I have triggered a lot of debate it seems on SME tax reform.

I just posted the follwoing comment on AccountingWEB and thought I would repeat it here. It does in part answer questions posed here:

Can I summarise what I have actually recommended since I think this might help?:

a) That Limited companies have a minimum capital requirement - at least £10,000, maybe more. This means they will not appeal to many of the small enterprises where income shifting is a problem. They will still be available to those who need to commit capital to their enterprise and they will keep the tax rates that are designed with that intention in mind - which I hope deals with Mark's point on this issue. This limit may need to increase over time. This is EU consistent as far as I can see.

b) Those who do not meet this requirement, or do not want to should be re-registered as LLPs. This does not remove their liability risk. I am well aware that CGT transitional relief will be needed. This will be a cost to HMRC. Can we complain at that?

c) An LLP will not be compulsory. An unlimited partnership could still be used (although why people do that when an LLP is available beats me). The income shifting rules would apply to partnerships though. After all, their tax rules are the same.

d) An LLP could pay a reward for capital contributed to whoever provides it, including a risk premium. That would be fair. I have suggested a simple method of calculation.

e) If it is apparent (and it always is when this is true) that one party is the main income earner in the LLP then their spouse / civil partner / cohabitee could earn a de minimis profit share for the sort of support Emily has referred to - even though this puts them in a wholly unfair situation when compared with employees, where the same practice is, I am sure, commonplace.

f) Reward should then be calculated by default on contribution - and I have given indicators as to how this might be assessed. Not all need be used, other may be much more appropriate (I'm not being prescriptive here - I am just showing these things are possible).

g) If this gives rise to a result the partners don't like it's up to them to establish the rationale for a different reward ratio - and to evidence it. For example, if a great idea is being paid for, it would have to be shown that the idea resulted in an increased profit with no greater effort expended. Then it could be justified. This is not hard to do if it is accepted that precision is not possible (and I have always found an understanding of that in my career in tax investigations).

h) The result is a big saving in admin time and effort. No PAYE, no benefit in kind hassle, take money when you want, no CT returns, easier accounting for expenses, and on and on and on. A massive cut in accountancy fees. Is that why the profession does not like this, I wonder?

i) Yes, all profit will be taxed at marginal rates of income tax. Most will be at 20% then, lower than the planned small company CT rate, because that's what most self employed people pay. And as is obvious, most limited companies also distribute all their profit, so this is the case now as well. And it's true NIC will be paid at self employed rates. But these are lower than for an employee, so there is still an advantage to being self employed, but the massive distortion that exists now will be removed, which will be a benefit to good market based (rather than tax driven) decision making.

So, tax is paid more fairly, business can be managed much more flexibly with easily changed reward ratios and vastly reduced admin, and even a guarantee that some income shifting is acceptable.

I know accountants hate tax. But isn't this fairer than now? Easier than now? Less admin for most businesses than now? Much less hassle than what HMRC proposed?

Seriously, it may be flawed, but where are the flaws for the vast majority of small businesses who could win from this bar some additional NIC payment (which the government is clearly intent on getting somehow or other)?. Isn't this a viable working compromise? And if not, why not? I'm still struggling to see why it isn't for most clients of most accountants, bar the fact that the accountant will, I know, make less from this arrangement.

I do have a terrible feeling that the last point may be the most important. That worries me.