Equip 'Ltd' companies with tax roadmap – OTS

A corporation tax "roadmap" should be drawn up and handed to small incorporated businesses to make their lives easier and more certain, the government has been told.

Plotting the approach of aligning tax more closely with a company’s accounts, the roadmap is the Office of Tax Simplification’s “main” recommendation, says OTS chair Angela Knight.

On the map, “tax should follow the accounts”, without the tweaks that today’s micro-companies frequently have to make when producing figures for their annual submission.

This alignment should make corporation tax -- as a system -- more intuitive, less time-consuming and cheaper to comply with, hopes OTS tax director Paul Morton.

'Dark art'

It should also help “remove the perception that corporation tax is overly complex” -- or, as one contributor to the OTS’s report put it; “a dark art.”

But where the simpler accounting principle (FRS105) with no adjustments needed cannot be used, the same ethos should continue, even when using the alternative (FRS102) method, reserved for firms with more complex affairs.

So for these usually slightly larger micro-companies, they too should see their tax calculation simplified, by only a minimum number of essential adjustments (six at most) being needed to account profit.

'Tax-driven incentives'

But the OTS cautioned: “Some of these adjustments also apply to Income Tax computations, and the interaction would need careful consideration to avoid creating tax-driven incentives to incorporate.”

The office therefore wants ‘further exploration’ -- what it also wants before extending the ‘cash basis’ accounting scheme to the smallest, single-director companies, one of its longer-term proposals.

It says: “We recommend exploring cash accounting for the very smallest companies, to align with the scheme for unincorporated businesses [while] recognising that company law and, currently, EU accounting directives would need to change.”

Existing schemes (continued)

Elsewhere though, the OTS’s prevailing mindset of not adding another layer to the limited company tax landscape appears to be intact. On Making Tax Digital for example, it says:

“We suggest that as a principle no additional information needs to be provided beyond that already required by generally accepted accounting practice…and company law, without clear justification”.

Similarly, its 123-page report recommends: “MTD and iXBRL reporting should be integrated into a single process (assuming iXBRL is still necessary), to avoid creating an additional burden.”

'Not quick wins'

Unlike its previous work, the OTS conceded that the reforms to corporation tax it is tabling are not ‘quick wins.’

Moreover although “some can be taken forward relatively quickly,” they “need to be considered in the light of the moves towards Making Tax Digital, which is on the horizon for companies.”

The office’s full report contains a total of seven ideas that it thinks will “make the greatest difference” on corporation tax simplification; with a further 25 that will make “an important contribution.” The seven top ideas, plus those out of the 25 which relate to micro-companies are published separately today on ContractorUK.