The government's proposed cap on income tax reliefs will distort decisions on how businesses should be structured and lead to more decisions being taken for tax rather than commercial reasons, tax simplification measures are "badly designed" and disincorporation relief has a "bizarre effect" say the Association of Taxation Technicians.

The ATT has been responding to consultation on proposed legislation which will form part of the 2013 Finance Bill this will:

  • restrict some of the currently unrestricted income tax reliefs to the lower of £50,000 or 25% of income,
  • introduce a new "simplified" accounting system for small business that involves a mix of cash accounting and flat rates expenses, with added restrictions to sideways loss relief 
  • introduce a new disincorporation relief, which is capped at asset value of £100,000.

The ATT and its sister body the Chartered Institute of Taxation have not been enthusiastic about the transitional provisions for the increased Annual Investment Allowance or the Hgher Income Child Benefit Tax Charge, both measures apply from January 2013.

Comments made by the ATT President Yvette Nunn on the simplified accounting proposals seem to sum up the feelings that many professionals have already expressed in relation to all the measures that will affect SME owners and advisers in this year's Finance Bill

“This is a good idea gone bad. Small firms regularly tell us that the burden of tax compliance is the bane of their lives. The Office of Tax Simplification came up with a good set of proposals to tackle this with a simplified ‘cash basis’ of accounting. But HM Revenue and Customs have redesigned it by adding unnecessary complications, denying access to valuable reliefs and making it generally less appealing. There is nothing simple about what is currently on the table.”

 Links: please note that all current guidance is subject to change on these topics (they need to be finalised and then agreed by parliament).