Simplifying tax for small companies

07 March 2016

The Office of Tax Simplification (OTS) has unveiled a package of recommendations aimed at making the tax system simpler and easier to use for small companies.

The OTS agreed to carry out a review of small company taxation in 2015 to build on their earlier work on simplifying the system for unincorporated businesses. They have now published their initial report ahead of Budget 2016 as agreed.

The report Small company taxation review contains a mix of long range structural change ideas and simpler short term administrative improvements. The recommended administrative changes include:

  • aligning filing and payment dates eg VAT and PAYE, and annual returns and corporation tax
  • HM Revenue and Customs providing extra support at weekends and evenings when more small company owners deal with their tax affairs
  • stopping companies providing the same information to various government departments who instead should share the information
  • looking at the feasibility of having advance clearances for VAT.

The report sets out three main areas for further work:

  1. testing whether taxing the profits from the smallest companies on the shareholders rather than the company (‘look-through’) could be simpler for some companies as well as addressing distortions in the system
  2. developing an outline for an new ‘sole enterprise protected asset’ (SEPA) vehicle which will give some limited liability protection without the need to formally incorporate
  3. simplifying the corporation tax computation, eliminating many sundry tax allowances and potentially calculating corporation tax on a cash basis for the smallest companies.

The OTS envisages taking forward the first and second of these longer range ideas and calls on the government to initiate the third.

The OTS looks forward to receiving input on these ideas and can be reached at ots-smallcompanies@ots.gsi.gov.uk. A range of other recommendations for simplifying the taxation of small companies and streamlining the administration aspects are included in the report and the OTS expects a response from the government in due course.

Detailed terms of reference for the review are available.