Simplify employment tax to kick-start recruitment

October 15, 2009

David Ellis-David Ellis is partner and head of human capital at BDO LLP. He specialises in the development of tax efficient, performance driven long term incentive plans for senior employees. The opinions expressed are his own.-

There’s no doubt about it, the UK’s complex employment tax regime is a major barrier for businesses to attracting talent. For our new report, launched today, we spoke to 126 financial decision-makers and we found that 34 per cent would be more likely to employ additional staff if taxes were reduced or reformed.

At present, onerous regulation is the fly in the ointment for recession-hit firms. On average, five individuals in each company are spending 5.6 days a month administering employment tax schemes.

These schemes also impact cash flow, which makes the prospect of the extra expense of new staff unfeasible. That’s why 1 in 3 of those surveyed felt that a simpler scheme would improve cash flow and allow manpower to be reallocated to such activities as new business.

Our research found that employment taxes are such a serious issue for businesses that 70 per cent say employment tax policies would affect which political party they would vote for in the next election.

So how can the complex world of employment taxes be untangled? Research shows that 88 per cent of businesses agree with our suggested solution for simplifying the Pay as You Earn and National Insurance Contributions system. We want to see the two merged so that there is just one tax on personal income. This would remove the need for different allowances, rate bands and filing dates.

Another problem is the complexity of HMRC rules holding businesses back from offering benefits to employees, including share-based incentive schemes. Some 55 per cent of firms offered no such scheme, even though they recognise that they attract and retain talent and incentivise staff to perform.

Our vision would be to remove all current HMRC approved or registered schemes and replace them with one arrangement, under which share options could be offered to any employee, on any terms, and at any price. As our survey showed, such schemes would encourage a third more businesses to consider offering share schemes to staff.

Some form of harmonisation and simplification has been talked about for many years. The Government should enter a brave new world, stop talking and act.


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