Marcus Bishop Associates - Chartered Certified Accountants - The way forward for Businesses

The Office of Tax Simplification (OTS) has published two discussion papers looking at the introduction of a simpler income tax system for the smallest businesses and the issues around disincorporation.
The OTS says the options for simplifying small business taxation fall into two broad categories (1) changing some rules to ease complexity in some areas, or using non-profit measures; and (2) range from 'clerical changes to more fundamental reform'.
The discussion paper outlines the possible turnover ceilings that the OTS is considering for determining eligibility for a simpler system as £20,000, £30,000 and the VAT registration threshold (£73,000 in 2011-12), which would cover 2m, 2.5m and 3m sole traders and partnerships respectively.
The OFT says it will look at moving to cost accounting or a set of flat rate expenses allowances and charge 'indicators'. This would mean small companies preparing accounts on a cash received basis and using fixed rates or amounts for expenses, or preparing accounts by calculating the taxable profit as a fixed percentage of turnover. John Whiting, OTS's tax director, said: "We have been told in no uncertain terms that tax administration can be a problem for small businesses. So we want to stimulate debate and allow those in business, and their advisers, to give us their views on the various possible ways forward.
The OTS's review of disincorporation examines whether there is a case for offering the owners of very small companies the option to revert to self employment or partnership status and the ways in which the tax implications of this, including capital gains tax liabilities and goodwill, can be handled. Consultations on the proposals run until 7 October 2011, with both documents available online on the OTS website, and will include a series of meetings and workshops. The OTS will prepare a final report and recommendations to the Treasury ahead of Budget 2012.