Once he got past the introductory Labour-baiting in his Budget speech, one of the first things Chancellor George Osborne promised was a “modernised tax system”.
Drawing heavily on proposals put forward last month by the Office of Tax Simplification, HMRC’s proposals are very far reaching, aimed principally at the 30% of small businesses that do not presently use a tax agent.
Those companies that do use an agent will also be permitted to adopt the simplification proposals.
Accounts for tax purposes
There will be a new optional basis for accounts for tax purposes. The mandatory accounting requirements for small businesses will be abandoned and small businesses will be permitted to choose either a full accounting basis for tax purposes, or a simple cash receipts and payments basis instead.
Consultation will be start on this in the next week or so, and businesses will be invited to comment on the proposals.
The proposals make it clear that standard allowances will be introduced for business use of home and of a car.
There is no doubt that this will be a popular proposal for business owners, but possibly not as popular with accountants and tax advisers.
Other measures to be included in the small business tax system overhaul include:
- Disincorporation relief - Suggested by OTS for incorporated businesses that “change their minds” and want to go back to self-employed status.
- Business Tax Dashboard - From April 2012, businesses will be able to check online all of their taxes in one screen, by logging on to HMRC online services.
- Tax and NIC - The merger of the operation of PAYE and NIC will go ahead, and in particular the NIC paid by the self-employed is likely to be merged in operation (if not in name).
- Guidance and support - HMRC also announced a package of measures of support for unrepresented small businesses, including webinars, video tutorials which can be accessed at any time, and providing a tax ready-reckoner for small businesses to help them estimate their tax liability.
- Service standards - HMRC announced some service standard targets which affect small businesses (and their agents).