United Kingdom
10 March 2011 - Small business tax review
The Office of Tax Simplification (OTS) has published its interim report on the taxation of small businesses.
The main recommendations are:
- The integration of income tax and national insurance
- A simpler tax system for very small unincorporated businesses.
The integration of income tax and national insurance could render IR35 obsolete, and the OTS suggests that in the meantime IR35 is either suspended or better administered by HMRC. The OTS recognises that such integration would require special provisions for pension and investment income, such as a lower tax rate. A replacement would also be required for employers' national insurance contributions.
With regard to very small unincorporated businesses, the OTS recommends the consideration of a turnover-based tax and fixed (or flat rate) expenses deductions.
The OTS has recommended that the Government sets out a timetable by the end of the year.
The OTS also makes some provisional recommendations in other areas, including:
- A form of disincorporation relief
- Harmonisation of corporation tax rates
- Simplifying reporting requirements on reimbursed expenses and benefits for employees
- Improvements to the capital allowances regime
- A simpler VAT system for small businesses that undertake international activities.
The OTS expects that the Chancellor of the Exchequer will respond to the report as part of Budget 2011.