Autumn Statement 2016: how could the new chancellor show he cares about small businesses?
The new government will publish its first Autumn Statement, the annual update on the Treasury’s plans for the economy, this Wednesday. As usual, we don’t know exactly what the Autumn Statement will contain, but here’s some announcements I’d like to see from Philip Hammond that could benefit small businesses.
Tax simplification: OTS at front of process
The Office of Tax Simplification is currently detailed to review the UK’s existing tax systems and rules in order to suggest changes which would make the calculation and payment of tax easier. For example, it has recently investigated whether it might be possible to amalgamate income tax and National Insurance.
What I would very much like to see in this year’s Autumn Statement would be a requirement for the involvement of the OTS at pre-legislative stage as well, to ensure that any new tax legislation is scrutinised for potential complexity and kept as simple and straightforward as possible.
The UK’s tax laws, taken as a whole, are already long and complex, and introducing more complication can only inconvenience business owners and hamper economic growth.
Involving the OTS before changes are passed into law, as well as after, could be an invaluable help to simplifying the tax system, and simplification could only bring benefit to all concerned.
IR35: simplify or abolish
The current legislation around whether a contractor is in fact an employee for tax purposes is subjective, complex and very difficult to interpret. A by-product of this is that a contractor may be treated as an employee for tax purposes but not under employment law, giving the contractor the worst of both worlds.
I would like to see this legislation (commonly known as IR35) either vastly simplified, with just a few straightforward objective tests, or else abolished altogether, allowing contractors and their engagers to make a free choice as to whether the contractor is to be treated as independent, or as an employee, for both tax and employment law purposes.
Making Tax Digital: more flexibility needed
There may be some news on Making Tax Digital, the government initiative that sets out a vision for "a transformed tax system and the end of the tax return" by 2020.
I’d like to see the smallest businesses given a bit of additional time to prepare for Making Tax Digital, rather than facing the same deadline as larger companies who will be better equipped to make the changeover.
In FreeAgent’s official response to the Government’s consultation over MTD it was recommended that all unincorporated businesses making less than £85,000 - the VAT threshold - should have an additional year to prepare before they have to adhere to the new digital tax regime.
I would also like to see the turnover threshold for the cash-basis reporting scheme increased to £166,000 - double the VAT threshold - to make Self Assessment easier for more UK businesses.
SEPA recommendation implemented
One recent project of the Office of Tax Simplification was to investigate potential ways to simplify small business taxation, while keeping at least a certain amount of limited liability, to protect a business owner’s own personal assets such as their family home.
They have recommended a full investigation into the possibility of launching a model known as a SEPA (Sole Enterprise with Protected Asset), which would allow a sole trader to “ring-fence” their house and protect it from being seized to pay their business’s debts.
I would like to see this investigated further with a view to implementing the SEPA model, since it would give sole traders increased peace of mind without the additional legal and regulatory complications of turning their business into a limited company.
Legal powers for the Small Business Commissioner
The government’s recent appointment of a Small Business Commissioner to help small businesses facing the scourge of late payment from customers is welcome, however the Small Business Commissioner currently has no legal powers to force late-paying customers to pay their dues on time; the only sanction available is to “name and shame”.
That renders the Small Business Commissioner much less effective since they are able only to recommend that late-paying customers change their approach - which will not at all deter persistent late payers, such as large businesses who pay late as a matter of policy.
I would like to see the Small Business Commissioner given legal power to compel late-paying customers to make payment on a timely basis, particularly where large customers and small suppliers are concerned.
Stay tuned to our Twitter feed on 23 November as we’ll be live tweeting the announcements. Hope to see you there!
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- Finance Bill 2017-19: Making Tax Digital back on the agenda