S660A hides in the detail for small business

Gordon Brown has delivered a defying blow to small businesses by pledging to move towards one coherent tax regime, without uttering the words 'avoidance clampdown' or 'S660A.'

The Chancellor's big idea for one system of return and payment for the undefined "small business," has been embraced by some advisors for its coordinated appearance.

At present, the move for one single tax return for small firms whether they be run by limited company Directors or self-employed traders is to be consulted upon by a handpicked team of professionals.

The government for this task are choosing their words carefully, and specify that a "small business unit" will be "consulting on the scope of a single tax return that would bring together all taxes."

They said the Inland Revenue's long-term objective will be for David Varney, chairman of Revenue & Customs, to implement a single account for all small business tax payments.

"It is sensible to assume the single payment for businesses would take into account personal tax, and corporate tax," said Simon Dolan, managing partner at SJD.

"The announced move seems to highlight the situation of small limited companies and self-employed people, who are essentially doing the same job and just trade through a different vehicle, but are taxed differently.

"Now what the Chancellor is saying is that we are going to have a single tax return and a single payment for small businesses, but notice he doesn't differentiate between self employed people and Directors of small limited companies. So it's possible that Brown will make all small businesses however they are structured, pay the same amount of tax at the same time and fill in the same tax return."

Tax and legal specialist Egos agrees that the failure of government to identify "small businesses" any closer poses "some very major changes, and some very major spin off issues resulting from it."

The contract specialist told Freelance UK how a self-employed trader does not make any tax returns apart from his personal self-assessment and a business VAT return, so it will bring VAT in with personal tax and is probably not highly significant.

"But in the case of a limited company and limited liability partnerships, it could spell significant change," said Roger Sinclair, legal consultant at Egos.

"The reason is because the company is an independent legal person in its own right. It has its own existence; it has its own birth, its own death and it pays its own taxes, as well as its own tax return.

"And what is scarier than one long tax return? It is the possibility that separate legal persons, namely the limited company and the individuals behind it - might suddenly be required to submit a combined tax return.

"This tax return would take into account the affairs of the business and the affairs of the individual. This smacks of further avoidance legislation and it smacks of laying the ground to try and significantly further Section 660."

Egos explained if there is some kind of joint tax return by a company and the individuals in it, then it would be instantly clear from one document "who was getting what out of the company, and in what proportions and in what way."

"There would be potentially an instant exposure," said Mr Sinclair, referring to the 'one-stop all included' tax return.

"Perhaps it is something that won't communicate anything of a substance and a cloak for some later nasty bit of stealth, that will be slipped in with the explanation of 'we told you it was coming.'

"From my point of view, as an advisor, it would shift the balance, and it would lay the ground for a far more rigid enforcement of Section 660A. It raises large and numerous issues of confidentiality and if it is introduced, it is likely to be unpopular with advisors. Doubtless, the government in their usual 'double speak,' will say they are actually making it simpler for the taxpayer."

SJD Accountancy predicted an equally bleak situation for advisors if the single tax payment is introduced.

"This system would not make our life easier," explained Mr Dolan.

"When the government introduced self-assessment the whole idea behind it was to make tax simpler. The initial draft of the legislation at the time was called 'simplified assessing.' Once the Revenue realised it was far more complicated they changed the name to 'self-assessment.'

"Now with this idea of a single form you still will have to put down the same information so probably all that will happen is that it will be a much longer form. So you might only have to fill in one tax return, but it will be 40 pages long."

"I don't think government should be making grandiose ten-year plans because they really don't know if they will even be about. The government and the Revenue fiddling with IT has cost untold billions and achieved almost nothing. There is also the commitment to get everyone filing their tax return online by 2008 so to suggest one tax return and a whole new IT infrastructure for this 'long-term objective' just doesn't make any sense to me."

However, one senior business advisor did say any move towards simplification of the tax system and a reduction of the burdens on small business, as recommended in the Hampton Review, was a welcome sign.

"Small businesses will be relieved to note that the government is to consult on a fairer and more coherent tax system," said Anne Redston, tax partner at Ernst & Young.

"There were concerns that it would introduce reforms without consultation that would radically affect our smallest businesses."

SJD also pointed out that no sweeping changes to a firm's tax payment are yet in place and the single return idea was by no means "fixed."

"At the moment, people fill in two tax returns - one for the company and one as an individual. Now, there is a plan for small businesses to pay one amount of tax every year: This is basically the government saying we are simply thinking about starting a consultation document we have set up, so nothing is 'fixed' and as a result, we think that is a flannelling exercise until the General Election is over."

Anne Redston backed the political timing of tax unveilings and said much of the pain for enterprise "has been deferred until after the election."

The small business tax paper released yesterday by the government also failed to address specific tax rules such as IR35 & S660A.

"We are disappointed, however, that the Chancellor did not mention the one in seven workers in the UK who are freelance, and who are at the forefront of this dissemination," said Dr Simon Juden, Director of the PCG.

"Those of them who are caught by IR35 cannot even claim against their tax the training required to retain cutting-edge skills unlike the consultancies with which they compete. We believe that there should be tax breaks for businesses of all sizes that retain employees and train them in new skills."

The PCG welcomed the small business paper and said they look forward to providing a positive contribution as the trade association for UK freelancers.


3rd December 2004

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