Office of Tax SimplificationTuesday, March 13th, 2012
The Office for Tax Simplification (OTS) was established on 20 July 2010 with the purpose of providing independent advice to Government on areas of possible simplification of the tax system for taxpayers and businesses. This advice, in the form of a report, is presented to the Chancellor ahead of his Budget statement which may, or may not, lead to an announcement or legislation change. In November 2010 the OTS published the first ever comprehensive list of the UK’s tax reliefs and allowances on its Website, and invited comments and views from those who use them. In total, 1,042 reliefs were listed, including 225 that relate specifically to income tax. Its final report was made in March 2011, leading to the announcement that some 30+ reliefs were to be abolished in the coming years – 15p tax relief on luncheon vouchers, for example.
In the last couple of weeks, the OTS has submitted two reports for consideration by the Chancellor:
This was published on 28 February 2012 and looked at the issues faced by the UK’s smallest businesses. The recommendations were broken down into 3 separate areas, warranting three separate reports:
The recommendations report acknowledged that there were already HMRC operations geared specifically to the needs of the small business. However, the report looked at issues relating to their experiences of starting up as well as the various stages of compliance necessary in the annual tax cycle. Some of the key recommendations are:
- Greater awareness and accessibility to the information already available, including better communication using communication tools familiar with the smaller business
- Dedicated telephone lines, improved waiting times and consistent and accurate information from HMRC staff
- Review of National Insurance (Class 2 and 4) including a proposal for collection through Self-Assessment
- Review of forms P11D for the smaller business including a ‘simplified, short version’, improved guidance and encouraging the use of dispensations to prevent declaration in the first instance
Simpler Taxation for the Smaller Businesses
Specifically, this report looked at the large number of small businesses with annual turnover of £30,000 or lower, little or no significant capital investment, probably unregistered for VAT with, probably, no employees. Some of the key recommendations are:
Given that cash accounts are often the norm, ‘receipts and payments’ accounting should be allowed rather than the ‘generally accepted accounting principles’ (GAAP) method
- Expense claims and reimbursements should be simplified, namely:
- Use of home – standard or higher flat rate amount per week
- Mileage – Approved Mileage Allowance Payments (AMAPs) with no upper turnover limit, and new AMAPs for vans
- Capital items – allowed as a deduction rather than capital allowances
- Private use assets and services – disregard limited private and business use
- Telephone, mobiles and internet – a standard allowance or “disallowance”
- Subsistence – improve guidance and consider use of flat rates
- Laundry – same rates as used by employees and
- Postage and stationery – allow estimates for small amounts or flat rate amount
Many small companies operate as limited companies as a result of the tax incentives that exist. However, the OTS’s report suggests that the natural status of a small business is often as a sole trader or a partnership. Disincorporation (moving from limited company to sole trader or partnership status) would benefit many companies and allow then to concentrate on their business rather than the administration involved in running a limited company, therefore, the report advocates the introduction of disincorporation relief which exempts the small business from the current costs involved.
Looking at these in perspective, these are a very substantial number of small business operations who are, often, unrepresented by accountants or professional bodies, must remain focused on cash flow over every other factor and whose main business expenditure in a year may be the purchase of some new office equipment. So, whilst small in stature, they are significant in number, estimated to be in the region of 4.5 million. Therefore, these small and micro employers warrant special consideration, especially as Government considers these to be fundamental to future economic growth.
Note that these are only recommendations to the Chancellor by the OTS which he may choose to ignore or amend as he sees fit.
- HM Treasury – Press Release ‘Recommendations to simplify UK’s tax system for small businesses’
- HM Treasury – Small Business Tax Review – HMRC Administration
- HM Treasury – Small Business Tax Review – Simpler Income Tax
- HM Treasury – Small Business Tax Review – Disincorporation