Simplifying tax for small companies

Office of Tax Simplification

March 3
10:34 2016

The Office of Tax Simplification (OTS) has today (Thursday 3 March 2016) unveiled a package of recommendations aimed at making the tax system simpler and easier to use for small companies.

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.

OTS Chair Angela Knight said:

A company with a few staff should not face the same burdens as a multinational.

The Office for Tax Simplification wants to cut the work and the worry for Britains 1.3 million incorporated micro-business owners. Britains micro-businesses are spending too much of their time and money sorting out their tax or paying someone to do it for them.

The UK has a growing number of small, incorporated businesses and helped by new technology and platforms, the trend is for people increasingly choosing to be their own boss (with more control over how they work) rather than being an employee. Many are sole traders who have chosen to incorporate to limit their liability, to enhance their credibility and to provide a more formal business structure.

The tax system needs greater flexibility so that micro-businesses receive the benefits of incorporation (such as limited liability) but not the unnecessary administration burdens. This review sets out what changes can be made now and the next steps required.

The OTS recommendations draw on extensive evidence gathering from small companies, their representatives and other interested parties, including an online survey completed by 285 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 HMRCs important Making Tax Digitals development to ensure simplification issues from the users 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 eg 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.

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