The Office of Tax Simplification (OTS) has published a new report with recommendations that could make life easier for small businesses, especially where tax is concerned.
The report, ‘Simplifying everyday tax for smaller businesses: a further business lifecycle review’, was commissioned by the Chancellor of the Exchequer. It was requested in order to look closely at the challenges faced by small businesses each time they engage with the tax system.
“What has emerged are several long-standing concerns which now, as the economy and the world of work continue to evolve, it is especially important that the government prioritises,” says the OTS.
- Pay as You Earn (PAYE) system problems leading to significant costs for businesses, agents, employees, and even HMRC itself. Around 350,000 duplicate employment records were cited as an example.It highlighted issues for people who change job mid-month, have multiple jobs, or are both employed and self-employed.
- Over 70% of small businesses use a tax agent yet HMRC does not currently provide tax agents with access to the same information or the same power to carry out tax transactions as their clients have, costing everyone time and money.
- The government should develop and offer small businesses a package of start-up guidance. It would take them through a step-by-step process for key stages of the business, with tax as a major (but not the sole) focus.
Bill Dodwell, OTS tax director, commented that many new businesses are formed without sufficient help and guidance. He wants to see guidance that’s readily accessible and communicated through multiple channels.
“This can lead to mistakes being made, resulting in substantial costs or penalties as their tax compliance affairs are put in order.”
- HMRC should focus on the PAYE system as a matter of strategic urgency. It would ensure effective implementation for improvements and system changes.
- A fresh review of areas where the PAYE/RTI system should be improved.
- HMRC should appoint a senior official to oversee and prioritise implementation of the Agent Strategy.
“HMRC could do much more to leverage the support agents can bring in making the tax system work for millions of taxpayers,” said Bill Dodwell.
“Ensuring that the valuable role of agents is built in to all new or redesigned systems, would go a long way to support small businesses – and support HMRC too.”
- HMRC should routinely build agent awareness and needs into system design, and in related guidance.
- HMRC should work with partners such as Companies House to develop digital options to help small companies.
- HMRC should simplify the Corporation Tax online- return process as part of any future extension of Making Tax Digital. This way taxpayers would only see pages and information relevant to them, plus pop-up information and help at key points.
- HMRC should explore ways to reduce the number of companies having to file two tax returns to cover first accounting periods that are very slightly longer than 12 months.
- HMRC should map major customer journeys for small businesses across tax regimes. It would help to develop a programme to streamline the small business experience of the tax system.
- HMRC should review tax payment processes across core taxes and regimes, with a view to aligning and streamlining them.
Kathryn Cearns, Chairman of the OTD, said:
“Small businesses – of which there are millions – are a core concern and area of interest for the OTS, so it is pleasing that this is the subject of the first OTS report published since I became Chair.”
However, she warned that the concerns highlighted “are not easy things to improve quickly.”
You can read the full report, complete with the more minor recommendations, here.