Start-ups may get income tax boost

By DAN ATKINSON
Updated: 17:09 EST, 18 June 2011

New firms could be allowed to pay a simple flat rate of PAYE income tax for all their employees for their first five years in business.

The Treasury is looking at this and a number of other proposals that would lift the burden of tax collection faced by entrepreneurs.

A Whitehall advisory board came up with the idea, which would spare start-ups from having to administer a range of tax codes for staff.

New proposals: The Treasury is looking at simplified PAYE for new firms in first five years

But it could mean a headache for their employees if, as expected, they would be left responsible for squaring their personal account with Revenue & Customs at the end of the tax year paying any extra tax required.

Business organisations broadly welcomed the proposal, which emerged from the Administrative Burdens Advisory Board, a forum linking the Treasury, Revenue, business and the accounting profession.

Treasury Minister David Gauke, who has attended at least one board meeting, is committed to cutting the time and money spent by small businesses in collecting taxes.

A Treasury spokeswoman said that the Minister wanted the tax system to ‘make it easy for small business to employ people’. She said: ‘The Government is carrying out a major reform of the PAYE system.’

At present, even the smallest start-up must collect three different rates of PAYE income tax, plus the Revenue’s emergency tax code. Then it must administer National Insurance contributions, maternity pay, student loan recovery and payment of the minimum wage.

John Whiting, tax director at the Chartered Institute of Taxation and a board member, said: ‘It is one of those good ideas that is worth exploring. Potentially, of course, the employees may have to make up any extra tax owing, unless the idea were that anybody working for a new company would simply pay a different, presumably lower, rate of income tax.

‘Employers would certainly see a burden lifted, but the responsibility for “reconciliation”, as it is called, at the end of the tax year would be likely to fall on the employers.’

Gauke told the board that an eventual move to give the Revenue ‘real time’ oversight of what people owe in tax could prove equally simple to administer as a flat PAYE rate, as small firms would be automatically kept informed as to what was owed by each employee at any time.

Such a suggestion has proved controversial in the past, with the Revenue accused of wanting, in effect, a copy of everyone’s pay cheque.