Essay on One-Year Tax Exemption for First Time Business Owners in UK

This essay delves into the potential benefits of a one-year tax exemption for first-time business owners in the United Kingdom. It begins by outlining the current business environment in the UK, highlighting the challenges posed by Brexit and the complexities of the existing tax system, including corporation tax, national insurance contributions, and VAT. The essay argues that a temporary tax exemption could provide a significant boost to the economy by easing the financial burden on new businesses, particularly in light of Brexit uncertainties and recent tax increases. It considers the positive impact on business owners and the economy. The essay concludes by advocating for policy makers to consider this strategy to re-establish the faith of small business owners in the UK's economy.

Running head: ONE YEAR TAX EXEMPTION FOR FIRST TIME BUSINESS OWNERS
One-Year Tax Exemption for First Time Business Owners
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1ONE-YEAR TAX EXEMPTION FOR FIRST TIME BUSINESS OWNERS
Introduction
The United Kingdom is one of world’s best places to start a business. Whether one plans
to start a small business or big, UK provides many opportunities for everyone. However, after
Brexit, that is Britain’s exit from the European Union, businesses in UK have received a blow.
The Brexit has certainly created a fissure in UK’s business sector (Britishchambers.org.uk 2017).
Other than Brexit repercussions, complex tax norms are also a problem that is faced by
businesses in the UK especially small businesses.
The essay puts forward plans that can be implemented to reassure the businesses to stay
in UK. One-year tax exemption for first time business owners will boost the economy.
Business scenario in UK
In June 2016, the people of Britain made a historic decision when they voted for Britain’s
exit from the European Union. Among the 71.8% participant in the election, 51.4% voted for
Leave while 48.6% voted Remain (BBC News 2017). The business community in particular,
faced great troubles after Brexit. However, things began to normalize after a year and a half and
the economy has been stable.
Another concern for businesses especially small businesses in UK are the different taxes
imposed upon them. The taxations system in the UK for small business involves corporation tax,
national insurance contributions, sole trading tax, local business tax and value added tax (VAT)
amongst others. Pope and Waters, (2014) in their survey of the United Kingdom Tax System
highlighted the revenues earned by the government through taxes. Their survey revealed VAT,
National Insurance Contributions and Income Tax to be the highest contributors to government
revenues for the 2016-2017 fiscal years.

2ONE-YEAR TAX EXEMPTION FOR FIRST TIME BUSINESS OWNERS
However, the recent news of hike in tax rates has hit the SMEs severely; believe experts
(Card, 2017). Philip Hammond, in his first budget announcement declared that there would be a
rise in the NICs paid by small business owners and self-employed citizens. The decision has
been criticized by many especially the small business owners. Although the chancellor claimed
that the new changes in taxation system would boost the economy, it remains to be seen whether
the SMEs will be benefitted by it or not.
On one hand, the businesses are hit by tax increase and on the other, many experts argue
that UK has a better taxation system than in many developed nations. According to a survey by
UK’s leading newspaper, an individual or small business who earns 100, 000 pounds a year has
to give away 34.3% of his or their income as tax (Collinson 2017). Nonetheless, the tax-free
allowance provided to the low-income businesses is higher than in majority of countries, found
the survey.
The disparity between the actual situation of small businesses and several surveys shows
that there needs to be an alteration in the taxation system especially for the first time business
owners.
Tax levied by government on business owners
Mentioned earlier in the essay, the UK government levies different taxes on business
owners. The prominent taxes include Corporation Tax, National Insurance Contributions and
VAT.
Corporation Tax – this type of tax is paid by limited companies, any company that has a
branch in the UK, a cooperative or a club. Corporation Tax has to be paid irrespective of the
duration of the business one does. First time business owners may have to take help from

