OTS proposals will ease tax burden on small businesses

I blogged last week about the new directive announced by the EU that would allow member states to exempt very small companies from mainstream accounting obligations - and explained how this could be great news for micro-businesses if it’s implemented in the UK.

Well, clearly the top dogs in government agree with me that the whole tax and accounting system for small businesses needs to be simplified; because we’ve now seen the Office of Tax Simplification (OTS) also recommending ways of making things easier for the country’s small businesses sector.

The OTS has revealed a pretty substantial list (which you can see in full on its website) of suggested changes that it believes will help small companies and freelancers deal with their tax. And, at first glance, it seems they could be very beneficial indeed.

In particular, the proposed adoption of “receipts and payments accounting” - where small businesses would be allowed to prepare an income and expenditure account on the basis of the cash they receive and pay out, rather than having to comply with full accounting rules - would be a huge boost for the small business sector. It would mean many business owners no longer have to struggle to meet overly complicated rules that are, on the whole, not really relevant for businesses of their limited size - such as accruals for what can often be very small amounts.

It’s also great to see the OTS proposing to simplify certain expenses including the use of your home for business, capital allowances claims and mileage. There are many small businesses that currently risk missing out on tax relief on these kinds of expenses because of how complex the tax and accounting system is (and because they fear ‘getting it wrong’ with HMRC), so the OTS proposals would help prevent a lot of confusion.

But there’s one other area that the OTS has highlighted which I’m especially delighted with: the need for better communication with HMRC over tax issues. I’ve felt for some time that it’s far too difficult for small businesses - and even accountants - to get the information they need without being passed around numerous officers and departments within HMRC. So if there’s a simpler way to get this information - such as a dedicated small business helpline - it’ll be a huge help.

I’m also over the moon that the OTS believes HMRC has an obligation to actually help taxpayers comply with their tax obligations. Given how complex the tax system is and the level of penalties that can be issued, it’s only right that small businesses and freelancers get proper advice rather than simply sweat over their self-assessment forms - and it should be up to HMRC to provide this assistance.

If the Government is committed to helping our small business sector grow and flourish, I hope it approves all of these proposals as soon as possible. If it doesn’t, then many micro-businesses and freelancers in the UK will just remain confused by the complicated tax and accounting rules they currently have to try to follow.

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