Small businesses may benefit from a simplified tax system in which full accounts may not have to be presented to HMRC, under plans announced by Chancellor George Osborne in the Budget.
Businesses with a turnover up to £77,000 would potentially pay tax on cash profits rather than full accounts from April 2013, providing there were no big objections during consultations.
A small business tax review by the Office of Tax Simplification (OTS) published in February had initially focused on tax difficulties facing firms with a turnover of £30,000.
Speaking in the House of Commons earlier, Osborne said: “The Office of Tax Simplification proposed that we tax small firms on the basis of the cash that passes through their businesses, rather than asking them to spend a huge amount of time doing calculations designed for big business.”
“This will make filling in tax returns dramatically simpler for more than 3 million businesses,” he said.
Currently, HMRC calculates the tax owed by small businesses based on self-assessment tax returns, however, under the new system evidence of receipts and payments would only be required.
Commenting on the potential move, head of tax for The Association of Chartered Certified Accountants (ACCA), Chas Roy-Chowdhury, said: “The aim is to ensure that SMEs use rules designed for them, rather than rules designed for larger business. Allowing for cash accounting is a good idea if it helps SMEs but HMRC need to make sure that it doesn’t affect the credibility of the tax system and isn’t a Trojan horse for ever-rising thresholds.”
The Chancellor also drew attention to the possible integration of income tax and national insurance contributions, originally outlined last year, in a further move to simplify PAYE.
