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Planned changes to small companies' tax and accounting rules will cause 'confusion and disillusionment' and should be abandoned, according to the Institute of Chartered Accountants of Scotland (ICAS).
The Government's proposed alterations are intended to simplify corporation tax calculations and returns for smaller businesses, but they would in fact offer no degree of simplification and would make company accounts less informative for other users, according to the organisation.
The Treasury discussion document published in the Pre-Budget Report suggested that firms might base their statutory accounts on tax rules rather than generally accepted accounting principles, or they could be taxed by reference to cash flows rather than profits.
Both options have been rejected by the ICAS, which agreed that there is a need for well-directed reductions in tax compliance burdens on business. The institute recommended that any future changes should aim to simplify tax compliance for all small businesses, whether incorporated or not.
Assistant director of tax Donald Drysdale said: ‘Change in itself can impose administrative burdens while also causing uncertainty. This is not the time for Government to be overturning existing rules for the sake of it’.
Mr Drysdale added: The timing of this Treasury consultation makes no sense. HMRC are investing heavily in new systems that will require all companies to file their accounts and tax computations online by April 2011, using XBRL technology.
‘This is placing heavy demands on companies and their software providers. Imposing further changes now by altering the basis of accounting for tax in small companies would cause confusion and disillusionment.’
