The Office of Tax Simplification (OTS) is the independent adviser to government on tax simplification. This latest report from the 
OTS sets out what it considers to be significant steps towards creating a 21st-century corporation tax system in the UK. It is responding to calls from businesses of all sizes to make the calculation of corporation tax simpler, with fewer changes and more time to plan. It also recognises the importance of reducing the burdens on small business, and keeping this country an attractive destination for trade and investment in a post Brexit world.
The report takes a look across four broad themes:
- simpler tax for smaller companies
- aligning the tax rules more closely with accounting rules where appropriate
- simplifying tax relief for capital investment
- a range of further issues affecting the largest companies
It also highlights the links with HMRC’s work on Making Tax Digital, which offers an opportunity to move towards a simpler system by use of technology.
Main recommendations
A corporation tax simplification roadmap
- For the very smallest companies, to use the accounting profit prepared under accounting standard FRS105 as the taxable profit without any adjustments.
- For slightly larger companies, the proposal is that companies should only need to consider a set list of five or six potential tax adjustments.
Aligning tax with accounts
Across the whole range of companies, for
- the tax definition of capital and revenue to be more closely aligned to the accounts definitions,
- the rules for trading and management expenses to be aligned
- the 19th century schedular system (under which different types of income are calculated separately subject to slightly different rules) to be replaced with a “whole business” approach, in line with most other countries
Capital expenditure
For the OTS to undertake further work on capital expenditure to explore the issues involved in replacing the present capital allowances system with an accounts depreciation approach, recognising the need to consider the impacts on particular industry sectors.
Large companies
For improvements to be made in a number of technical areas, in the context of promoting stability and certainty in the corporation tax system.
he OTS advises the Chancellor on tax simplification, challenging tax complexity to help all users of the tax system; it does not implement changes, these are a matter for government and for Parliament. Inevitably any changes, if the recommendations are followed through, will take time to implement.
Business owners and their accountants are advised not to assume that all the changes will happen and as such should continue to work within the current corporation tax provisions. Our tax experts can help you ensure your business remains compliant with UK tax regulations. Give the team a call today to see how we can support you and your client on tax matters.
