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Why raising Corporation Tax will kill small businesses

by Leon Duveen on 29 April, 2017

One of the ideas that the Labour Party is floating ahead of their Manifesto launch is to raise the current rate of Corporation Tax (currently 20% on the profits of small companies, 21% on those with profits over £300,000) to help pay for the NHS.

Now we all know the NHS needs to be paid for and if we want to keep it “Free at the Point of Use” able to cope with an aging population and the ever-increasing cost of more and more complex therapies, then we need to find the extra revenue needed from somewhere.  However, to hit small business yet again would be a mistake.

I should declare an interest here.  I run a one-man IT consultancy which, partly because of the rules of the NHS (my main customer), I have set up as a limited company.  I pay Corporation Tax on my profits instead of Income Tax.  And, if the rise in Corporation Tax for those like me who live off the profits from their company is 1% or even 2%, matched by a similar rise in Income Tax, then I would have no complaint.

If though, the figure for the rise in Corporation Tax is 8% (i.e. to 28%) as has been suggested, then I will have a problem.  I would survive I am sure and, as I have no employees to worry about, if the worst comes to the worst, I could return to the world of employment and no-one else would suffer.  But many others who run a small company, employing just a few workers and often pay themselves less than the minimum wage already, would find an 8% tax rise a killer blow.  This is a sector that employs 33% of the workforce and accounts for 19% of our GDP.

These businesses are your plumber, your electrician, the builder who installs your new kitchen, your newsagent and the owner of your corner shop, the couple who run your favourite little cafe.  These small businesses are the start-ups and the first steps into business for young entrepreneurs; these businesses are the start of the big companies of the future.

This, combined with raising the Minimum Wage to £10 an hour (a better idea would be to raise the Income Tax threshold to match a proper living wage so the burden of increasing the income on the lowest paid didn’t fall on business owners who often earn less than the minimum wage themselves) would force many to cut back and lose jobs or even to fold (many have tight margins) and put all their employees (who are often their friends and family) out of work.

To even float such an idea, shows just how out of touch the Labour party is with small businesses.  The Tories are not much better, piling ever more regulation on the self-employed and small business people such as having to make tax returns every quarter.

We need a Government that helps these business as one or two will be the next Virgin or Amstrad, the next Marks & Spencer or the next Dyson.  We need a tax regime that supports the micro-business sector, not punish them with punitive taxes driven by an out of date ideology.

It is only the Lib Dems who stands up for the small businesses and small business owners, it is only the Lib Dems who will support this sector that is vital in providing jobs and growth.  It is only the Lib Dems who can help build an open, tolerant united country. 

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