The Office of Tax Simplification (OTS) has published its final report and recommendations on ways to make the calculation of corporation tax simpler for companies of all sizes. The report’s main conclusion is that tax rules should follow accounting rules wherever possible, without the need for adjustments, for all but the very largest companies. A key recommendation for the government is to develop a corporation tax roadmap.
The main recommendations the OTS thinks will make the greatest difference are:
creating a five year CT roadmap, alongside the business tax roadmap, to include a commitment on earlier and more open consultation;
for the smallest companies, making accounting profit under FRS 105 the taxable profit without any adjustments;
for micro-companies outside FRS 105, requiring only a small number of potential tax adjustments from a set list;
using the accounting definition of capital expenditure for tax purposes (making valid business expenses taken to P&L deductible for tax purposes);
aligning the definitions of management expenses and trading and property deductions;
replacing the schedular system for income with a ‘whole business’ approach reflecting commercial reality;
exploring use of accounting depreciation instead of capital allowances; and
for the largest companies, providing greater certainty by embedding the customer relationship manager role in line with HMRC’s published strategy.
The report makes a further 25 recommendations that the OTS thinks could also make an important contribution. For smaller companies, these include:
optional cash accounting for companies with a turnover under £150,000;
no additional information to be provided beyond that already required by GAAP and company law, without clear justification;
integrating iXBRL reporting into Making Tax Digital (MTD), or removing it altogether;
introducing a small capital exemption to allow a 100% deduction for capital expenditure worth less than £1,000 per item; and
developing a list of all assets qualifying for capital allowances.
Among the additional recommendations for larger and more complex companies are:
limiting the transfer pricing rules for UK:UK companies to occasions where an actual tax difference will arise;
treating intangibles such as goodwill and related relevant assets acquired after 2002, and any expenditure enhancing pre-2002 assets, under income tax rules; and
reviewing all anti-avoidance legislation for consistent de minimis limits and motive tests.
The OTS acknowledges that its proposals for small companies, some of which have the potential to help with the introduction of MTD, should be considered separately from the larger company proposals. See http://bit.ly/2tlH2YT.
Angela Knight, chair of the OTS board, remarked on the ‘clamour from companies of all sizes and types’ for ‘a clear and coherent roadmap for corporation tax simplification to give certainty for all companies’.
Paul Morton, OTS tax director, commented that a simpler approach involving the closer alignment of tax with a company’s accounts would be ‘particularly attractive for smaller incorporated businesses, which represent the overwhelming majority of companies’. He added that the report ‘sets the scene for further work on the costs and benefits of moving to a depreciation-based approach to giving relief for capital expenditure which could offer a significant simplification for companies of all sizes’.
The Office of Tax Simplification (OTS) has published its final report and recommendations on ways to make the calculation of corporation tax simpler for companies of all sizes. The report’s main conclusion is that tax rules should follow accounting rules wherever possible, without the need for adjustments, for all but the very largest companies. A key recommendation for the government is to develop a corporation tax roadmap.
The main recommendations the OTS thinks will make the greatest difference are:
creating a five year CT roadmap, alongside the business tax roadmap, to include a commitment on earlier and more open consultation;
for the smallest companies, making accounting profit under FRS 105 the taxable profit without any adjustments;
for micro-companies outside FRS 105, requiring only a small number of potential tax adjustments from a set list;
using the accounting definition of capital expenditure for tax purposes (making valid business expenses taken to P&L deductible for tax purposes);
aligning the definitions of management expenses and trading and property deductions;
replacing the schedular system for income with a ‘whole business’ approach reflecting commercial reality;
exploring use of accounting depreciation instead of capital allowances; and
for the largest companies, providing greater certainty by embedding the customer relationship manager role in line with HMRC’s published strategy.
The report makes a further 25 recommendations that the OTS thinks could also make an important contribution. For smaller companies, these include:
optional cash accounting for companies with a turnover under £150,000;
no additional information to be provided beyond that already required by GAAP and company law, without clear justification;
integrating iXBRL reporting into Making Tax Digital (MTD), or removing it altogether;
introducing a small capital exemption to allow a 100% deduction for capital expenditure worth less than £1,000 per item; and
developing a list of all assets qualifying for capital allowances.
Among the additional recommendations for larger and more complex companies are:
limiting the transfer pricing rules for UK:UK companies to occasions where an actual tax difference will arise;
treating intangibles such as goodwill and related relevant assets acquired after 2002, and any expenditure enhancing pre-2002 assets, under income tax rules; and
reviewing all anti-avoidance legislation for consistent de minimis limits and motive tests.
The OTS acknowledges that its proposals for small companies, some of which have the potential to help with the introduction of MTD, should be considered separately from the larger company proposals. See http://bit.ly/2tlH2YT.
Angela Knight, chair of the OTS board, remarked on the ‘clamour from companies of all sizes and types’ for ‘a clear and coherent roadmap for corporation tax simplification to give certainty for all companies’.
Paul Morton, OTS tax director, commented that a simpler approach involving the closer alignment of tax with a company’s accounts would be ‘particularly attractive for smaller incorporated businesses, which represent the overwhelming majority of companies’. He added that the report ‘sets the scene for further work on the costs and benefits of moving to a depreciation-based approach to giving relief for capital expenditure which could offer a significant simplification for companies of all sizes’.
