North West businesses optimistic for growth but overlook the value of tax reliefs

  • Majority of SME and Mid-Market business in the North West planning growth for 2019 but less than only a quarter of businesses see tax as a key drive
  • Positive awareness of the most effective tax incentives for job creation and investment, but less so for innovation, productivity and regional development
  • Businesses broadly agree that tax policy is on the right lines to encourage growth, but complexity remains a concern
  • Growth expectations play a key role as faster growing businesses say they make more use of tax incentives compared to moderate growth companies   
  • North West businesses say local enterprise zones and flexible immigration policy would best improve regional business activity

Despite wider economic uncertainty, the majority of SME and Mid-Market businesses in the North West surveyed are planning to grow in 2019, but struggle to see the value of tax relief to drive that growth, according to new research from KPMG.

While 96% of businesses in the North West are predicting to grow at least 5% for the year ahead, less than a quarter (24%) of regional firms see the tax system as a key driver, highlighting the need for more understanding of the tax reliefs and incentives on offer.

KPMG’s second annual Backing Business Growth survey spoke to 1,000 small to medium-sized enterprises (SMEs) across the UK, including 150 in the North West, with an annual turnover of at least £10m – 82% of which are privately-owned – to explore their attitudes to the tax system and whether it is providing the most effective incentives and support for their growth ambitions.

Businesses understand importance of tax but don’t make full use of reliefs on offer

The majority (90%) of respondents in the region said that tax was important to at least some extent in making business decisions, but less than a quarter (23%) said that they were making full use of the tax reliefs and incentives on offer.

Businesses were clear in identifying the policies they felt were the greatest drivers of job creation and investment (such as additional tax relief for employee training and the Enterprise Investment Scheme) but were less clear on linking tax initiatives to specific outcomes that drive innovation, creativity and productivity.

While overall, the majority of those surveyed do not think tax is a ‘driver for growth’, segmenting businesses by growth expectation revealed differing attitudes between companies expecting fast or moderate growth.

Among higher growth businesses across the UK, 78% think the tax system supports growth compared to just 18% within the moderate growth segment.

Similarly compared with 27% of businesses that say they are making maximum use of the tax system, this rises to 75% within the fastest growing segment, suggesting that growth businesses are more engaged with the tax system. The report found further differences when looking at the size of firm, its location and the sector that it operates in.

Jennifer Lee, Tax Director at KPMG in Liverpool said: Understanding how well the tax system is working for SME and Mid-Market businesses - the engine-room of the UK economy - could not be more important, especially as we move towards a post-Brexit economy.

“It’s positive to see that these businesses are planning to grow, and this underlines their ambition. However, our research shows that there are significant gaps where businesses struggle to use the tax system to help them reach their goals and find it difficult to link tax initiatives to specific outcomes.”

Calls for tax system simplification

More than six in ten North West businesses (62%) said that simplifying the tax system should be the priority of the government as a similar number (61%) felt that the tax system is too complex, up from 43% in the last survey.

Regional differences

Businesses were split on how policy could best drive local activity. Creating local enterprise zones and providing flexibility to vary immigration policies were the most likely policies identified by North West firms (18% each).

Jennifer Lee concluded: “The data shows that businesses consistently feel that there is too much complexity in the system – the right incentives are there but making the most of them is not always straightforward for SME and Mid-Market businesses, which are often resource-constrained.

“Furthermore, a businesses’ level of engagement can depend on a number of factors such as their growth aspirations, size of company, location and the sector that they operate in.

“One possible way forward could be to provide more explanation of the intentions behind policies which might help to raise awareness amongst these businesses. Equally businesses need to view tax as a valuable lever to grow or invest and consider it upfront as part of their decision-making process rather than retro-fitting it during the tax return cycle. Only through better engagement and understanding will we be able to drive growth from the tax system through to business.”

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