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The Office of Tax Simplification implications for the Budget and Nano-Businesses. 14/03/12

On 28 February the OTS published its final reports on small business issues, which are broken down into three documents, dealing with the following issues

  • HMRC administration
  • Simpler income tax for the smaller businesses
  • A new relief on disincorporation

These are of course recommendations to the Chancellor, who may take what notice of them he pleases. Potentially there could be announcements or even legislation in the budget, though it is perhaps unlikely that things will move so quickly.

But it looks as though there will be a disincorporation relief, which may be good news for people trapped in an inappropriate form. It will however only apply to trading companies, so is of no help to those with companies only holding real estate.

And for (very) small businesses the right to provide accounts of income and expenditure rather than fully GAAP-compliant accounts will be legally recognised (instead of their being accepted with a nod and a wink, as they are likely to be at present). This really applies to a very considerable number of businesses with a turnover not exceeding £30,000, most of who do not use accountants and probably enter their figures straight onto the tax return.

It is clear from the proceedings of the consultative committee that the very small businesses have not really been seriously considered before, probably because they have nobody much to speak for them. Since these Nano-Businesses often do not use accountants (and those that they do use are frequently cheap and cheerful and unqualified), they are below the radar of the accountancy bodies who are regularly part of HMRC consultations.

There are also far more of these businesses than there ever were. With the economy in its present state, many people who are made redundant will throw their redundancy money into a small business: self employment under the banner of entrepreneurship has never been more popular.

Along with the possibility of income and expenditure accounts (just don’t say “cash basis”, that’s all – the term means very different things to different people), there may be standard allowances for various expenses. What is suggested is

  • Use of home – standard or higher flat rate amount per week
  • Mileage – Approved Mileage Allowance Payments (AMAPs) with no upper turnover limit, and new AMAPs for vans
  • Capital items – allowed as a deduction rather than capital allowances
  • Private use assets and services – disregard limited private and business use
  • Telephone, mobiles and internet – a standard allowance or “disallowance”
  • Subsistence – improve guidance and consider use of flat rates
  • Laundry – same rates as used by employees and
  • Postage and stationery – allow estimates for small amounts or flat rate amount

This all seems to me to make sense, though it could distract from the message that you should still keep proper records. What remains to be seen is whether the Treasury or the Chancellor will decide against grasping this nettle.

If you have any questions or concerns about Tax liabilities and reporting, contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar to discuss how ABDS can help.

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail:

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