Contractors should be able to benefit from a simpler tax system which delivers greater flexibility and ease of use, whilst reducing burdensome red tape.
This is the conclusion drawn from the recently released ‘Small company taxation review’ from the Office of Tax Simplification (OTS), which contains a raft of proposed measures aimed at simplifying the tax system for contractors and small companies.
The UK’s 1.3m limited company contractors and micro-businesses are currently subject to the same tax system as large companies. As the report highlights, ensuring compliance with the tax system is placing additional administrative and financial burdens on the growing contract sector.
“Britain’s micro-businesses are spending too much of their time and money sorting out their tax or paying someone to do it for them,” notes OTS chair Angela Knight.
“We have identified a range of ways the tax system can be improved for small companies – ideas for simpler administration including making sure help is a click or call away,” adds OTS tax director John Whiting, who also proposes that the OTS assumes involvement in the development of HMRC’s digital tax programme, to ensure simplification issues are fully considered.
Included within the recommended administrative changes is the proposal to align filing and payment dates with annual returns and corporation tax. It also suggests that HMRC provides extra support outside of office hours, when contractors and small businesses typically deal with their tax affairs.
The report promotes further potential models for contractors to operate under. As well as exploring the possibility of a ‘sole trader with limited liability’ business structure, the OTS promotes the concept of a freelancer limited company (FLC), an optional corporate form which would help to provide clarity over employment status.
The measure was initially proposed to the OTS by the Association of Independent Professionals and the Self Employed (IPSE), whose chief executive Chris Bryce warmly welcomed the recommendations:
“The current tax system is complex, time-consuming and burdensome for the smallest businesses, and the OTS is absolutely right to focus on this important issue.
“We were pleased to see the OTS agree with IPSE that the FLC ‘could deliver certainty,and hence simplicity,to a large body of freelancers and contractors’ and ‘is worth considering further.”