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Small business owners would pay more tax, if the system was simpler and it cracked down on tax avoidance by their competitors.

Smaller firms believe they're at an unfair disadvantage compared to bigger companies. Most smaller companies also complained that the tax system deters them from hiring more staff.

Phil Orford, chief exec of the Forum of Private Business, said: “The cost of complying with Britain’s hugely complex tax system is such that, if simplification and profitability result, most businesses believe a little more tax would be a price worth paying.

“Clearly, if the government is serious about stimulating small business growth, streamlining tax administration must be a priority.

“In addition, small businesses are deeply concerned that the tax system favours large companies and is deeply unfair. Plans to clamp down on tax avoidance, for example, seem to fall short in several areas.

“How can the government continue to allow major retailers to set up shop in the Channel Islands to deliberately undercut small shops and internet businesses by exploiting a VAT loophole that clearly distorts competition and leads to tax abuse?” he asked.

The Forum of Private Business surveyed its Tax and Budget member panel in response to the government's promise to review the tax system via the Office for Tax Simplification.

Some 57 per cent of those surveyed said they would pay more tax in exchange for a simpler system and less red tape.

The impact of VAT rises seems mixed on FPB members – 21 per cent it would have a significant impact, but 48 per cent said it would create minimal problems for their business.

Seventy-eight per cent agreed that the tax system deters them from hiring new staff; 45 per cent said the tax system has a negative impact on financial planning; and 41 per cent said it impedes prompt payment.

In other news, the Federation of Small Business said that smaller firms are less confident now than they were a year ago.

The FSB's "Voice of Small Business Index" fell for the third successive quarter to -13.2 – the deepest decline since March 2010, when polling began.

The lobby group said the private sector recovery stumbled in 2010. It said that cash-flow constraints caused by higher utility bills, fuel duty and VAT coupled with the impact of public sector cuts meant growth in 2011 "is also likely to be sluggish at best." Bad weather at the end of 2010 also had a negative impact.

The picture for employment is not much better – 77.7 per cent of FSB respondents said they expected to maintain current employment levels and 12.4 per cent expect to cut staff numbers, up from 10.4 per cent in the third quarter. ®

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