Consultation outcome

Key questions on the small company taxation review

Updated 6 August 2018

The OTS needs your help! We are gathering evidence of where the tax system causes complexity and uncertainty for small incorporated businesses. For this report we will concentrate on ‘micro’ businesses and regard any company with fewer than 10 persons as micro. We are interested in all taxes, including corporation tax, VAT, stamp duty, business rates, PAYE, income tax, national insurance, excise duties, capital gains tax and inheritance tax.

We are planning an extensive series of meetings with businesses, representative bodies, professional advisers and other stakeholders. To give a framework, we have developed the following areas for discussion. We would welcome comments from others we are not meeting and so are publishing our questions to help guide responses. We are also developing some short survey questions.

1. Background

What industry/trade are you from? If representing a group, how many members?

• What are your thoughts/observations on the technical and administrative burdens for small companies caused by the tax system?

• Are there any specific issues for your industry?

• Which taxes do you feel confident with dealing with yourself and which do you prefer to leave to your accountant/tax adviser (if you have one)? Why?

Has the engagement of small companies with the tax system changed in the last 20 years:

• What has made things better or worse?

• Is that specific to your industry or more general?

• Overall, has the tax system for small companies become easier or more difficult?

2. The life cycle of a small company

What encourages small businesses to incorporate?

• Is it tax?

• Is it other issues? Which ones?

• What’s the balance between these?

• What are the distortions between the business and personal tax systems?

Are there issues on the transition from unincorporated to incorporated status, or in the other direction? Have you come across disincorporation relief?

Does the tax system help or inhibit the growth of companies which need additional personal resources or capital, or seek to import or export? If so, please provide examples.

What are the tax problems faced by small companies at sale, death of a shareholder or key employee or at liquidation? How could these be improved?

Can or should the personal and business tax issues of small companies be disentangled? Eg the use of the home as a workplace or as security for a loan, personal/business expenditure, employing relatives.

Do the tax obligations of small companies conflict with any other regulatory obligations? How could these interact better?

3. Administration

• How well do initial registration processes (with Companies House and HMRC) work?

• How could online tax compliance be made easier?

• Are there issues around record-keeping, payments, returns or HMRC enquiries? How could these be improved? How will new technology and HMRC’s move to digitalisation impact?

• Overall, what has been your experience in any dealings with HMRC for small companies?

• Do you feel that HMRC understand your activities and concerns?

• Is there scope to streamline small company administration for tax and other aspects e.g. company accounts. If so, how?

• Why do small companies use agents (for tax and/or accounts)? Should they have to?

4. Uncertainty

What are the key uncertainties for your business caused by the tax system?

• Are there any actual uncertainties, or do you find the tax system delivers certainty?

• If your position is uncertain, how do you handle this/manage your risk?

• Would you approach HMRC for assistance, and if you have, was this helpful?

• Which taxes cause particular problems under this heading (or are particularly easy)?

5. Other approaches to tax

Do you think different means of taxing small companies should be considered?

• What are your views on a possible “look-through” basis for taxing small companies, ie taxing the shareholders directly on profits earned within a company as if they were self-employed, and not taxing the company? If you think this is a possibility, do you have any thoughts on how it could be designed?

• Is there any merit in considering a cash basis to determine taxable profits, or a turnover tax or having fixed rate deductions? How would this interact with accounting standards for companies?

• Would the benefits of a different means of taxing small companies be worth the pain of the additional overall complexity to the tax system caused by distinguishing small companies from other companies?

• Should we be considering these issues for smaller companies than up to 9 employees?

6. International experience/comparisons

• Are you aware of how any other countries tax small companies?

• Is there a particular model you would recommend/suggest we follow?

7. Finally

• If you could change one thing about the way small companies are taxed, what would it be?

You can email the team at ots-smallcompanies@ots.gsi.gov.uk. It would be most useful to receive input by 31 December 2015.