Budget 2015: Chancellor charms small firms with death to annual tax returns and major reform of business rates

George Osborne eyed small businesses in today’s budget with promises to digitise tax returns and radically reform business rates.

George Osborne eyed small businesses in today’s budget with promises to digitise tax returns and radically reform business rates.

The Chancellor today made a strong play for getting the self-employed on side in his last budget before May’s general election, pledging to end the dreaded annual tax return and review ‘crippling’ business rates.

In a boost for small business owners, George Osborne abolished not only annual tax returns but also class 2 national insurance contributions for the self-employed from the next parliament.

Starting next year, paper tax returns will be scrapped and replaced with digital accounts that keep an up-to-date online record and allow direct-debit instalments.

This will simplify the payment of various levies for businesses and eliminate the much-maligned red tape enforced by HM Revenue and Customs (HMRC), which in the new system will automatically collate tax information from employers, banks and pension providers.

People will no longer have to submit duplicate information about their income or collect receipts, and will be able to pay tax when it suits them – reducing the time it takes to deal with HMRC from 40 minutes to ten minutes, the Chancellor said.

Out of the 11 million people that will be affected by the new tax returns system, 4 million run their own businesses and have long been burdened by self-assessment forms, which result in thousands of fines each year when deadlines aren’t met.

The Chancellor called the new system a ‘revolutionary simplification’ of tax collection.

‘Businesses will feel like they are paying a simple, single business tax – and again, for most, the information needed will be automatically received,’ he said.

‘We believe people should be working for themselves, not the taxman. Tax really doesn’t have to be taxing and this spells the death of the annual tax return.’

The Chancellor also used his budget to promise a radical review of a 400-year-old business rates system that is increasingly hurting small firms, which occupy half of the commercial properties on which business rates are paid.

The current system, in which business rates are based on the rental value of the property a company uses, is seen as extremely outdated in an age of e-commerce where small firms with large premises face far higher charges than online retailers that require minimal space.

‘In my view the current system of business rates has not kept pace with the needs of a modern economy and changes to our town centres, and needs far-reaching reform,’ the Chancellor said.

Changes to the system are likely to help high street shops that are struggling to fend of online competition, and bring down prices for consumers across the UK.

The investigation will evaluate whether business rates should be raised in line with the consumer prices index (CPI) measure of inflation, which excludes housing costs and mortgage interest payments, as opposed to the retail prices index (RPI).

It will also examine whether the smallest businesses should be removed from the system altogether, which would reduce the government’s take by only 6 per cent.

John Cridland, director-general of the CBI, said the current system of business rates is ‘outmoded, clunky and regressive’.

‘This review provides an opportunity to go much further and we’ll be making the case for removing the smallest firms from paying business rates completely, linking rates to CPI rather than RPI and introducing more frequent valuations,’ he said.

‘This would go a long way to achieving a more competitive business rates regime that incentivises business investment and supports the high street.’

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The Budget