Tax & admin · 4 March 2016

Tax simplification review aimed at easing burden on micro firms

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More help should be given to micro firms struggling with tax administration, an OTS review found

The Office of Tax Simplification (OTS) has published a package of recommendations aimed at creating a simpler and easier to use tax system for Britain’s micro businesses.

Recognising that micro business owners spend too much time and money sorting out their taxes or paying someone to do it for them, the recommendations made by the government’s independent tax advice office aim to cut the work and worry for Britain’s 1.3m incorporated micro-firms.

The OTS sees as disproportionate the current system, in which firms employing less than ten people face the same tax administrative processes as large companies with hundreds of workers and millions in turnover.

“A company with a few staff should not face the same burdens as a multinational,” said OTS chair Angela Knight. “The tax system needs greater flexibility so that micro businesses receive the benefits of incorporation but not the unnecessary administration burdens.”

The review’s recommendations drew on extensive evidence gathered from representatives from Britain’s small business community, including an online survey submitted by 285 businesses.

The review’s recommended administrative changes to the tax system included aligning filing and payment dates for VAT and PAYE taxes as well as annual returns and corporation tax. It suggested HMRC provide extra support at weekends and evenings when more micro firm owners deal with taxes, and recommended that government departments should share information on companies rather than micro firm owners having to provide the same information more than once.

The review also outlined three main areas for further work. Simplification of the way micro businesses pay corporation tax, eliminating sundry tax allowances and calculating corporation tax on a cash basis for the micro firms, was recommended. The government was also advised to start testing whether taxing micro companies’ profits shareholders rather than the company could be simpler and more cost effective.

The review recommended the government develop a new “sole enterprise protected asset” tax vehicle that would give limited liability protection to micro firms without the need to fully incorporate businesses.

Commenting on the review, OTS tax director John Whiting said: “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.”

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Fred Heritage was previously deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London.

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