Simon considers tax simplification and what HMRC has been doing to progress this issue for smaller businesses. Simplification of the tax rules might be too big an issue to cope with, but simplifying completion of the tax return for many smaller businesses might be a good starting point

There is clearly a wind blowing for simplification : one of the effects of this is that some people realise they don’t actually want something simplified if it means serious changes.

HMRC set out a year or so ago to consult on simplifying CT computations, and came up with a couple of ideas, suggesting that small companies should be able to use either a cash basis for accounting or use a new tax-based standard. It always seemed to me to be slightly starting in the wrong place , as it would have seemed logical to start from the unincorporated end, and it now seems the reception for these ideas was lukewarm at best and they have gone away to think again.

But then in the Budget we had the extension of the three line account to all unincorporated businesses with a turnover below the VAT threshold. It wasn’t a Budget headline, and when it became known the reaction generally was a bit less than excited, especially from agents.

But this is actually a measure of some significance. This is partly because a high proportion of this part of the taxpaying public – the smallest of the small businesses but perhaps half the businesses in the country – file their returns for themselves. Some of them may have some help preparing a set of accounts, but for others – especially if you are not looking for help from the bank – a simple statement of income and expenditure is all that’s needed. It is then a struggle to break your expenditure down between those mysterious boxes on the tax return, with that sinking feeling at the end that far too much of it has ended up in the “miscellaneous” box. For these people there is going to be a real saving in time, effort and anxiety.

Now I can remember that when the three line account was introduced at a £15,000 turnover there were those – not just in the Inland Revenue – who saw this as a cheats’ charter. The Revenue devoted a fair amount of effort to checking up on these and found that they were on the whole as honest and accurate as anyone else, with a few spectacular exceptions.

The reason for the surprise now, perhaps, is that HMRC has always vigorously defended the need to put the Standard Accounting Information into the magic boxes on the self employed pages of the return. And why ? Because the analysis would give a fantastic tool for risk assessment by comparison both year and year and to similar businesses. As some of us had been saying for some years, it didn’t. There was no discernible improvement in the selection of cases from the old days when they were picked in the local district. To HMRC’s credit, it has accepted this.

So something in the Budget that was helpful, and nothing to do with the state of the economy.