Small business tax review: terms of reference
Published 28 February 2012
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This publication is available at https://www.gov.uk/government/publications/small-business-tax-review/small-business-tax-review-terms-of-reference
The government has commissioned the Office of Tax Simplification to conduct a review and make recommendations to the Chancellor on how to simplify the tax system, ease administration and reduce uncertainty for small businesses. In conducting this review, the office will provide an initial report to the Chancellor by Budget 2011 that:
- examines evidence and identifies the areas of the tax system that cause the most day-to-day complexity and uncertainty for small businesses
- recommends priority areas for simplification
- considers the impact of any simplification in these areas on different business sectors, including large business
Once the government has considered the initial report the office will be asked to produce specific recommendations on tax simplification for small businesses.
1. IR35 legislation
The government has already indicated that reviewing IR35 legislation is a priority and that it will seek to replace it with simpler measures that prevent tax avoidance but do not place undue administrative burdens or uncertainty on the self-employed, or restrict labour market flexibility.
Therefore, in its initial report to the Chancellor, the office should also:
- identify and provide evidence of the complexity and uncertainty created by IR35
- consider alternative legislative approaches that would be simpler and create certainty while ensuring that, where intermediaries are used to disguise employment, any income that is effectively employment income is taxed fairly
- consider the scope for tax avoidance and the extent to which alternatives to IR35 would affect it
The focus of this work should be exploring alternatives to IR35. However, the government will be interested in issues in relation to the structure of the tax system and the employment status test more generally. This may have a bearing on wider issues about employment status and the boundary between employment and self-employment, including the impact on larger businesses.
2. General principles for recommendations
In any recommendations the office should aim to:
- build consensus amongst small businesses, tax professionals and academics
- take into account current and emerging trends amongst small businesses
- consider all HMRC taxes and duties that impact on small businesses, including the administrative burdens imposed
- take into account government objectives for labour market flexibility
- be consistent with the principles for a good tax system, including fairness and efficiency
- be broadly revenue neutral overall
- be consistent with the government’s corporation tax reform agenda and wider tax reforms
- take account of international experience