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The Office of Tax Simplification (OTS) has put recommendations to the Chancellor, George Osborne, to ease the tax system burdens on small businesses. Mr Osborne is expected to respond to the recommendations in his Budget speech on 21 March.
The various OTS recommendations are contained within three reports, running to some 150 pages. The three reports concentrate on different areas but are all aimed at making it easier for small businesses to deal with their tax burdens.
Report on Tax administration
This document says that much is right with the way HMRC handle the tax affairs of small companies, although the OTS has also said that it is fully aware that there are some problems. The range of practical changes the OTS has suggested aims to build on the efforts HMRC is already making to improve the service to this sector.
The recommendations
| Education and support |
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More should be done to let small businesses know what support is available to them to help them with their tax affairs. |
| Communication and relationships |
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Introduction of two-way email communication; a dedicated small business telephone helpline and better tracking of communications. |
| Providing certainty |
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More HMRC staff training and better use of available information should enable businesses to get clear answers on which they can rely. If the issue is complex it should dealt with by a named HMRC officer from start to finish. There should be greater use of suspended penalties to reduce the fear of penalties for innocent mistakes. There should be clearer VAT rulings. |
| Making it easier to fulfil obligations |
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HMRC has an obligation to help taxpayers comply with the tax system and this needs to be improved. |
Report on Simplified taxation for the smallest businesses
This report acknowledges that the smallest “one man band” businesses with turnover under £30,000 (or “nano-businesses”) often use cash accounting. The claiming of business expenses is proportionately a huge burden given the value of the items involved.
The recommendations
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Cash accounting
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Cash accounting should be an acceptable basis for nano-businesses to calculate their profits for tax purposes. The OTS, however, prefers the term “receipts and payments” rather than cash accounting.
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Flat rate allowances
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A wider range of flat rate allowances should be available. This would build on those already in use such as the wear and tear allowance for furnished lettings and the mileage allowance for cars. The OTS would prefer such allowances to be the automatic default with the ability to opt out.
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| Alternative system |
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A formal study should be undertaken to consider an alternative system whereby businesses are taxed based on turnover. |
Report on Disincorporation relief
The OTS found that some of the smallest companies would like to ”disincorporate” and become unincorporated. Given the difficulties of this under the current system the OTS has recommended a disincorporation tax relief.
The recommendations
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Disincorporation relief
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At the very least the relief should allow the business of a company, including its goodwill, to pass to an unincorporated business with no tax charge.
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Extended relief
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For trading companies extend the relief to cover property and plant and machinery used wholly in the trade of the business.
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| Time limit |
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The relief should be available for up to five years and then reviewed again. |
Conclusion
The OTS really do seem to be trying to make the tax system easier for the smallest businesses. Many of the common sense ideas in the reports have come from 4,000 small businesses and their advisers.
We hope that Mr Osborne responds positively to the recommendations in his Budget speech later this month. However given the other pressures on the Treasury and HMRC at the moment our fear is that any changes will not be made for some time.
We would also like to see the OTS expand its role to look at tax simplification for larger businesses and not just those with turnovers of under £30,000.
More information
You can read the full reports at http://www.hm-treasury.gov.uk/ots.htm
We can help
If you need assistance with your business’s tax affairs we can help. Whether you need help complying with your tax obligations or want to know how we can save you tax please speak to Ruth Dooley on 01452 634800 or email her at ruth.dooley@hazlewoods.co.uk.
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