Making small company taxation easier

OTS review to liaise with IR35 discussion

The Office of Tax Simplification (OTS) will carry out a project reviewing the taxation of small companies. The overall aim of the project will be to develop recommendations on how to simplify the system, increase certainty and reduce administrative burdens caused by the tax system.

In conducting this review, the OTS will provide an initial report to the Chancellor by Budget 2016 that:

  • examines evidence and identifies the areas of the tax system that cause the most day-to-day complexity and uncertainty for small incorporated businesses

  • recommends priority areas for simplification

  • considers the impact of any simplification in these areas on other business sectors, particularly small unincorporated businesses

It may publish interim reports or calls for evidence during the review.

The review will include, but will not be limited to, consideration of:

  • The differing requirements imposed by the tax system on small companies compared with unincorporated businesses (sole traders and partnerships)

  • Whether and how tax affects the choice of business form and whether the choices faced by new and existing businesses can be simplified

  • Whether there are simpler ways that small companies could be taxed

  • Simplification of tax policy for companies and how this compares with that for unincorporated businesses, including the relevance of  cash-accounting

  • Simplification of administration in the context of HMRC’s digital reforms, in particular:

    • Setting up a company when a business starts
    • Carrying out the day to day activities of the business, including record keeping
    • requirements, returns, payments and the tax related choices that must be made by the business.
    • Closing the company when the business ceases
    • The distortions between the personal and business tax systems

Although the OTS’s review will not specifically cover IR35, as this is subject to the discussion document on improving the effectiveness of the intermediaries’ legislation, the OTS will liaise closely with that review.

The OTS will concentrate its review on micro businesses (defined as having 1-9 employees), but will have regard to small businesses as well (10-49 employees).

In the “Small Business Survey 2014” published by the Department for Business Innovation & Skills (BIS) in March 2015, 49% of the micro business population regard taxation as an obstacle to business success and that for the small and medium-sized enterprises (SME’s) population as a whole 11% regard taxation as the main obstacle to business success.

In carrying out its review and developing its recommendations, the OTS will, amongst other things:

  • Research widely among all stakeholders

  • Aim to build consensus amongst small businesses, tax professionals and academics

  • Take into account current and emerging trends amongst small businesses, including the implications of features such as working from the proprietor’s home, the growth of exporting amongst small businesses, and an increasing tendency to outsource work to other businesses

  • Consider all taxes and duties that impact on small businesses, including the administrative burdens imposed

  • Consider the merit of framing reforms on a ‘default’ basis, such that a simpler basis is the assumed course for taxation but with scope for businesses to opt into a different basis

1 Comment

  • Peter Wullems says:

    It would be really good to have the opportunity to offer suggestions but so often with bureaucracies that is not offered. A prime target for me would be the notion of VAT invoices and compliance. All invoices by default should be considered VAT invoices. The administrative cost of doing otherwise is beyond belief. Should we really need to ask for VAT invoices? Why not just accept an invoice as a VAT invoice? The fact that companies produce an invoice that explicitly states that this is not a VAT invoice shows that the system is already out of control. Should the production of VAT invoices be a separate issuance? The cost of compliance falls heavily on all businesses but brings little or no benefit. It’s sole purpose is to make excessive control possible for small minded public service employees purely because they can without validating the actual benefits accrued.

    Stop the nonsense!

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