Time for Bold Tax Reform: Why Tweaks Won’t Deliver Growth

Policy Context: A Tax System in Need of Overhaul

Fiona Fernie, Partner, warns:

Rachel Reeves should make the major changes our flawed tax system needs and announce this in the Autumn Budget.

Small Businesses: Growth Traps and Compliance Pressures

One area of concern is the VAT “cliff edge” at £90,000 turnover. Some small businesses deliberately avoid making profits over this limit, so they don’t have to pay VAT. This restricts their ability to grow.

While small firms avoid higher taxes, they also represent the largest part of the tax gap, accounting for £28.1 billion in lost revenue.

Whilst the improved data quality will make it easier for HMRC to detect discrepancies, HMRC should also provide more collaborative support to small businesses acting in good faith to get their tax returns correct.

The Need for Structural Reform

The real reform the economy needs cannot be achieved through short term quick fixes. A major structural reform is required and should be prioritised over the short term need to raise funds.

Complex rules in areas such as IR35, which governs the employment status of freelance contractors, also hinder business growth. Simplifying this legislation, would make it easier for companies to use contractors and scale efficiently.

Corporate Tax Complexity and Investment Risks

Beyond small businesses, large and internationally mobile companies face their own challenges. Recent HMRC changes to National Insurance Contributions (NICs) for globally mobile executives, applied retrospectively, risk discouraging investment: This NIC policy discourages international businesses from coming to the UK to invest and creates even more administrative work for an already backlogged HMRC.

Other areas needing attention include the Corporate Interest Restriction regime and tiered corporation tax rates. The interest threshold of £2 million is outdated and should be raised to £5 million, while small companies often fail to benefit from lower tax rates due to complex rules:

Fiona added:

The Chancellor would do well to either remove the lower rates or to significantly simplify the legislation to give greater certainty to taxpayers.

Why It Matters

For businesses, these issues are more than technicalities – they affect growth, investment, and strategic decision-making. Small companies risk self-limiting their growth to avoid VAT thresholds. Large businesses face increased administrative burdens and uncertainty. International firms may reconsider UK operations in light of retrospective tax rules. For policymakers, the stakes are clear: reforming the system could unlock growth, simplify compliance, and strengthen revenue collection without stifling enterprise.

What You Should Consider / Do Next

Plan for complexity: Review VAT, corporation tax, and IR35 compliance to ensure your business is prepared for potential reforms.

Engage early: Participate in consultations or industry groups to influence how reforms are shaped.

Scenario-test investment decisions: Consider how NIC, corporate interest restrictions, and other policies affect long-term expansion plans.

Seek clarity: Work with trusted advisors to navigate complex rules, minimize risks, and capitalize on opportunities from potential simplifications.

Next Steps

If you would like to discuss how the Autumn Budget could impact your business, your wealth or your long-term financial plans, please contact your usual Blick Rothenberg adviser or Fiona using the form below.