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So, how do you simplify corporation tax?

10 July 2017

The Office of Tax Simplification has made some bold recommendations to improve the ‘experience’ of small and large businesses when it comes to corporation tax.

The independent adviser says in its new set of recommendations that when it comes to the smallest companies they should use the accounting profit prepared under accounting standard IFRS 105 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 adjustments.

OTS says that in the future optional cash accounting could be introduced for companies with a turnover under £150,000, to mirror the successful system for 1.1m unincorporated businesses.

When it comes to aligning corporation tax more closely with accounts OTS said three ideas stood out:
• Using the accounting definition of capital expenditure (essentially creating an asset) for tax purposes.
• Bringing the definitions of trading and property deductions and management expenses together t remove the complication of having two sets of very similar rules.
• For companies with different sources of income, brining these together into one business profit or loss for tax purposes, with losses fully pooled.

OTS accepts these three reforms will come with exchequer costs, but it thinks the cost will be modest and the simplification dividend significant.

One area OTS wants to do more work on is capital allowances, by looking at replacing CAs with a tax deduction for accounts depreciation.

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