Simpler tax system for smaller companies

On the 3rd March, the Office of Tax Simplification (OTS) unveiled a package of recommendations aimed at making the tax system simpler and easier to use for small companies. The press release says:

“These incorporated micro-businesses, employing less than ten people, currently face the same tax system as large companies with hundreds of employees and turnovers of many millions. The OTS believes this is disproportionate and makes recommendations to start overhauling the system to make it work better for small businesses.

John Whiting, OTS Tax Director said:

We have identified a range of ways the tax system can be improved for small companies – ideas for simpler administration including making sure help is a click or call away. We also believe the OTS should be formally involved in HMRC’s important Making Tax Digital’s development to ensure simplification issues from the user’s perspective are considered at every stage.

We also think that there is promise in new ways of carrying on business and different ways of taxing a company. We need to do more work on these radical ideas and want to hear views on the outlines we have put forward in our report.”

The recommended administrative changes include:

  • aligning filing and payment dates e.g. VAT and PAYE, and annual returns and corporation tax
  • HM Revenue and Customs providing extra support at weekends and evenings when more small company owners deal with their tax affairs
  • stopping companies providing the same information to various government departments who instead should share the information
  • looking at the feasibility of having advance clearances for VAT

The report sets out three main areas for further work:

  • testing whether taxing the profits from the smallest companies on the shareholders rather than the company (‘look-through’) could be simpler for some companies as well as addressing distortions in the system
  • developing an outline for an new ‘sole enterprise protected asset’ (SEPA) vehicle which will give some limited liability protection without the need to formally incorporate
  • simplifying the corporation tax computation, eliminating many sundry tax allowances and potentially calculating corporation tax on a cash basis for the smallest companies

The OTS envisages taking forward the first and second of these longer range ideas and calls on the government to initiate the third.

Fingers crossed that these “simplification” measures really do reduce the level of compliance that small companies face and, more importantly, that the measures are not used to create a new stealth tax…

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