Archived SME tax news

The Office of Tax Simplification has put forward recommendations for simplifying tax advantaged share schemes. The measures potentially affect HMRC approved schemes and EMI option schemes.

Important changes are coming to the Tax Credits system which may have a material effect on clients.

The Office of Tax Simplification (OTS) has put forward its recommendations to simplify UK’s tax system for small business to the Chancellor, ahead of his March 2012 Budget.

The key recommendations are:

• Tax Administration - the use of two-way email communication, better VAT rulings and information and a dedicated helpline for small businesses.
• Simplified taxation for the smallest businesses –default cash accounting instead of full ‘GAAP’ accounts with a wider range of flat rate expense allowances with an “opt-out” allowing those to select the system that is most beneficial to them.
• Turnover tax - a full study is undertaken of a turnover tax as a possible alternative taxation method for the smallest businesses.
• Disincorporation –the introduction of a tax relief so that companies can disincorporate without incurring significant tax cost.

John Whiting, Tax Director for the Office of Tax Simplification said:

“We have spent a lot of time gathering the views of businesses and their advisers about the tax system from the sharp end. That has led us to recommend a range of practical changes to the way the system runs that will help businesses with their everyday tax affairs – and will help HMRC as well.

“We have also looked for ways of changing the tax system and that has led us to recommend introducing a disincorporation relief and a wider range of flat rate allowances. There’s a strong case for a form of cash accounting and indeed we think that going further into a radically different way of calculating tax for the smallest businesses needs study. Overall, we think that the recommendations put forward today represent a common sense approach that would help to ease the burdens of thousands of the smallest businesses throughout the UK.” 

Editorial comment 

The other benefits of cash accounting?  Nichola Ross Martin writes, Back in 2006 when I was tax editor of Accountingweb, we had some lengthy debates on cash accounting and many of us were in favour, although a few were not because of what I would term a "misunderstanding" of potential avoidance aspects. However, it has always been recognised by accountants that many businesses cash account already because they have no concept of GAAP. Back then I suggested that cash accounting might be the antidote to tax motivated incorporation –“…If we allow small business to cash account, but only unincorporated businesses, then it follows that many unincorporated businesses who before might have seen incorporation as a good tax saving wheeze will not find it quite so attractive in the future…” To this end it will be really interesting to see how the OTS’s recommendations will impact on the way that small business works, presuming that they are accepted.

The Treasury has closed down a couple of tax avoidance schemes being used by Barclays Bank, with retrospective effect.

Two recent tax cases are worth a closer look, they consider whether certain expenditure is plant and so qualifies for plant and machinery allowances.  

From 6 April 2012 HMRC is increasing the employee homeworking allowance to £4 per week or (£18 per month).

In Reed Employment v HMRC [2015] EWCA Civ 805 the Court of Appeal agreed with the findings of the UT and FTT that a major employment agency's salary sacrifice-travel scheme was ineffective for tax.

When an employer sets up a cash bonus scheme with the desired effect that the employee ends up with a cash bonus, it is difficult for the tribunal to find that the cash is anything other than earnings.