Single set of accounts floated for micro firms
Two million of the smallest businesses would no longer have to produce two sets of accounts – one for Companies House on top of one for tax purposes – under plans floated last week.
Outlined by Vince Cable, the business secretary, the move would mean such businesses only have to file one simplified set of accounts, thereby saving £400m in form filling and red tape.
“Roughly 2 million of them will be able to concentrate on growing, expanding and creating jobs,” said the business department, in notes to Mr Cable’s dinner speech.
According to the department, the government will push for exemptions in European rules to remove the filing duty at the companies’ registrar for firms with fewer than 10 employees.
Elsewhere, officials will change the Companies Act to ensure ‘SME’ owners will no longer have to get their accounts independently audited, to ease the burden on another 42,000 firms.
For smaller traders, notably the self-employed, the government says it is also considering whether Class 2 and Class 4 NICs should become part of their self-assessment tax return.
In recommending the move, the Office of Tax Simplification reflected: “Accounts and tax returns may also be used for other purposes (e.g. mortgages, tax credits) and therefore any changes to the way profits and tax are assessed would need to be understood by organisations using them.”
The office has also said that, with the tax differential between the small companies’ rate and the headline corporate rate due to fall to 4% in 2014, the government should think about introducing a single tax rate for all firms.
“We are well aware that harmonising the rates implies that either the main rate has to fall or the small profits rate has to rise (or a mix of the two),” the OTS said. “These would be costly options. However, there are clear simplification benefits.
“One option to explore would be whether a rise in small profits rate could be balanced by an increase in the Annual Investment Allowance (possibly restricted to smaller businesses).
“That would also help unincorporated businesses, which have not benefited from the corporation tax reductions, yet have suffered reduced capital allowance rates.”