Moves to ease the red tape on small companies

In his Budget speech, George Osborne said he planned to “radically change” the administration of tax for the UK’s smallest companies as part of the Government’s drive to create a simpler tax system,

From April 2013, the Government will introduce a new cash basis for calculating tax for firms with a turnover of up to £77,000, reducing the time it takes for them to calculate their tax.

Gordon Millward, regional chairman of the Federation of Small Businesses (FSB), said: “Plans to move to a simpler cash accounts system will bring huge deregulatory benefits to small businesses, and is something the FSB has long been calling for.

“Many small firms will already use a cash accounting system and so the moves to allow businesses with a turnover of less than £77,000 to use this system will be welcome.”

He added: “We are disappointed that there were no plans to look into setting up a Small Business Administration – a department to champion small firms at the heart of Government with a cabinet level minister. This is the missing link to ensuring that all initiatives have the maximum impact for small firms.”

Luigi Falivene, associate in DLA Piper’s corporate tax team in Leeds, said: “The simplification of cash accounting will have huge benefits for firms with a turnover of up to £77,000.

“This update will make the filing of tax returns simpler for over three million businesses across the UK, vastly reducing the administration costs faced by smaller entities.”

However, Stephen Burwood, of North Yorkshire Institute of Directors, added: “It is questionable whether the businesses will see any tax saving as a result of the proposals.

“It is more likely to enable a simplification of their accounting function and a deferral of tax in respect of debtors outstanding at their year end. Because of the delay in implementation they will not, in most cases, see any benefit until January 2015.”

Mr Osborne also said income tax and national insurance should be merged in a “historic step” to simplify tax.

The idea was mooted in a recent review by the Office of Tax Simplification.

Mr Burwood said: “The integration of the collection procedures for income tax and national insurance are to be welcomed and should result in further simplification and the easing of the administrative burden on smaller companies.”

Mr Osborne revealed plans to reform the Enterprise Management Incentive Scheme (EMI), which helps SMEs recruit and retain talent, by more than doubling the grant limit from £120,000 to £250,000.

He said Entrepreneurs’ Relief would also be extended to gains on shares acquired through the scheme and the Government would consult on extending the scheme to academics employed by a qualifying company, from April 2013.

Mr Falivene said: “Small changes to EMI legislation will give more people the opportunity to take part in tax advantaged discretionary share option plans, allowing small, independent start-ups to incentivise through shares rather than cash.

“Opening up new opportunities for these businesses to achieve their full potential, the changes will ensure they are able to attract and retain the high-calibre talent they need to make their businesses a success.”

He added: “The easing of the EMI rules for academics and universities in relation to spin-out enterprises will have an extremely positive effect and will ultimately allow them to contribute more quickly to a recovering economy.”

lizzie.murphy@ypn.co.uk