A proposal that could ease the tax burden for millions of small businesses across the UK is being welcomed by the Forum of Private Business (FPB).
The shadow chancellor of the Exchequer, George Osborne, has committed a future Conservative government to simplifying the tax system - including giving advance warning and increasing scrutiny of any proposed legal changes.

The FPB, which represents 25,000 smaller businesses in the UK, is lobbying against disproportionate taxation as part of its 'Think Smallest First' campaign, which was launched last week in Brussels by the FPB's chief executive, Phil Orford, in a speech on the Small Business Act for Europe.

The FPB's campaign aims to tackle red tape and late payments, in addition to reducing the tax burden. However, because the Act is not binding on European Union (EU) Member States, the FPB is urging government to take the lead in supporting the UK's smallest firms.

'It is down to the UK's law-makers to implement real tax reforms which help small businesses, rather than undermining them as the existing system does,' said Orford.

'The burden of tax is one of the most significant barriers to growth that businesses face. The shadow chancellor's proposals are, therefore, a welcome step in the right direction. We must ensure that these proposals are backed by real action.'

In November 2007, Osborne signed the FPB's petition calling on the Government to reverse its decision to increase Capital Gains Tax (CGT) by removing entrepreneurs' taper relief, which had benefitted many of the FPB's members.

It followed research carried out in Referendum, the FPB's quarterly survey of members, in which a huge 97% of respondents said the UK had become a worse place in which to do business as a result of the government's tax regime.

Recently, the House of Lords' Finance Bill Committee analysed the UK's tax system. The report observed that 'the feeling that the system is unstable and subject to severe shock cannot be good for competitiveness of the UK economy'.

In particular, it criticised the sudden removal of indexation relief, by which CGT calculations were adjusted favourably to take account of inflation.

Osborne's plan echoes recommendations made by the former Conservative chancellor, Lord Howe, in his working group's proposals to simplify tax. It would ensure that any proposals to change tax law are made no later than the Pre-Budget Report, allowing for adequate consultation on them. It would also improve scrutiny by creating a committee on taxation and an Office of Tax Simplification, involving tax officials and academics.

The shadow chancellor said he intended to bring about an end to stealth taxes.

'The result will be that simplification becomes an embedded feature of tax policy. It will also mean better tax law as we bring more expertise to bear on legislation,' he said. 'And it will mean no more stealth taxes. Government will no longer be able to bury the bad news in the small print.'

Osborne added: 'At a time of deep economic difficulty, the last thing the Treasury should be doing is creating yet more uncertainty and instability.'

The FPB believes that the planned increase in the lower rate of corporation tax from 19% to 21% over the past 12 months, rising to 22% in April 2009, is unfair. The higher rate, paid by bigger businesses, is being cut from 30% to 28%.

Following a survey of the FPB's members ahead of the 2007 Comprehensive Spending Review, 67% of respondents said that reversing the decision to increase small firms' corporation tax would encourage them to reinvest in their businesses. Further, 49% indicated they would have extra funds to invest in skills and training, and 47% said they would be more likely to seek to grow their businesses.

There have also been accusations of widespread tax avoidance amongst big businesses, and the FPB is concerned about the Government's plans to impose supplementary business rates, and clamp down on 'income shifting', which is a long-standing tax incentive whereby many small, particularly family-run, firms ease their tax burden by distributing income to employees as dividends.