The OTS recommendations include both technical and administrative simplifications to help small businesses deal more easily with their tax obligations.
The review is focused on three key areas: HMRC’s administration; disincorporation; and simplified taxation for the very smallest businesses (those with turnover under £30,000).
Recommendations for tax administration include better VAT rulings and information and a dedicated helpline for small businesses.
The OTS establishes that for the very smallest business, which are often ‘one-man bands’, cash accounts are widely used, while claiming for businesses expenses are disproportionately burdensome given the limited amounts often involved.
Subsequently, the acceptance of receipts and payments accounting is suggested, instead of full ‘GAAP’ accounts.
The body also recommends a wider range of flat rate expense allowances be available. These methods should be the default option for qualifying businesses, with an ‘opt-out’ allowing those to select the system that is most beneficial to them.
Introducing a tax relief so that companies can disincorporate without incurring significant tax cost is also suggested, which would have the dual benefit of reducing admin burdens while facilitating business reorganisations allowing businesses to trade in their correct form.
OTS tax director John Whiting says, ‘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.
‘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.’