The Institute of Chartered Accountants in Scotland (ICAS) has come out against the planned simplification of corporation tax, observing that the proposals would further complicate small compay taxation.

ICAS comments that there is a need for well-directed reductions in tax compliance burdens on business, but the answer is not to be found in recent Government proposals to change the way small companies prepare their accounts.

A Treasury discussion document published in the Pre-Budget Report on 24 November suggested that small companies might base their statutory accounts on tax rules rather than generally accepted accounting principles, or might be taxed by reference to cash flows rather than profits. Both options are rejected by ICAS on grounds that they offer no degree of simplification and, while possibly helping HM Revenue & Customs, would make company accounts less informative for other users.

Donald Drysdale, Assistant Director of Tax at ICAS, said, “Change in itself can impose administrative burdens, while also causing uncertainty. Businesses, especially small businesses, are facing commercial and financial uncertainties as they try to survive through an exceptionally harsh recession. This is not the time for Government to be overturning existing rules for the sake of it.

“The timing of this Treasury consultation makes no sense. HMRC is investing heavily in new systems that will require all companies to file their accounts and tax computations online by April 2011, using XBRL technology. This is placing heavy demands on companies and their software providers. Imposing further changes now by altering the basis of accounting for tax in small companies would cause confusion and disillusionment.”

Calling on the Government to abandon its ideas for altering small company accounting and tax rules, ICAS recommends instead that any future changes should aim to simplify tax compliance for all small businesses, whether incorporated or not. It claims that applying the same measurement of taxable profits to companies and unincorporated businesses would be an important step towards simplification.