HMRC have responded to the Office of Tax Simplification (OTS) tax simplification reviews for small companies and the closer alignment of income tax and NICs, rejecting some proposals and commissioning further reviews on others.

Small Company Review

HMRC have rejected outright the concept of a consolidated tax model which could see turnover used as a basis for a single tax replacing corporation tax, PAYE and NIC.

A number of proposals have been accepted for further consideration and the OTS will carry out further work in the following areas:

  • Developing an outline ‘look through’ system in enough detail to enable further discussion.  This would see shareholders being taxed directly on the company’s profits instead of the company paying corporation tax, and target companies which
    • Do not intend to increase in size
    • Are effectively one-person businesses
    • Distribute all or almost all of their profits
    • Have few assets or investment needs
  • Developing an outline of a ‘sole enterprise protected assets’ vehicle which would provide the self-employed with limited liability for their assets.  The OTS is to test whether such a structure would be practical and whether it would actually deliver personal asset protection.
  • Conducting a review of options to simplify the computation of corporation tax, including the possibility of a cash accounting basis.

HMRC will also consider whether filing and payment dates for VAT, PAYE, corporation tax, statutory accounts and annual returns could be aligned.

Alignment of Income Tax and NIC

HMRC have asked OTS to carry out two more reviews:

  • The impact of moving employee NICs to an annual, cumulative and aggregated basis, similar to that for PAYE income tax.
  • The reform of employer NICs, including the possibility of basing the charge on whole payroll costs.

HMRC will respond more fully to the OTS alignment review in the autumn, once these additional reviews have been published.


OTS: Small Company Taxation Review

OTS: Alignment of Income Tax and NIC

See Finance Acts and Bills rolling update and planner 2016/17 for further developments.