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OTS to ‘look closer’ at tax administration for small businesses

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The government has asked the Office of Tax Simplification to ‘look closer’ at tax administration for small business and report to ministers ahead of Budget 2012.

The OTS’s interim report, presented in March 2011, said longstanding issues in small business taxation had proven to be ‘intractable’. The overwhelming conclusion, it said, was that ‘genuine and long lasting simplification can only be brought about through major structural changes to the UK's tax system’.

But the OTS recognised that major structural changes would take time, and it suggested other changes that could be introduced ‘within a relatively short timeframe’. These included improving elements of HMRC administration.

The OTS report said: ‘We were regularly told that HMRC was “feared” by small businesses, and that traders (or their advisers) spent too much time on “defensive” work to ensure their tax calculations were robust.

‘At the same time, there is a strongly held view that HMRC have small businesses in their sights as tax evaders; and that colours their approach generally. On HMRC’s side, they have evidence to show that a substantial proportion of the tax gap is in the small business area.’

The government has now asked the OTS to focus on all aspects of the interaction between small businesses and HMRC and ‘come up with concrete recommendations for improvements’.

John Whiting, Tax Director for the Office of Tax Simplification said: ‘It’s clear that many small businesses are struggling under the administrative burdens imposed by the UK tax system.

‘We plan to set up surveys and more roadshows to really home in on what steps cause the most difficulties – and how the system can be improved, making it easier for businesses to get things right with the minimum of fuss.’

Tax reliefs

HM Treasury said ministers have agreed that the OTS’s work on the review of tax reliefs is ‘now formally concluded’.

‘However, the OTS's report is still being studied and the Office may well return to the areas of complexity highlighted in the report in the course of future reviews,’ it added.