The corporate tax regime that is currently operating in the UK is one that has been designed for a traditional company. However, this is not necessarily well suited for smaller incorporated companies. Therefore, the Office of Tax Simplification proposes that there is an increasing need for a system change that accounts for the needs of the different types of small businesses.
This proposal moves away from the traditional corporation tax being paid, replaced instead with the company’s shareholders paying income tax on the profits directly. This will then make it simpler for the companies that distribute their profits.
It is acknowledged within the Office of Tax Simplification’s review that the system incurs a huge administrative burden on micro businesses, as they are subject to the same system as larger companies. The review suggests that there should be an analysis of ‘cash accounting’ for tax – although it is currently used by many unincorporated businesses, it is also thought to be a suitable option for incorporated ones.
Sole Enterprise with Protected Assets
This component of the review focuses on the process of the incorporation for small businesses, and the associated administrative strains that can result. This new approach would enable sole traders to protect their personal assets and limit their personal liability. It would then allow sole traders to retain their current accounting and tax benefits, and so continue to be far simpler. The review suggests creating an outline of this new trading vehicle, to evaluate its practicability.
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– The KFS Group Blog Team