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Tax simplification body to examine how smallest businesses are taxed
Posted Jul 13, 2011
The Office of Tax Simplification is to look at how the smallest unincorporated businesses are taxed, and to examine whether relief should be given to limited company owners who decide to disincorporate.
Building on its initial examination of the way small businesses are taxed, the OTS is set to deliver a final report in time for Budget 2012.
The OTS will deliver a series of interim reports (as it did with IR35 during the first stage) on individual topics, and will involve interested parties in the review process.
Alongside its existing work on simplifying the tax system for small businesses, the OTS has been tasked with reviewing two specific areas of interest:
Taxation of unincorporated businesses
The first involves simplifying the way small unincorporated businesses are taxed in line with simpler compliance demands of small businesses in other OECD countries.
The review into the way sole traders and partnerships are currently taxed will see if efforts implemented overseas could be applied in the UK, which size and type of businesses would be affected, and whether the benefits of any simplification would outweigh the complexities of introducing any changes.
There are bound to be conflicts with existing legislation, which may be deemed to be too substantial to tackle at this stage.
Disincorporation Relief
The second area involves disincorporation relief, following feedback from businesses who wish to disincorporate, and the administrative, tax, and legal barriers they face when trying to do so.
Again, the OTS will examine whether there is a strong case to introduce some kind of disincorporation relief, how many firms would be eligible to receive it, what form any relief would take, and any conflicts which may arise with the Companies Act 2006.
You can download a summary terms of reference (PDF) for the second stage of the OTS small business tax review.
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