The over-complicated tax system needs an immediate overhaul for the smallest companies in the UK with a call for aligned filing dates, simpler short-term administrative improvements and longer term structure changles to reduce the tax compliance burden, says the Office of Tax Simplification (OTS)
In a major review of small business taxation published today and running to 132 pages, the OTS has set out recommendations and proposals for structural change and improvements to the current administrative systems, including dealings with HMRC and particularly involving the small business community in the tax authority's massive overhaul of the tax system with its ambitious Making Tax Digital programme which will force all transactions online.
Angela Knight, OTS chair, said: ‘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 recommended changes include aligning filing and payment dates, including VAT and PAYE, annual returns and corporation tax.
The OTS also wants HMRC to provide extra support at weekends and evenings when more small company owners deal with their tax affairs, and to stop requiring companies to provide the same information to various government departments, who instead should share the information.
It also wants HMRC to look at the feasibility of having advance clearances for VAT.
Longer term, the OTS wants to look at 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.
In addition, it will work on developing an outline for a new ‘sole enterprise protected asset’ (SEPA) vehicle which will give some limited liability protection without the need to formally incorporate.
It wants the government to initiate work to assess how to simplify the corporation tax computation, eliminating many sundry tax allowances and potentially calculating corporation tax on a cash basis for the smallest companies.
OTS says it plans a listening exercise in order to address ways to improve HMRC’s relationship with small companies.
The report stated: ‘There was a strong and almost unanimous feeling among the small company owners we spoke with that HMRC treated them as potential tax evaders rather than supporting them to make correct tax returns.’
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 HMRC’s important Making Tax Digital’s development to ensure simplification issues from the user’s perspective are considered at every stage.’
For further information, click OTS small company taxation review
