06/07/2017

Small companies would be given the confidence to do their own tax returns, making them big beneficiaries of sweeping recommendations from the Office of Tax Simplification to simplify and modernise the Corporation Tax system in order to make it more intuitive and save time and money in administration.

‘Simpler tax for small companies’ is one of the four themes covered by ‘Simplification of the corporation tax computation’, the OTS’s response to calls from businesses of all sizes to make the calculation of CT simpler, with fewer changes and more time to plan.

The other 3 themes cover

  • aligning tax with accounts
  • capital expenditure
  • large companies

There are links throughout the 4 themes into HMRC’s ‘Making Tax Digital’ project, with its complementary focus on the use of new technology to help create a simpler system.

A total of 32 recommendations, comprising 7 which OTS considers to be the most important and 25 that it believes ‘could also make a significant contribution’ are also discussed within these themes.

At the head of the list is OTS’s call for government to give certainty for all companies by developing a clear and coherent roadmap for corporation tax simplification.

Other main recommendations include

Smaller companies

  • for the smallest companies to use the accounting profit prepared under the micro-entity accounting standard, FRS105, as the taxable profit without any adjustments
  • a requirement for slightly larger companies to consider a set list of only 5 or six potential tax adjustments
  • for the future, optional cash accounting could be introduced for companies with a turnover under £150,000, to mirror the successful system for 1.1 million unincorporated businesses

Aligning tax with accounts across all companies

  • the tax definition of capital and revenue to be more closely aligned to the accounts definitions
  • the rules for trading and management expenses to be aligned
  • the 19th century schedular system (under which different types of income are calculated separately subject to slightly different rules) to be replaced with a ‘whole business’ approach

Capital Expenditure

The OTS to explore the issues involved in replacing the present capital allowances system with an accounts depreciation approach that recognises the need to consider the impacts on particular industry sectors.

Larger Companies

Improvements to be made in a number of technical areas, in the context of promoting stability and certainty in the corporation tax system.