Small company tax changes would 'complicate not simplify'

Changes intended to simplify corporate tax for smaller companies will have the opposite effect and will add to the burden of tax compliance, the Institute of Chartered Accountants of Scotland (ICAS) has argued.

The Treasury produced a discussion document in the pre-Budget Report which proposed that small companies might base their statutory accounts on tax rules rather than generally accepted accounting principles, or might be taxed by reference to cash flows rather than profits.

However, ICAS has said that the changes would only serve to create confusion and to make company accounts less informative.

Donald Drysdale, the assistant director of tax at ICAS, said, “Change in itself can impose administrative burdens, while also causing uncertainty. Businesses, especially small businesses, are facing commercial and financial uncertainties as they try to survive through an exceptionally harsh recession.”

Mr Drysdale went on to say that the timing of the consultation makes no sense.

He pointed out that HM Revenue and Customs is investing heavily in new systems that will require all companies to file their accounts and tax computations online by April 2011, using XBRL technology.

Mr Drysdale concluded: “This is placing heavy demands on companies and their software providers. Imposing further changes now by altering the basis of accounting for tax in small companies would cause confusion and disillusionment.”

ICAS is urging the government to drop the proposals for altering small company accounting and tax rules.

Instead, ICAS wants any future reforms to simplify tax compliance for all small businesses, whether they are incorporated or not, arguing that applying the same measurement of taxable profits to companies and unincorporated businesses would be an important step towards reducing the burden of tax compliance.