Higher taxes ‘may increase insolvency risk for small firms’

Posted 29/10/2009

Possible increases in business taxes may cause a rise in insolvency for recession-hit small companies, according to a new report.

The Federation of Small Businesses (FSB) has called on the government to resist the temptation to increase National Insurance Contribution rates for smaller firms, as this may cause a large number of companies to go under.

It highlighted the fact that around 120 small companies are currently closing on a daily basis due to shrinking profit margins and increasing costs.

Attention was also drawn to research which suggests that an increase in corporation tax from 21 per cent to 26 per cent would result in the loss of 100,000 jobs due to small businesses being driven towards cost-cutting and insolvency.

John Walker, national policy chairman of the FSB, said: “Taxing small businesses to help reduce the public sector deficit is a dead end that will instead cost us dearly in jobs and economic growth.”

The FSB’s conclusion was supported earlier this week by new research from Experian, which revealed that small companies have consistently been the business sector most likely to be threatened by insolvency.