This week the Office of Tax Simplification (OTS) put forward its recommendations to ease the tax burdens on thousands of small businesses, to the Chancellor of the Exchequer. The proposals follow the OTS's full report on small businesses and focus on three key areas to assist the small business sector to handle their tax obligations easier.
Tax Administration
Whilst the OTS considers that much is working well they have found clear scope for changes to be made in the way the tax system is run that will be of genuine benefit. The OTS has developed a range of practical changes that will elevate awareness of the help that is available, improve communications and improve relationships between small businesses and HMRC. Recommendations include the use of two way e-mail communication, better VAT rulings and information and a dedicated helpline for small businesses.
Simplified Taxation for the Smaller Businesses
The OTS has established that the very smallest businesses, often “one man bands”, widely use cash accounts and advocates that they should be allowed to use receipts and payments accounting rather than being forced to employ Generally Accepted Accounting Principles (GAAP), which can be burdensome. It also recommends that a wider range of flat rate expense allowances be available and that a full study be carried out of a turnover tax as a potential alternative for the smallest businesses.
Disincorporation
A number of the smallest companies wish to disincorporate and continue trading as an unincorporated body. The current tax system does not make such a move easy, so the OTS has proposed the introduction of a tax relief that would allow the unravelling of a company without incurring significant tax costs. This would run alongside the current incorporation relief. The OTS believes this would encourage businesses to trade in their correct form.
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