WA41

Tax initiatives "are stifling small firms"

Working Tax Credit and other similar Government initiatives are stifling small businesses, a recent study has suggested.

Research funded by the Economic and Social Research Council has revealed that small firms are bearing the brunt of the cost of administering the schemes, with Working Tax Credit adding an average 4%-5% to small firms' costs.

The annual cost of payroll administration ranges from £20 per member of staff, to £100 and more, with costs tending to fall as the size of the payroll increases.

A number of respondents expressed concerns that some smaller firms may reduce the hours of work below the threshold for Working Tax Credit, or may be discouraged from employing those eligible for the payments.

Chancellor Gordon Brown has pledged to investigate the possibility of the Inland Revenue paying Working Tax Credit directly to employees.

However, 40% of employers questioned for the research believed that this would not remove their involvement. Many reported that they still receive queries about Child Tax Credit from their employees, even though this is now paid direct to claimants.

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