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Making tax simpler for smaller firms

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The Office of Tax Simplification (OTS), the independent body set up by the Government to streamline business tax, has put forward two new proposals to help smaller firms cope with their taxation obligations.

The first focuses on disincorporation for small companies. The second consultation document looks at the way that small firms calculate their profits. It suggests a cash accounting system might be useful whereby a year’s profit is measured by the money collected from customers minus the cash that is spent on wages and supplier costs. The present system demands that other calculations, such as opening and closing stock, debts owed to and by the business, and accrued expenses still to be billed, be taken into account.

John Whiting, tax director of the OTS, said: “We have been told in no uncertain terms that tax administration can be a problem for small businesses. So we want to stimulate debate and allow those in business, and their advisers, to give us their views on the various possible ways forward.

“Would a cash basis be a better way of taxing the smallest businesses? How about flat rate expense allowances? What of the more radical alternatives some other countries use – could any of them work here? Do we need a disincorporation relief?”

The documents, the OTS said, are not firm recommendations but are intended to generate debate ahead of final proposals which will be submitted to the Treasury before the 2012 Budget. The consultations run until 7 October.

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