The Office for Tax Simplification has published its first report on simplifying small business tax.
I submitted evidence to this review and met the OTS.
And they seem to have listened. One recommendation is for a reform I first suggested in 2006 - and which was (I know) reviewed extensively by HMRC at the time (I know because I met them to discuss it). This is for a flat rate deduction for expenses for small business. In other words, all a small business would have to record would be its income and a standard offset percentage would be allowed, if they wished, for expenses.
Tax fraud at this level is on income - so the whole focus should be on that. And of course this would not stop a business preparing accounts if it wanted.
This is a move in the right direction.
Merging NIC and income tax is another issue.
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It seems to me that the only long term solution to the IR35 issue is to merge NICs and Income Tax, effectively taxing all income at the same rates.
While we tax employment / self employment income more heavily than investment income, there will always be an incentive for a “micro business” to try to have as much of its income treated as investment income (dividends) as possible.
While we have these differential rates of taxation HMRC will inevitably always feel that they need to try to protect income from being pushed this direction and hence eroding the tax take.
However, equalising the rates would create a whole new can of worms …
My guess is we will be stuck with IR35 or something not very different for quite a while to come.
@Tim Johnson
Tour conclusion is right
But where the hell is the justice in taxing EARNED income at a higher rate than unearned. It’s absolutely deplorable.
@Carol Wilcox
None at all
Which is why this merger has some merits
But also many problems – like the fact pensioners don’t pay now…..
And then there’s employer’s NIC
The answer may be to keep NIC but have an investment income surcharge