Introduction »

Let’s make it simple

According to recent government statistics there are three million unincorporated businesses in the UK that have a turnover of £70,000 or less, including approximately two million with a turnover of £20,000 or less. Although these smallest businesses in the UK form a vital part of the UK economy they are said to bear a disproportionate burden when dealing with their tax obligations. So what can be done?

The Office of Tax Simplification (OTS) published an initial report earlier this year on the review of small business taxation. It recommended that structural reform be considered for the taxation of the smallest unincorporated businesses. In particular, they found that tax administration is a key source of uncertainty and complexity for the small business. Ministers have now asked the OTS to look closer at this issue, focusing on all aspects of the interaction between small businesses and HMRC and to come up with concrete recommendations for improvements.

The OTS is also charged with gathering views on two further strands affecting small business tax and has issued two discussion papers as follows:

• alternative systems for taxing the smallest unincorporated businesses and
• the case for a relief for disincorporation.

John Whiting, Tax Director of the Office of Tax Simplification said:

‘We have been told in no uncertain terms that tax administration can be a problem for small businesses. So we want to stimulate debate and allow those in business, and their advisers, to give us their views on the various possible ways forward.

Would a cash basis be a better way of taxing the smallest businesses? How about flat rate expense allowances? What of the more radical alternatives some other countries use - could any of them work here? Do we need a disincorporation relief? Whether you agree with these ideas or not, we are keen to hear your views.’

The OTS final report on these small business tax reviews is due to be published ahead of Budget 2012. Clearly we will continue to monitor these developments so that we can advise you when any concrete proposals emerge.

Introduction »