KPMG: Scotland’s firms overlooking the value of tax reliefs

Alan Turner

While KPMG said 96 per cent of businesses are predicting to grow at least 5 per cent for the year ahead, less than one in three (29 per cent) see the tax system as a key driver, highlighting the need for a better understanding of current tax reliefs and incentives on offer.

KPMG’s Backing Business Growth survey spoke to 1,000 small to medium-sized enterprises (SMEs) across the UK – including 100 in Scotland – to explore attitudes towards the tax system and whether it is providing the most effective incentives and support for growth ambitions. Each business surveyed in Scotland has an annual turnover of at least £10m and 83 per cent are privately owned.

The majority (84 per cent) of respondents in Scotland said tax was important in making business decisions but only one in five (22 per cent) said they were making full use of the tax reliefs and incentives which currently exist in the UK.

Businesses were clear in identifying the policies they felt were the greatest drivers of job creation and innovation, such as additional tax relief for employee training, tax efficient share rewards and additional R&D tax deductions.

However, they were less clear on linking tax initiatives driving creativity and productivity, with no single particular initiative standing out.

Alan Turner, head of tax for KPMG in Scotland, said: “Understanding how well the tax system is working for SME and Mid-Market businesses - the engine-room of the Scottish economy - could not be more important, especially as we move towards a post-Brexit economy.

“It’s positive to see businesses are planning to grow, however, our research shows 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.”

Almost two-thirds of businesses in Scotland feel that current tax policy is broadly on the right lines to encourage growth (69 per cent). However, a similar number (64 per cent) say simplifying the tax system should be the priority of the government and (62 per cent) believe the current system is too complex.

While across the UK, 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, 78 per cent think the tax system supports growth compared to just 18 per cent within the moderate growth segment.

Similarly compared within the 27 per cent of businesses that say they are making maximum use of the tax system, this rises to 75 per cent in 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.

Mr Turner said: “The data shows businesses consistently feel 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 business’s level of engagement can depend on a number of factors such as growth aspirations, size of company, location and sector.

“One possible way forward is to provide more explanation of the intentions behind policies which might help raise awareness amongst these businesses. Equally, businesses need to view tax as a valuable lever to grow or invest and should consider it upfront as part of the 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.” 

Across the UK businesses were split on how policy could best drive local activity:

• Job creation: Around half of business (46 per cent) in Scotland believe additional tax relief for training is the best driver for growth, compared to only one quarter (26 per cent) in London
• Innovation: 46 per cent of companies in Scotland see tax efficient share awards for employees as key to driving innovation, in comparison to 26 per cent of companies in the UK as a whole
• Creativity: Whilst 20 per cent of businesses in Scotland and UK-wide said that additional tax relief for R&D expenditure would encourage creativity, 23 per cent of Scotland based businesses saw 100 per cent tax relief on machinery acquisition as key compared to only 16 per cent of the rest of the UK