Tax incentives miss enterprise target

Many tax reliefs and incentives need to be reassessed if they are to genuinely help stimulate enterprise and encourage businesses to grow, according to a survey conducted by PricewaterhouseCoopers LLP among UK privately owned businesses.

Interviews were carried out among just over 350 privately owned businesses, with the aim of testing awareness of fiscal incentives and other tax measures and how they were used.

The findings showed:

• Limited awareness, with an average awareness across nine named incentive schemes of 41 per cent;
  
• Low usage, with an 11 per cent average usage across the nine named schemes; and
  
• Limited impact, with a large proportion of respondents that did use the incentives reporting that their commercial behaviour was unaffected, suggesting that these incentives may not be a motivation for behavioural change but a form of reward or concession for what these businesses were doing anyway.

Kevin Nicholson, UK head of entrepreneurs and private companies, PricewaterhouseCoopers LLP, said: "There is wide recognition of a need to reassess the effectiveness of current tax incentives and reliefs for privately owned businesses. We know that Government is keen to work with business towards establishing more effective reliefs and incentives that truly support enterprise. This is a signal to the business community and the tax profession to come up with ideas to ensure these incentives are better targeted and specific constructive suggestions for simplification measures."

Too complex

The findings indicate that the larger the company the more aware a business is likely to be of the tax reliefs and incentives. They also suggest that information is not reaching many small businesses that could benefit from the incentives and reliefs.

Additionally, the process for benefiting from tax incentives and reliefs is seen as too complex in some cases. One third of companies (33 per cent) for whom research and development (R&D) tax credits were relevant said that they did not claim them as the application process was perceived to be too complex.

Likewise, for the enhanced capital allowances, including some green measures, one quarter (26 per cent) were deterred from this relief believing implementation of the tax incentive to be too difficult.

Tax regime

With regard to the UK tax system as a whole, three quarters (76 per cent) of respondents believed that it is not supportive in encouraging enterprise in the UK, because of inadequate support and excessive red tape. Only 22 per cent of respondents said that the current tax regime would be supportive as they move to the next stage of development. Interestingly, 71 per cent of businesses with a turnover below £2 million per year considered themselves to be 'mature and stable', suggesting that there is actually a limited proportion of businesses that really want to grow.

Kevin Nicholson said: "It is a surprise to see that so many small businesses consider themselves mature. While bigger isn't always better, the reasoning behind this response needs to be examined further.

"If businesses believe the tax incentives and reliefs are not of benefit, should the focus of investment and resource be diverted elsewhere and focused on cutting red tape, for example, which may also be behind the feeling that the tax system is not supportive enough of enterprise?"

The majority of respondents to the study (85 per cent) said that privately owned businesses need a more effective voice within HM Revenue & Customs and HM Treasury. One third of the respondents felt that they were able to get their views heard by Government. However, a fifth believed that the views of their company and those of a similar size are being adequately represented to Government.