This week's opinion: 24 October 2019

I had an interesting discussion with a group of tax advisers last week about the tax issues facing family-owned businesses. One of the topics which came up was the perennial one of whether operating as a company is right for some small businesses, even if this gives them a tax advantage. There was widespread agreement with the view that some individuals, however good they might be at running their own business, never manage to grasp the fundamental distinction between them and their company. We all know the tax problems that arise when people don’t understand the difference. Is there any way of tackling this, or is it something we just have to live with?

The OTS did a lot of work in this area a few years ago but there is not much evidence that any of its ideas are being seriously considered at the moment. There is a lot going on with personal service companies, but these are only a subset of the small company population, and these problems affect many businesses outside the IR35 net.

I wonder whether there is a different way of approaching the problem. Is it too easy to set up a company? A quick Google search tells me that I can have a company set up in three hours for £9.99. Should it be that simple? Would it be better if there were some conditions – perhaps a particular level of share capital, a tax compliance certificate from HMRC or even a basic business competency test that had to be met before somebody could set up a company? I can see plenty of arguments against, but I think it is worth looking at, if only to cause people to stop and think before they dive in and set up a company which is not the right business vehicle for them.