09 Dec Office of Tax Simplification
What’s the latest from the Office of Tax Simplification?
The Office of Tax Simplification is examining the alignment of income tax and NI and the simplification of small company taxation. How can practitioners engage with the process, and what could be the impacts for tax practices and smaller businesses?
The small company taxation review centres on businesses with ten or fewer employees, covering all taxes, including corporation tax, VAT, stamp duty, business rates, PAYE, income tax, NI, excise duties, capital gains tax and inheritance tax. The review of NI is wider, potentially covering all businesses.
The Office of Tax Simplification (OTS) has published two documents requesting opinions from a wide range of people, including professional advisors. There are key question documents for both the Small Company Tax Review and the Tax and NI Review (see Follow up ).
Pro advice 1. It will be important for professionals from small and medium tier practices to participate in the debate now to ensure that their client base is accurately represented.
Pro advice 2. Simplification for HMRC is part of the government’s over-arching digital by default strategy. Practitioners could therefore consider steering clients towards acquiring digital skills – perhaps using staff to offer IT workshops to owner-managed businesses and smaller clients.
Small Company Tax
The somewhat leading questions asked give some clue as to what the OTS might be considering in respect of changes. The mention of disincorporation relief seems to chime with the stated aim of ending tax-motivated incorporation – the specific question of whether tax is the main factor in incorporating underlines this.
Worryingly, there is a question about taxing small companies in a “look through” way, and simply taxing individual shareholders on all the profit – regardless of whether it is drawn out.
A turnover tax option which has previously been mooted is not present in the document, but could be discussed if any responses are received that bring it up – though possibly the look-through method could have superseded this idea.
Aligning Tax and NI
The document on tax and NI asks questions in areas where complications commonly arise – such as the differing definitions of “earnings” for tax and NI purposes. The suggestion of making the rates for the employed and self-employed the same, and the apparent possibility of operating a cumulative PAYE type system (complete with NI coding notices) may hint at a move towards wholesale real time information.
Change is Coming
Whatever practitioner opinion, change is on the horizon – driven partly by HMRC’s digital agenda. Faster, more frequent reporting seems a likely requirement, and will mean significant changes to tax administration, especially for smaller businesses. The only way to influence the outcome of the review is to get involved. Respond to the two documents in your capacity as an advisor. If you have clients in trade or industry, direct them to the review documents too, as their opinions will be welcomed.
You can get involved in the process by responding to the published questions. Do this, and encourage clients in industry to do so as well. The key impacts will likely be in relation to when and how small company reporting is made, meaning you would need to change the way you interact with your clients.