The Office of Tax Simplification (OTS) has called for a series of changes to the tax system to ease the administrative burden felt by microbusinesses.
In its small company taxation review, the 'making tax digital' (MTD) plans have added impetus to the OTS's recommendations to simplify tax. In addition, the OTS has asked to be formally involved in MTD's development to ensure simplification issues are considered.
Commenting on the review, OTS chair Angela Knight stressed the burden of tax on small companies.
'Britain's microbusinesses are spending too much of their time and money sorting out their tax or paying someone to do it for them,' she said.
The OTS suggested a raft of administrative changes, following on from a series of discussions the back of a series of discussions they held with over 280 small businesses and accountants.
These include:
This is a taxation on shareholders as a solution to low salary/high dividends distortions, where the company's structure is ignored and the owner is taxed as self-employed.
The OTS would like further exploration into this model to see whether it this could offer simplification for the majority who distribute all their profits.
While 'look through' garnered a mixed response from the consultation, self employed and freelancer association IPSE foresees this option causing more problems. Chief executive Chris Bryce said: 'Those who work flexibly need to be able to manage cash flow in their business freely, and so the ability to retain money in the company is essential - something this proposal may restrict.'
OTS recommended exploring the possibility of a cash basis of accounting being used for the smallest companies.
In addition, a lot of the owners wished HMRC would provide support outside of working hours.
Also discussed was the need to develop an outline for a new 'Sole Enterprise Protected Asset' (SEPA) vehicle, which will give some limited liability protection without the need to formally incorporate.
John Whiting, OTS tax director, said: '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.'
This article first appeared on our sister site, accountingWEB.co.uk. To comment, login or sign up to UKBF.
In its small company taxation review, the 'making tax digital' (MTD) plans have added impetus to the OTS's recommendations to simplify tax. In addition, the OTS has asked to be formally involved in MTD's development to ensure simplification issues are considered.
Commenting on the review, OTS chair Angela Knight stressed the burden of tax on small companies.
'Britain's microbusinesses are spending too much of their time and money sorting out their tax or paying someone to do it for them,' she said.
The OTS suggested a raft of administrative changes, following on from a series of discussions the back of a series of discussions they held with over 280 small businesses and accountants.
These include:
- Weekend and evening support from HMRC
- Simplifying corporation tax
- Aligning filing dates across government departments, suggesting VAT and PAYE, and annual returns and corporation tax
Look through system
After assessing the struggles small businesses have with corporation tax, the OTS explored the advantages of a 'look through' system.This is a taxation on shareholders as a solution to low salary/high dividends distortions, where the company's structure is ignored and the owner is taxed as self-employed.
The OTS would like further exploration into this model to see whether it this could offer simplification for the majority who distribute all their profits.
While 'look through' garnered a mixed response from the consultation, self employed and freelancer association IPSE foresees this option causing more problems. Chief executive Chris Bryce said: 'Those who work flexibly need to be able to manage cash flow in their business freely, and so the ability to retain money in the company is essential - something this proposal may restrict.'
Cash accounting
The requirement to file accounts according to generally accepted accounting principles (GAAP) proved complicating for microbusinesses. Accountants raised the concern that the accounts they produced were little use to the owner, because they didn't understand them.OTS recommended exploring the possibility of a cash basis of accounting being used for the smallest companies.
HMRC relations
Microbusinesses' strained relationship with HMRC was also raised. Some small business owners felt HMRC treated them as potential tax evaders, rather than offering help.In addition, a lot of the owners wished HMRC would provide support outside of working hours.
Also discussed was the need to develop an outline for a new 'Sole Enterprise Protected Asset' (SEPA) vehicle, which will give some limited liability protection without the need to formally incorporate.
John Whiting, OTS tax director, said: '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.'
This article first appeared on our sister site, accountingWEB.co.uk. To comment, login or sign up to UKBF.
