20 Mag Simplifying everyday business tax
“Many new businesses are formed without sufficient help and guidance. This can lead to mistakes being made, resulting in substantial costs or penalties as their tax compliance affairs are put in order.”
That comment came from Bill Dodwell, the Tax Director at the Office for Tax Simplification (OTS), as the OTS issued a report on simplifying tax for small businesses. Commissioned by the Chancellor of the Exchequer in 2018, the report focuses on the day-to-day tax challenges faced by UK business with a particular emphasis on smaller businesses.
The authors of the report looked at particular key challenges in the life-cycle of a business from start-up and employing the first member of staff, through to expansion and onto the time at which a business might be wound up. For example, when it comes to business start-up the report’s authors acknowledged the multiple challenges faced by a business at that time, and the way in which decisions made at the outset can have unintended consequences further down the line.
The first recommendation arising from the review is therefore for the government to ‘develop and offer a package of start-up guidance’ which steps through the processes required in business start-up and expansion. This, the report says, should be made available through a wide range of delivery channels in order to maximise take-up.
Overall the report makes ten core recommendations supported by a further eighteen other suggestions, the majority of which require HMRC review and action. The core recommendations cover areas such as PAYE, the role of tax agents and a programme of tax alignment and simplification. To this end HMRC are being tasked with mapping customer journeys and liaising with Companies House in order to further improve the digital experience.
The supplementary recommendations cover areas such as business start ups, calculating and paying tax, taking on an employee, and issues faced by a growing business. One area of note is the recommendation that a basic guide for new companies should explain the purpose of rules in respect of directors’ loans and that furthermore HMRC should review the application of the loan relationship rules as they apply to the smallest companies. R&D tax claims also come in for a mention with the recommendation that claims are fully incorporated into the company tax return and that returns differentiate between large and small companies in order to identify the R&D relief which is appropriate for each business type.
Commenting on the report CIOT Owner Managed Business Committee Chair Tina Riches said “Tax advisers that act for small businesses have been calling for change in a number of these areas for years. It is great that the OTS has picked up on many of them and is calling for action to be prioritised.”