Think Tanks
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Think tank calls for flat tax for start ups

The Chancellor should announce radical tax simplification in next week's Budget, with the aim of developing a three year flat tax for all start-up businesses.

A new report by leading think tank Policy Exchange says that policymakers need to move on from a skewed debate around bank lending, and do more across the entire funding "ladder" for high growth businesses and investors. In particular Government should concentrate efforts on removing barriers and targeting support for innovative small businesses that have the aspirations and the potential to achieve rapid growth.

The report – Financing Innovation – argues that the Government should consider allowing new businesses to bypass all the current complexity on charges, reliefs, rates and exemptions and instead deal with a simple flat tax. While a move to a single rate and allowance should not amount to a tax break, it would give business owners real clarity about their maximum tax liability each year.

The report is critical of the current tax system, saying that constantly changing rules can be confusing and prevent small business owners focusing all of their efforts on growing the business.

The report also recommends a new model for extending finance to young entrepreneurs who want to start a business.

A new Enterprise Kickoff Fund would provide small start-up loans on commercial terms to young people who would otherwise struggle to obtain finance, and in return receive a small equity stake in their business.

The fund would be run under private management and raise its finance from private sector savers and investors. The Government would support the operation of the fund by, as a last resort, helping
to recover any unpaid loans through the tax system.

The report says that a fund lending £3,000-£5,000 to 40,000 young entrepreneurs would need to raise and allocate £120-£200 million a year. This is less than one half of 1% of the £54 billion subscribed to ISAs in 2010/11.

Chris Yiu, author of the report, “A three year flat tax would give start-ups a more predictable and stable future, giving business owners one less thing to worry about and more time to really focus on running and growing their business.

“A privately run Enterprise Kickoff Fund would give thousands of young entrepreneurs access to the few thousand pounds they need to bring their idea to life.”

NOTES

There are around 4.3million micro businesses – companies made up of ten people or less - which would benefit from a long term, stable tax regime. Micro-businesses account for 31 per cent of private sector employment and 20 per cent of private sector turnover.

For more information contact Nick Faith on 07960 996 233 or at nick.faith@policyexchange.org.uk

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