The Office of Tax Simplification has recommended three main areas for the government to consider with the aim of making the tax system simpler for small companies. The focus of the review, which has been running since July 2015, is on micro-companies with fewer than 10 employees, although the OTS has also taken account of small companies with up to 50 employees. The three proposals for further consideration are:
· explore a ‘look through’ approach: instead of paying corporation tax, a company’s shareholders would pay income tax on the profits directly – this would be aimed at one-person businesses that distribute most of their profits and are not looking to grow;
· allow small companies to use cash accounting, possibly as part of a move towards aligning taxable profit more closely with accounting profits and eliminating sundry tax adjustments; and
· develop a new ‘sole enterprise protected asset’ structure, which would provide sole traders with a measure of limited liability protection.
The report also recommends the study of a consolidated tax model as part of a longer term strategy.
Other recommended administrative changes include:
· align filing and payment dates, e.g. VAT and PAYE, annual returns and corporation tax;
· HMRC to provide extra support at weekends and evenings when more small company owners deal with their tax affairs;
· stop companies providing the same information to various government departments, which instead should share the information;
· look at the feasibility of advance clearances for VAT.
According to the review, the main reasons for micro-businesses choosing to incorporating are to limit their liability, enhance their credibility and provide a formalised structure. See http://bit.ly/1R586EU.
The Office of Tax Simplification has recommended three main areas for the government to consider with the aim of making the tax system simpler for small companies. The focus of the review, which has been running since July 2015, is on micro-companies with fewer than 10 employees, although the OTS has also taken account of small companies with up to 50 employees. The three proposals for further consideration are:
· explore a ‘look through’ approach: instead of paying corporation tax, a company’s shareholders would pay income tax on the profits directly – this would be aimed at one-person businesses that distribute most of their profits and are not looking to grow;
· allow small companies to use cash accounting, possibly as part of a move towards aligning taxable profit more closely with accounting profits and eliminating sundry tax adjustments; and
· develop a new ‘sole enterprise protected asset’ structure, which would provide sole traders with a measure of limited liability protection.
The report also recommends the study of a consolidated tax model as part of a longer term strategy.
Other recommended administrative changes include:
· align filing and payment dates, e.g. VAT and PAYE, annual returns and corporation tax;
· HMRC to provide extra support at weekends and evenings when more small company owners deal with their tax affairs;
· stop companies providing the same information to various government departments, which instead should share the information;
· look at the feasibility of advance clearances for VAT.
According to the review, the main reasons for micro-businesses choosing to incorporating are to limit their liability, enhance their credibility and provide a formalised structure. See http://bit.ly/1R586EU.
