OTS recommends simpler tax package for SMEs

FURTHER SIMPLIFICATION of the tax system is desperately needed for small businesses who are struggling to deal with the same hassles experienced by large corporations, an independent tax body has urged.

Angela Knight (pictured), chair of the Office of Tax Simplification (OTS), believes the current tax system needs to be overhauled in order to help micro-businesses that don’t have the resources to keep up with its complexities.

“The tax system needs greater flexibility so that micro-businesses receive the benefits of incorporation (such as limited liability) but not the unnecessary administration burdens. This review sets out what changes can be made now and the next steps required,” explained Knight.

The OTS has recommended a number of administrative changes to the tax system, drawing on the responses of 285 small business owners that filled out an OTS survey.

Aligning payment and filing dates for things such as VAT, PAYE, corporation tax and annual returns was high on the list of recommendations, as well as calls for HMRC providing additional support to small businesses at evenings and weekends.

The OTS has also called for a stop to SMEs having to provide the same information to multiple government departments, and in turn promote the sharing of information between departments.

Knight and tax director John Whiting have proposed to take forward the first and second of these longer range ideas and calls on the government to initiate the third.

The recommendations have been welcomed by the Federation of Small Businesses (FSB), but policy director Mike Cherry has called for a ‘bolder approach’ when it comes to simplifying the tax system for SMEs.

“As the report rightly recognises, the small business community is not a uniform group of taxpayers. We believe simplification should be tailored to different types of firms by creating a far more user-friendly and ‘tax-payer centric’ system.

“Such a system would recognise that compliance costs faced by companies differ at different stages of their life cycle,” continued Cherry, who praised Whiting’s desire for the OTS to be formally involved with HMRC’s Making Tax Figital initiative, to ensure that the concerns of SME owners towards the project are heard.

Speaking to Accountancy Age, Whiting said the OTS had “not formally been involved” with the project before, but is looking forward to being included in the project’s next stages.

Since the recommendations have been published, the House of Lords Economic Affairs Committee has praised the work of the OTS in its inquiry of the Draft Finance Bill. The Committee welcomed the OTS being placed on a statutory basis and compliments the OTS on its work.

The committee also recommended that the office should be given a bigger role in the design of tax policy and greater resources to support its important work.

Next week the OTS is set to release its latest report into the merging of income tax and national insurance.