UK and International Tax news

OTS And Corporation Tax Simplification

Thursday 6th July 2017

The Office of Tax Simplification (OTS) has recently issued a report on the modernisation and simplification of corporation tax.

The 123 page report – Simplification of the Corporation Tax Computation – sets out some significant steps towards creating a 21st-century corporation tax system in the UK, responding to calls from businesses of all sizes to make the calculation of corporation tax simpler, with fewer changes and more time to plan. It also recognises the importance of reducing the burdens on small business, and keeping this country an attractive destination for trade and investment in a post Brexit world.

The report considers four broad themes:

  • simpler tax for smaller companies
  • aligning the tax rules more closely with accounting rules where appropriate
  • simplifying tax relief for capital investment
  • a range of further issues affecting the largest companies

It also highlights the links with HMRC’s work on Making Tax Digital, which offers a real impetus to move towards a simpler system by use of technology.

The report makes recommendations to achieve the overall objective in a variety of  ways and also sets the scene for further work on the costs and benefits of moving to a depreciation-based approach to giving relief for capital expenditure which could offer a significant simplification for companies of all sizes.

The OTS makes recommendations for a five year corporation tax roadmap, and the following:

  • for the very smallest companies, to use the accounting profit prepared under accounting standard FRS105 as the taxable profit without any adjustments.
  • for slightly larger companies, the proposal is that companies should only need to consider a set list of five or six potential tax adjustments.
  • the tax definition of capital and revenue to be more closely aligned to the accounts definitions,
  • the rules for trading and management expenses to be aligned,
  • the 19th century schedular system, under which different types of income are calculated separately subject to slightly different rules, to be replaced with a “whole business” approach, in line with most other countries.

The OTS is to undertake further work on capital expenditure to explore the issues involved in replacing the present capital allowances system with an accounts depreciation approach, recognising the need to consider the impacts on particular industry sectors.

It is also to consider recommending improvements in a number of other technical areas, in the context of promoting stability and certainty in the corporation tax system.

 

If you would like further details on the OTS report, please contact Keith Rushen on 0207 486 2378.

 

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