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Tax group welcomes small business proposals

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The Chartered Institute of Taxation (CIOT) has given a warm response to the review of small business taxation carried out by the Office of Tax Simplification.

Amongst other measures, the review recommended the alignment of income tax and national insurance contributions, and moves for simplifying the current complexities of the IR35 regime.

Anthony Thomas, the CIOT’s deputy president, said: “There is a real need to simplify the way small businesses are taxed. Too often sticking plasters have been applied to problems when what was needed was a thorough review. Small firms should be able to make commercial decisions that are not distorted by hasty and ephemeral changes in tax policy.

“There are a number of constructive suggestions for business to have a better experience when dealing with HMRC – not least the idea of a simplified tax scheme for the smallest businesses.

“As the OTS says, there are real simplification possibilities in combining NICs and IT. Full integration does raise major problems but that must not stop serious investigation of partial moves.”

On IR35, the system that distinguishes between employees and contractors, Mr Thomas added: “The IR35 section of the report is a fair and balanced view of what is an almost intractable problem.

“It recognises that taxation is not the only (or even the main) driver towards individuals operating through a personal service company and therefore a tax-only solution cannot be the right answer. If the proposed business test can be formulated in a straightforward way – and we don’t underestimate the difficulties with this – then it could act as a very effective filter which would mean that a whole swathe of people would not have the worry of whether IR35 would apply to them or not.

“In a modern, flexible labour market, workers and engagers should be free to form the contractual relationships they choose, without having their arrangements second-guessed because the tax consequences of their choice differ from those of another possible arrangement.”