Conservative tax proposals to help small businesses

Has someone announced that we're going to have a general election next month? The detailed 'proposals' called for by the Conservative party this week are the sort of thing I would expect to hear about at election time.

These proposals, announced by David Cameron in the Observer and aired during an interview on BBC Breakfast this morning are quite detailed and, sad to say, entirely academic.

I suspect that the idea is to give some idea as to what the Tories would do if they were in power at this time. A series of proposals. And that's a good thing. But have these ideas been thought through or are they nice soundbites designed to generate some useful headlines?

Cameron proposes 1p cut for firms
This is a 1% cut in employers' NICs for businesses employing four or fewer staff. And only for 6 months. Given where we are now that would mean partially in the current tax year and partially in the next tax year. I hate to imagine the administrative hassle this would cause - even if it were possible to get HMRC and taxpayers' software systems to cope. And that's a BIG if.

I think the costs of managing this and dealing with the inevitable errors will exceed the (upto) £600 saving to the employer that the proposal is said to be worth. Thank goodness it's just a proposal by an oppoition party and not a realistic policy.

Six-month VAT holiday for small and medium-sized firms
No need to pay to HMRC the VAT collected from customers for six months to assist cashflow.
I can see good and bad in this 'proposal'. What do you think?

Small companies’ rate of corporation tax to be reduced to 20p
Not mentioned by David Cameron in the TV interview but included in the statement issued yesterday by Alan Duncan, the Shadow Secretary for Business. And it was also in The Observer.

I can just imagine the Treasury's reaction this one. The rate is being increased to counter the impact of Gordon Brown's ill judged introduction of a zero rate of corporation tax. This led to hundreds of thousands of small businesses to 'incorporate' and save tax. Various attempts to counter this were subsequently introduced, most recently a steady increase in the small companies rate of corporation tax.

What I did like about these announcements is the evident focus on the "vast majority of businesses that are 'small and medium sized'". But don't be misled. The definitions commonly used for small and medium sized companies are not what you might think. This becomes obvious if you consider the Government's definition (as imposed by the EU) simply of 'small' companies:

A company (or group) qualifies as a small or medium-sized company (or group) if it meets two out of three criteria relating to turnover, balance sheet total and number of employees:

• Turnover: Upto £5.6 million. (Five point six million pounds)
• Balance sheet total: Upto £2.8 milliion.
• Number of employees: Upto 50.

What I find most odd though is that David Cameron, in his Observer piece refers to "a typical small business with 50 employees". Er, no. Something like 95% of small businesses have less than 5 employees (sorry, can't trace the statistics that show this at the moment). Once a 'small business' gets upto 50 employees it's about to be reclassified as medium sized.