At the beginning of August, the Office for Tax Simplification (OTS) – a government department charged with coming up with new ideas to simplify our tax system – issued a number of reports and recommendations. They include a number of interesting topics and we have shared the conclusions below:
Changes to capital allowances
At present, businesses depreciate assets in their accounts and this process creates a reserve in their accounts such that when the assets are worn out, there is a fund of profits and cash to replace them. For tax purposes, this depreciation charge is added back in tax computations and is replaced by a deduction for capital allowances.
The OTS are now suggesting that trying to align tax relief with the depreciation charge in the accounts would be too complex, but they have suggested that the scope of some capital allowances should be widened.
Lookthrough taxation was an idea to charge the shareholders of small companies to income tax and National Insurance on the profits of their company rather than tax the company on those same profits using the present corporation tax rules.
If adopted this would have had a dramatic effect on the taxation of small companies. Thankfully, the OTS have considered this notion and have concluded that it’s application would complicate rather than simplify matters for small companies
Sole enterprise with protected assets (SEPA)
This is an interesting and welcome option to the legal status that sole traders could adopt.
At present, sole traders can be personally liable for the commercial liabilities of their businesses: there is no way to protect their personal assets, and in particular their family home, in the event that their business becomes insolvent.
The OTS have now recommended that sole traders be offered a new form of status. The principle behind SEPA is that it will allow an individual to continue to trade as a sole trader whilst offering protection for their primary residence against claims arising from the business. The primary residence will not be protected from personal claims nor will any other asset be protected.
These ideas are by no means certain to find their way onto the statute books. The Treasury will consider the OTS findings and may include the changes in future legislation. We will have to wait and see.
Source: New feed