spare time, then you must pay Class 2 NICs, even if you are also paying National Insurance as an employee (Class 1).

If you make annual profits above a certain level (set at £5,715 for 2009), then you will be entitled to pay Class 4 NICs in addition to your Class 2 payments. Your Class 4 contributions will be calculated as part of your yearly self-assessment tax return. The rate for class 4 NICs is currently set at 8 per cent for all earnings between £5,715 and £43,875 per annum, plus 1 percent on any profits over that amount.

HMRC Guide to NI for Self-Employed

NI for Employees, Employers and Company Directors

Employees pay Class 1 contributions, at a rate of 11 per cent (unless you are a married or widowed woman, paying the reduced rate of 4.5 per cent) on earnings over £110 and less than £844 per week, and 1 per cent above £844 per week.

Employers pay Class 1 contributions at a rate of 12.8% of an employee’s total earnings over £110 per week, and there is no upper earning limit.

If you are the director of a limited company then you will be classed as an ‘office holder’ for tax purposes, and will be need to pay Class 1 contributions as if you were an employee. The limited company will also need to make Class 1 contributions as your employer.

Unlike employee’s Class 1 contributions, director contributions are calculated on an annual cumulative basis, rather than their weekly or monthly salaries, so must be re-calculated every time a director is paid.

HMRC Guide to NI for Company Directors

HMRC Guide to NI for Employers

Voluntary Contributions – why should you make them?

If your National Insurance Contributions are too low, then you could receive a reduced state pension, and miss out on other state benefits such as the widowed parent’s allowance, bereavement payment and bereavement allowance. You can top up your NICs by making voluntary Class 3 contributions.

Class 3 contributions are payable at a flat weekly rate, either by monthly direct debit or quarterly bills.

If you are unsure as to whether or not you would benefit from making Class 3 contributions, you can apply for a state pension forecast on the Pension Service Website.

HMRC Business Payment Support Service

If you’re worried about being able to meet tax, National Insurance, VAT or other payments owed to HM Revenue & Customs (HMRC), or you anticipate that payments coming due will cause you problems, you can call their Business Payment Support Line on Tel 0845 302 1435.

Capital allowances

Capital allowances allow businesses to write off the cost of certain purchases or investments on their taxable profits..

Businesses may claim a 100 per cent annual investment allowance (AIA) on the first £50,000 spent on: plant and machinery, assets that will have an economic life of at least 25 years, integral features of a building (such as heating systems and lifts), and adding thermal insulation to existing buildings.

The allowance enables you to deduct up to £50,000 from your taxable profits, and expenditure over this amount will be subject to the main capital allowances regime.

Expenditure falling into the ‘main rate pool’ (i.e. plant and machinery) will usually qualify for a 20 per cent allowance; however this has been increased to 40 per cent for the 12 month period beginning April 2009.

‘Special rate expenditure’ – which includes long-life assets, thermal insulation and integral building features, will qualify for a 10 per cent capital allowance.

Business cars

For all business cars purchased after April 2009, the amount of capital allowance that may be claimed will depend on its CO2 emissions.

• If a car emits 110 grams or less of CO2 per kilometer, then businesses may claim 100 per cent of first year allowance for expenditure on the vehicle, as well as expenditure on natural gas, biogas and hydrogen fuel.
• If a car has CO2 emissions of 160 grams per kilometer or less, then it will qualify for 20 percent capital allowances per year in the main rate pool.
• If emissions are over 160gm/km, then it will fall into the special rate pool of 10 per capital allowances per year.

If a car is used for private use as well as for business, then it will fall into a ‘single asset pool’, so that adjustments can be made for private use.
Enhanced capital allowances

For investments in energy efficient or environmentally beneficial technologies, a 100 per cent enhances capital allowance (ECA) is available.

Any losses from investment in these environmentally freiendly technologies can be surrendered in exchange for a first-year tax credit grom the government, usually a cash payment.

For more information on ECAs, visit the ECA website.
Business Premises Renovation Allowance

Businesses can claim 100 per cent capital allowances on qualifying expenditure on a vacant premise in a designated disadvantaged area, so long as the premise has been vacant for more than one year, and provided that those costs were incurred after 11 April 2007.

Qualifying expenditure is capital expenditure on

• Converting a qualifying building into qualifying business premises
• Renovating a qualifying building that is, or will be, qualifying business premises
• Repairs to qualifying business premises.

If you need to check whether an area is a disadvantaged area for BPRA, you can find the Assisted Areas Order 2007.

Tax credit and relief for research and development

Small and medium-sized businesses may deduct 175 per cent per year off their taxable profits on the cost of research and development. To qualify as R & D, an activity must involve developing scientific or technological knowledge that isn’t commonly available, or overcoming scientific or technological challenges. Buying and using new technology does not count as research and development, unless adapting it to your purposes involves scientific or technological advances.

