The Association of Taxation Technicians (ATT) has welcomed the Office of Tax Simplification’s (OTS) recommendations to simplify the calculation of corporation tax but many issues still need to be addressed before these are put into practice.
The ATT fully supports the commitment of the OTS to simplify the corporation tax compliance process, especially for smaller companies.
One of the main recommendations of the OTS in its latest report1 is that smaller companies2 should be taxed on their accounting profits, with no adjustments made. As noted in the ATT’s previous response3 to the OTS, the principles governing calculation of accounting profits are subject to change so this would involve some erosion of Parliamentary authority in relation to tax law.
If this approach is taken it also needs to be clearly established that companies can continue to claim tax relief for investment and innovation4. Simplicity must not come at the cost of growth and innovation.
The ATT is also concerned that greater alignment of accounting and taxable profits for corporation tax purposes (but not income tax purposes) could further widen the divide between how the two taxes are calculated. As acknowledged in the OTS report, this could influence the choice whether a business should be structured as a limited company rather than as a sole trader or partnership.
Although the corporation tax rules are complex, in practice many do not apply to smaller companies. The ATT notes that one way of achieving practical simplification would be to make it clear in the tax legislation which parts of the corporation tax code can be safely ignored by such companies.
Yvette Nunn, Co-chair of ATT’s Technical Steering Group, said:
“We very much welcome the aims of the OTS to simplify the corporation tax computation by ensuring that required adjustments for tax purposes are relevant, clear, simple and add material value. This is especially true for smaller companies, which can often be overwhelmed by the size and complexity of the corporation tax code.
“The many recommendations made in the OTS report are a welcome and very useful contribution to the debate on how this can be best achieved. We think that debate needs to include consideration of the evolving role of software, the implications of HMRC’s Making Tax Digital (MTD) programme, the significance of any increased divergence between corporation tax and income tax computations and the scope for formally identifying whole areas of corporation tax legislation which have no relevance to smaller companies. The potential impact of any simplification measures on growth and innovation also needs to be carefully considered.
“The ATT is keen to play an active part in the debate.”
Notes for editors
- The OTS report can be read here.
- The OTS uses the micro-entities definition (companies with two or more of the following: turnover <=£632,000; balance sheet <=£316,000; 0-10 employees) which apply the simplified accounting standards of FRS 105.
- The ATT’s previous response to the OTS can be read here.
- For example, companies can currently claim additional tax relief for eligible Research & Development (R&D) costs.