Simplify tax system for small businesses, says OTS

The UK’s tax system should be simplified to ease pressure on small businesses, the Office of Tax Simplification (OTS) has said.

In a publication put forward to Chancellor George Osborne, the OTS, which was launched in July 2010 to provide the Government with independent advice on simplifying the UK tax system, recommended that both technical and administrative reforms should be made that could aid around two million small and medium sized enterprises in the UK with their tax obligations.

Gathering evidence from 4,000 businesses, tax advisers and representative bodies around the UK, the OTS examined the common tax problems faced by SMEs.

According to the review, a streamlined taxation system for small businesses – those with a turnover under £30,000 – should acknowledge the use of cash handling and make the process of claiming for business expenses easier. It also identified that many small companies wishing to ‘discorporate’ faced expensive tax charges.

The OTS also reviewed HMRC’s tax administration procedures and concluded it should improve relationships between itself and small businesses, including recommendations for better email and telephone communication.

John Whiting, Tax Director for the Office of Tax Simplification, said: “We have spent a lot of time gathering the views of businesses and their advisers about the tax system from the sharp end. That has led us to recommend a range of practical changes to the way the system runs that will help businesses with their everyday tax affairs – and will help HMRC as well.

“We have also looked for ways of changing the tax system and that has led us to recommend introducing a disincorporation relief and a wider range of flat rate allowances. There’s a strong case for a form of cash accounting and indeed we think that going further into a radically different way of calculating tax for the smallest businesses needs study. Overall, we think that the recommendations put forward today represent a common sense approach that would help to ease the burdens of thousands of the smallest businesses throughout the UK.”