Tax credits may be claimed on the cost of:

• Employing staff directly and actively engaged in carrying out R&D
• Buying consumable or transformable materials used directly in carrying out R&D (broadly, physical materials which are consumed in the R&D)
• Power, water, fuel and computer software used directly in carrying out R&D.

For more information on research and development tax credits visit theHMRC website

Stamp duty exemptions

If your business is located within a designated disadvantaged area, then you will be exempt from paying stamp duty on residential property transactions of up to £150,000. Until 31 December 2009, all residential properties purchased for less than £175,000 will be exempt from stamp duty, however this threshold will be lowered to £125,000 after this date. For more information on stamp duty exemptions, visit the HMRC website

Enterprise Investment Scheme

The EIS helps small high-risk trading companies to raise finance, by providing tax reliefs to investors who purchase shares in that company. A guide outlining the full details of this scheme is available on the HMRC website.

A spokesperson from the Innovation and Skills department told the register that the UK government “remains committed to the timetable for introducing the 50p levy on fixed lines in 2010, as set out in the Digital Britain report.

“We will be consulting on the ‘Final Third’ fund in the autumn, but no final decisions have yet been made about the legislative vehicle for introduction of the levy.”

News reports over the weekend claimed Timms would axe the proposed £6 a year tax to pay for high speed broadband, as imposing such a levy might be considered unpopular in a general election year.

The Sunday Times quoted Timms as saying that he couldn’t “definitely” commit to such a levy being legislated prior to the election next year. “I can’t say for sure,” he said.

The tax will be contained in a finance bill that would follow the budget in March 2010.

However, as it will be an election year Timms, who recently replaced Lord Carter – author of the Digital Britain report – told journalists that a short bill listing popular measures was more likely to be pushed through ahead of UK voters going to the polls.

“Things that are contentious will have to be left until afterwards,” he said, according to the Sunday Times.

The Tories are widely expected to oppose the 50p broadband levy being contained in the finance bill. So should they be elected to government next year, the £6 a year tax on fixed phone lines could indeed be ditched.

Olivia Garfield, group director of strategy and portfolio for BT, said at a briefing yesterday that the tax would not pay for every home in the UK to have fibre broadband, but rather 80 to 85 per cent would get access.

A spokesperson from BT said: “Over ten years, we are looking at £1 billion raised from the levy which would only cover 80 to 85 per cent.”

The spokesperson also told IT PRO that the company hadn’t been informed about the proposed tax until after the press were told.

He said: “There was no input on the levy from BT, as we had no prior knowledge. To say it came out of the blue might be a cliché statement, but it really did.”

The spokesperson also stressedthat the government had made two promises regarding the future of broadband, and each were to be met with separate funds.

He said: “The Next Generation fund will be paid for by this 50p tax to ensure and support fibre roll out. However the Universal Service Commitment (USC) fund paid for by the BBC digital switchover fund relates to the 2MB promise.”

Details of the proposal were laid out in Communications Minister Lord Stephen Carter’s Digital Britain report on Tuesday.

According to the report, the tax would add 2 per cent to the average annual phone bill of £285.

Tuesday’s report also proposes tougher anti-piracy measures, changes to funding practices relating to the BBC and increased funding for regional news on commercial channels.

Carter conceded the new tax — which would come in the form of a 93-cent monthly charge — would be a major talking point.

“How will the public react? We will find out,” he said. “Our view as a government is that it’s a good exercise of judgment.”

On current thinking, the tax would run for seven years from 2013, raising just over £1 billion, but Lord Carter admitted that “if it’s not enough, we’ll keep the levy going for long, or we’ll raise the sum”.

Figures released to the paper by Her Majesty’s Revenue & Customs (HMRC) reveal that they have arranged to rechedule 141,000 tax payments in the past six months.

Tax may be rescheduled via HMRC’s Business Payment Support Service (BPSS) launched by Alistair Darling in his pre-budget report last November.

Steve Hughes, the British Chamber of Commerce’s economic policy advisor, said: “Given the extreme conditions faced by businesses, this scheme is a welcome relief.”

Stephen Alambritis, of the Federation of Small Businesses, said: “This shows the VAT man is up to speed but there is a feeling they are tightening the parameters. We don’t want to hoodwink businesses [into this scheme] and then send in debt collectors to get the money back.”

Experts have expressed concern that the repayment of backdated taxes this autumn, coupled with a possible rise in interest rates will set off a new wave of business closures.

Business leaders suggest the demand for BPSS could mean £5bn in tax delayed. A Revenue spokesman said the BPSS “is a demand-led service”, and no limit has been put on the scheme.