In November 2016 the Office of Tax Simplification (OTS) published their final reports on small company tax reform, recommending that ‘Lookthrough taxation’ proposals be dropped but those for a new ‘Sole Enterprise with Protected Assets (SEPA)' trading vehicle be taken forward.

The proposals were outlined in discussion documents published in July 2016: see Small company tax reform: further OTS discussion:

  • ‘Lookthrough taxation’ proposed a new way of taxing small companies: they would be treated as if they were transparent, with all the company’s profits and gains allocated to the proprietors.
  • ‘Sole Enterprise with Protected Assets (SEPA)’ proposed a new trading vehicle which would allow an individual to continue to be a sole trader whilst offering protection for their primary residence.


The OTS recommend that the SEPA idea should be developed into a formal proposal. 

Although the case for its introduction is not cast iron, they believe that it has the potential to be a useful simplification for those seeking greater protection for their personal assets:

  • It would simplify tax and accounting requirements compared with incorporation.
  • It is a relatively simple concept and should not cause confusion.
  • It is popular with its target market: a survey produced by Screwfix Ltd showed 68% of sole trader customers would be interested in asset protection without limited company status.
  • It would most likely beadopted on a reasonable scale: in particular by traditional trades (painters, plumber etc.) and those in their 40s / 50s starting a new venture.
  • It would encourage enterprise.
  • There are some potential issues, in particular with regard to availability of finance / credit, but these are not thought to be insurmountable.

In their report the OTS also make some further policy suggestions in respect of SEPA:

  • Registration should be a 'light touch' process : the previous suggestion that a declaration of solvency and industry code would be required have been dropped.
  • An annual return or confimation would be needed: this would ideally be no more than an additional question or tick box on the tax return.
  • Protection would only extend to the main residence: the definition would follow that for CGT private residence relief.
  • More work needs to be done however to see if pensions could be included.
  • It would be introduced over a 3 - 5 year time span, by which time Making Tax Digital should have settled down.

Lookthrough taxation

Following consultation the OTS have decided to drop the proposal for Lookthrough taxation:

  • Any simplification gained by eliminating corporation tax compliance would be outweighed by the technical issues, especially as there would still need to be tax adjustments.
  • It would potentially deter companies from retaining funds for investment by taxing them at full income tax / NIC rates.
  • It would be likely to increase the tax paid by companies.
  • It could discourage enterprise.

See OTS: Small Company Taxation Review for the initial discussion.


The OTS final reports:

For further developments see Finance Acts and Bills rolling tax planner 2016/17.