3ONE-YEAR TAX EXEMPTION FOR FIRST TIME BUSINESS OWNERS
professional accountants or tax advisers to prepare the tax. Corporation Tax is deducted from the
profits a business earns such as trading, investments and selling assets (Gov.uk 2017).
National Insurance Contributions – This is the amount any small business owner whether
established or first time, self-employed, employed and other business owners pays to the HMRC.
NICs are paid to be eligible for assured benefits and the State Pension (Nidirect.gov.uk 2017).
NICs are categorized as Class 1, Class 2 and Class 4. An employed person comes under Class 1
where he or she has to pay on earnings of more than 157 pounds a week. Self-employed
individuals pay Class 2 contributions weekly and Class 4 annually on profit of or above six
thousand pounds.
Value Added Tax (VAT) - VAT is a relative tax paid on all trades. Businesses are
permitted to deduce VAT paid by them for the products. Thus, VAT simply means the tax paid
on value added at every phase of production. Those companies that surpass the VAT registration
step of 83 thousand pounds need to pay VAT. Small businesses with sales limited to 230, 000
pounds a year can use the flat rate VAT scheme, which means that these businesses only pay
VAT at single rate and are not permitted to recover VAT on inputs (Pope and Waters 2014).
Tax exemption for first time business owners
Starting a business in the UK is no longer a walk in the park as it used to be some years
ago. Many reasons contribute to this situation, Brexit being the most prominent (Lewis 2017).
Keeping these factors in mind, exempting tax for one year for the first time business owners in
UK can largely benefit the economy.
Several factors, two in particular are taken into consideration while proposing this
strategy. First, the repercussions of Brexit on the minds of business owners and those planning to

4ONE-YEAR TAX EXEMPTION FOR FIRST TIME BUSINESS OWNERS
start a business in the country could be eased by the exemption. It would give them an assurance
that they can start their business without having to worry about any tax burdens.
Second, with the announcement of the new tax rules and hikes in various taxes, first time
business owners might be confused and reluctant as well. This can be dealt with the exemption
strategy allowing them to set up their business and then think about paying taxes.
Conclusion
The conclusion thus, can be drawn that exempting one-year tax for first time businesses
is a good strategy to re-establish the faith of small business owners in UK’s economy. The essay
elaborated on the business state of affairs in the country and highlighted the consequences of
Brexit- Britain’s exit from European Union. The taxation system of UK has also been
emphasized in the essay with proper explanation and references from experts. It can be suggested
in the end that the policy makers who are responsible for the country’s economic betterment,
must take into account, the proposed strategy.

5ONE-YEAR TAX EXEMPTION FOR FIRST TIME BUSINESS OWNERS
References:
BBC News. 2017. Brexit: All you need to know. [online] Available at:
http://www.bbc.com/news/uk-politics-32810887 [Accessed 15 Nov. 2017].
Britishchambers.org.uk 2017. British Chambers of Commerce - Majority of businesses support a
referendum on EU membership, says BCC. [online] Britishchambers.org.uk. Available at:
http://www.britishchambers.org.uk/press-office/press-releases/majority-of-businesses-support-a-
referendum-on-eu-membership,-says-bcc.html [Accessed 15 Nov. 2017].
Card, J. 2017. SMEs are the 'biggest losers' in budget 2017. [online] the Guardian. Available at:
https://www.theguardian.com/small-business-network/2017/mar/08/smes-are-the-biggest-losers-
in-budget-2017 [Accessed 15 Nov. 2017].
Collinson, P. 2017. Tax on test: do Britons pay more than most?. [online] the Guardian.
Available at: https://www.theguardian.com/money/2017/may/27/tax-britons-pay-europe-
australia-us [Accessed 15 Nov. 2017].
Gov.uk. 2017. Corporation Tax - GOV.UK. [online] Available at:
https://www.gov.uk/corporation-tax [Accessed 15 Nov. 2017].
Lewis, S. 2017. Small businesses are likely to be hit hardest by Brexit disruption. [online] The
Telegraph. Available at: http://www.telegraph.co.uk/business/2017/07/04/small-businesses-
likely-hit-hardest-brexit-disruption/ [Accessed 15 Nov. 2017].
Nidirect.gov.uk 2017. Voluntary National Insurance contributions | nidirect. [online] nidirect.
Available at: https://www.nidirect.gov.uk/articles/voluntary-national-insurance-
contributions#toc-1 [Accessed 15 Nov. 2017].

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Pope, T. and Waters, T., 2014. A survey of the UK tax system. IFS.