Osborne embraces simplified tax accountingby
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 – likely to be 45p per mile for the first 10,000 miles and 25p thereafter to mimic the allowance for employees. Businesses can already choose to use this mileage rate if they are below the VAT threshold.
The allowance for business use of home is very likely to be £4 per week, in line with the amount employees can claim from April 2012.
The requirement to deal with capital allowances will be removed; indeed for most of the affected businesses the Annual Investment Allowance (AIA) of £25,000 would cover all of their capital expenditure.
The one possible distortion would be the purchase of a car which would normally attract a Writing Down Allowance of either 18% or 8% each year – but of course motoring will be covered by the per mile rate instead.
The proposals also note that the requirement to keep stock figures for tax purposes will end – a welcome help for some small businesses.
The OTS report suggested that this proposal should be available to very small businesses, but the Government has adopted the proposals with relish and stated that the new basis should be available for all businesses with receipts of up to £77,000 from April 2013. There will clearly need to be an anti-avoidance provision to prevent business splitting. Once businesses are within the scheme they will be permitted to grow up to receipts of £150,000 before being required to leave the scheme.
There is no doubt that this will be a popular proposal for business owners, but possibly not as popular with accountants and tax advisers.
Companies, as well as the self-employed will be able to opt for this simplified basis.
The OTS also highlighted that it is difficult for those businesses which incorporated in the last few years to “change their minds” and go back to self-employed status. The government accepted this, and will come forward with proposals to help, although the detail of this is not presently known.
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. The new Business Tax Dashboard has been developed for unrepresented taxpayers to help them keep track of what tax is due and what they have paid recently. It will bring together income tax liabilities for the business, VAT and PAYE & NIC (which will be more seamless once RTI comes in in 2013).
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). Consultation will start very shortly on this.
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.
HMRC announced some service standard targets which affect small businesses (and their agents). The department will report against the following targets annually from
- To achieve a service level of 90% of call attempts handled
- To deal with 80% of correspondence within 15 working days and 95% within 40 working days.
Improved digital services
HMRC plans to roll out single registration services for companies so that registering a company at Companies House will also include registration for corporation tax. Other businesses will be able to use a single registration service to register for all or any taxes that they choose.
You might also be interested in
Rebecca trained in London with Kidsons and, on qualifying, spent some time as Chief Accountant of a manufacturing company. She now has her own small practice in Gloucestershire that comprises of owner managed businesses and small companies.
She also lectures extensively for a range of professional bodies, accountancy firms,...