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As part of its review of business taxation, the Office of Tax Simplification (OTS) has set out a number of options in two consultation papers that focus on disincorporation for small companies and a simpler income tax for the smallest firms.
The options are not firm proposals but intended to generate a debate to help the OTS refine its ideas ahead of the final recommendations to be made to the Treasury before next year’s Budget.
Responses can be sent to the OTS until 7 October, and interested parties can contribute by attending one of the meetings and workshops that take place around the country in September and October.
The OTS would welcome offers to host or participate in these events from agents, businesses and representative bodies.
Alex Henderson, tax partner at PwC, warned the OTS had ‘not yet taken into account how [its] changes may work in practice, in particular, how it will deal with the concerns of HMRC.
‘Any simplification that occurs could be negated if it is accompanied by reams of anti-avoidance legislation or gives rise to issues that require enquiry by HMRC agents. It would be self-defeating to reduce the administrative complexity of the tax system of small businesses only to add to it in other ways so any changes need to be simple and have broad application.’
Mr Henderson suggested that the ‘logical conclusion to the way that small businesses are taxed would be to move completely to cash accounting’.
Noting that disincorporation ‘is a notoriously problematic area of the tax system’, he suggested that ‘for small businesses, possibly there is a simpler way to deal with the issue. For example, small businesses could be allowed to make elections once every five years as to whether they are to be taxed as a partnership or company.
‘This would in some ways mirror the existing arrangements for limited liability partnerships, which are legally corporates but are taxed as partnerships.’
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