Making tax easier for small businesses

Whilst the coalition government are attempting to adhere to their pledge to make tax easier for new and small business owners, it would appear they still have a way to go. Indeed, government initiatives such as “Start-up-Britain” have helped to develop and encourage new businesses but what about on the tax front? Is there really less complexity and administration around claiming key tax relief as was promised?

Let’s have a closer look:

Corporation Tax:

Well, clearly limited companies are pleased with the reduced tax rate of 20%, but what about unincorporated small businesses? Wouldn’t they benefit from a lower rate of tax as well and without the administrative burden of being incorporated?

Capital Allowances:

The Annual Investment Allowance has been up and down since it was introduced in 2008. Whilst the current rate of £250,000 is highly generous, are small business owners really spending anywhere near this amount on investing in new machinery and equipment each year? There is however an increase in the complexity of the calculations involved and you can’t help but feel that the government want to “feel” like they are offering high benefits to small businesses without it actually being useful.

Cash Accounting:

This is the method of being able to record business transactions when they are paid, not when they are invoiced and it can simplify the process of keeping books and records for tax purposes. However, anyone wanting to use his method has to adhere by over complicated legislation so it wholly defeats the object and deters accountants from suggesting this to their clients.

Fixed rate expense deductions:

The mileage claim initiative is a good one for small businesses as it greatly reduces the paperwork in claiming back motor expenses. The downside here though is that the rates are too low and once 10,000 miles has been exceeded, either by one vehicle or more, the 25p a mile rarely covers costs, making it uneconomic to use this method.


The dreaded IR35 remains a worry for tax payers, despite the attempts from the HMRC to reduce the administration and, more importantly to help people understand if they will actually get caught in the IR35 “net”. Promises have been made for greater help and advice on this area yet the legislation remains unchanged. Not to mention the bigger picture that both the employee and the employer pay more tax and NIC under an employed status. For a small business, would it not be helpful to have a choice in the structure of their workforce and not be penalised or under threat of breaching rules and regulations?

Digital by default:

Sure, going digital has its benefits all round. But what about those who are ill, disabled, have no broadband or have another legitimate reason why it doesn’t benefit them to process paperwork online. For some utilising online methods when it is something they are not comfortable with can take hours out of their precious time.

So in summary, it appears that further measures could be taken to not only reduce the administration and time involved in tax processes but also in having some more flexibility in claiming the maximum tax relief in the easiest way. The other problem of course is that with most things tax related, there are too many choices and the “tax novice” would not be able to make that decision on their own.

Saying all of this, there are more changes on the horizon; £2,000 NIC relief can be claimed through the RTI system that will really help small businesses – let’s hope this one will be easy to administer!

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