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OTS considers simplifying small business taxation

OTS considers simplifying small business taxation

The OTS is looking into the feasibility of introducing a simpler system of income tax for the UK’s smallest businesses and the issues concerning disincorporation.

The Office of Tax Simplification says the choices for making small business taxation simpler fall into two categories. It could either change some regulations to ease the complexity in certain areas, or use non-profit measures ranging from administrative changes to more fundamental reforms.

If turnover was the determining factor for eligibility for the simpler system, the OTS is considering between £20,000, £30,000 and the VAT registration threshold which presently stands at £73,000.

The OTS will evaluate the non-profit measures in use in other countries and as well as considering cost accounting or a system of charge indicators and flat rate expenses allowances. Small businesses would then prepare their accounts based on cash received and have fixed rates for expenses, or taxable profit would be a fixed percentage of annual turnover.

John Whiting, the tax director at the OTS, said tax administration is a major headache for small businesses. He wants businessmen and their advisers to provide their opinions on the different options available.

As far as disincorporation goes, the OTS is examining whether micro-business owners should be given the chance to revert to partnership or self employment status and they ways to handle the tax implications of such a move.

Alex Henderson from PwC said the scope of the consultation was too narrow; focusing primarily on sole traders. He went on to add that he would welcome a review of all business structures and any changes would also have to deal with HMRC’s concerns.

Consultations on both proposals will be running until October 7th and the official documents can be viewed on the OTS website. Recommendations will be presented to the Treasury before next year’s Budget.

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Birthday Cupcakes by Helga Weber

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