Making corporation tax simpler: OTS's top ideas

Seven ideas that will “make the greatest difference” on corporation tax simplification were tabled yesterday by the OTS; an independent adviser to HM Treasury.

A further 25 ideas that will make “an important contribution” were recommended too. The seven, plus those out of the 25 which relate to micro-companies are as follows:

1. Build a 5-year Corporation Tax (CT) "roadmap" to include a commitment on earlier and more open consultation.

2. For the smallest companies: follow the direction of ‘simple accounts = simple tax:’

• FRS 105 adopters, tax to follow accounts;
• Otherwise, a minimum number of essential tax adjustments to accounting profit
• Disparity with unincorporated businesses to be fully understood

3. Capital / revenue tax definitions aligned with accounting definitions.

4. Align definitions between management expenses and trading deductions.

5. Develop a roadmap for, and take steps towards, replacing the schedular system with a whole business approach.

6. OTS to explore use of accounting depreciation instead of capital allowances.

7. For the largest companies: embed the CRM role in line with HMRC’s published strategy, to provide greater certainty in a complex system.

The OTS’s secondary ideas to simplify CT for micro-companies are:

1. Review the asset limit for disincorporation relief.
2. Explore 'cash accounting' for the very smallest companies, to align with the scheme for unincorporated businesses (recognising that company law and, currently, EU accounting directives would need to change).
3. Update HMRC guidance to confirm that abridged accounts prepared by ‘small’ companies for Companies House and their members constitute statutory accounts and are those required by HMRC.

Aligning CT more closely with the accounts (including schedular reform)

4. We suggest as a principle that no additional information need be provided beyond that required by company law, without clear justification, and that this information is reported digitally to government through a single route.
5. Consider abolishing the requirement to submit a separate CT computation.
6. HMRC to either integrate or remove iXBRL reporting as part of MTD.
7. Extend scope of relief to all business income expenditure.

Aligning CT more closely with the accounts: capital expenditure 

8. Changes to the CA regime should be accompanied with clear statements of the policy objectives.
9. Introduce a small capital exemption to allow 100% deduction for capital expenditure worth less than £1,000 per item.
10. Develop a proposal to provide specific guidance, by way of a list, of all assets qualifying for capital allowances, as a single point of reference.
11. Improve current non-statutory clearance process in regards to the capital allowance regime.
12. Review the effectiveness and compliance process for making s198 CAA 2001 elections.
13. Review the effectiveness and compliance process for making an Enhanced Capital Allowances claim.