Simon Sweetman was an inspector of taxes for 18 years. He left the Inland Revenue in 1989 to join Chartered Accountants Scrutton Goodchild & Sanderson, later part of Scrutton Bland, where he was successively a senior manager and later a partner. He has been an independent consultant since 2001. He is a former member of the tax policy unit of the Federation of Small Businesses and the small business working group of the Chartered Institute of Taxation. He is also on the tax law review committee of the Institute for Fiscal Studies and is currently chair of the Working Together group for the Suffolk and North Essex area.
So what did the Budget do for SMEs & the OTS?
So what did the Budget do for small business, and what did it do for Tax Simplification?
The extension to Small Business Rate relief will help some; possibly Enterprise Zones will help others (though they don’t seem to have done much last time).
First of all, of course, the effect of the Budget is very limited and we all get much too excited. For the domestic motorist 1p per litre off fuel is a reduction of much less than 1% and will disappear – probably within a fortnight - as the price of oil continues to rise. A 1% reduction in the small companies’ rate of CT when your profits are less than £10,000 (as most are) will save you peanuts.
But what of the Office of Tax Simplification? The Budget picked up the handful of reliefs due for abolition, but that came to 43 after a huge trawl through the whole of the Tax Acts. And of course it picked up one thing from the OTS:
The government will consult in 2011 on the options, stages and timing of reforms to integrate the operation of income tax and NICs. But integrate the operation, which explicitly appears to rule out merger, which is where any real savings would come from.
And what did it say about IR35 (which the OTS small business committee gnawed at for a long time)?
Following the publication of the OTS review of small business tax, the Government commits to making clear improvements in the way IR35 is administered. These improvements will include setting up a dedicated helpline staffed by specialists, publishing guidance on those types of cases HMRC view as outside the scope of IR35, targeting compliance activity by restricting reviews to high risk cases and setting up an IR35 Forum which will monitor HMRC’s new approach. The Government has decided to retain IR35, as abolition would put substantial revenue at risk.
So after all these years of Tory MPs fulminating about the iniquity of IR35, what do they do when they come to power? Nothing. If people don’t trust HMRC’s existing review system, why would they trust a helpline? Nothing is going to help here while the legal definition drifts one way and another as courts make new decisions.
The previously announced changes to capital allowances roll on:
As announced in the June Budget 2010, writing down allowances will be reduced to 18% from April 2012. And as announced in the June Budget 2010, the Annual Investment Allowance will be reduced to £25,000 from April 2012.
Not helpful, and especially not helpful to unincorporated businesses who do not benefit from CT rate reductions.
As part of the second stage of the OTS review of small business tax, the OTS will look at improving tax administration for small business, with recommendations to the government for Budget 2012. Further detail on this work, the Government’s response to OTS reviews, and future work of the OTS will be announced before the summer.
Given that the Admin Burdens Advisory Board has been wrestling with this for some years now, it doesn’t look like a wonderful option. In reality there has been deterioration as the imperative for HMRC to collect, collect, collect swamps any thought of burden reduction.
It is to be assumed that the 45ppm rate allowable for motor expenses for employees will apply to those microbusinesses that compute their motor expenses that way as well.
Some businesses – though medium rather than small – may be helped by the changes to EIS and to the R&D tax credits scheme. Interestingly, comment on EIS/VCR before the Budget suggested that there would be measures taken about abuse of these schemes, but that seems not to have happened.
Oh, and nothing to do with the above, but just what is the point of a junior ISA (the introduction of which will cost nothing, according to Treasury figures)? All these children will benefit from a personal allowance of £8,105 so would pay no tax anyway unless they have substantial other income (it would mean far more capital then you can put into an ISA).