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Could this be the year when the ordinary accountant shapes future tax developments? Or am I dreaming an impossible dream?
We start 2009 as we have for the last few years, with numerous consultations open for comment before the Budget, and most practising accountants up to their eyes in tax returns. Those working in business are focused on surviving the current financial climate – whether “downturn” or outright “recession”, most people in accountancy and tax have their minds far from esoteric consultations. But in my view, this is the year for the ordinary accountant to make his voice heard. Some of the consultations will impact directly on your practice and your clients in the future, and your views can shape how the tax system moves forward. Feedback from ordinary accountants, rather than professional commentators (with all due respect) is what makes the difference in the detail. Making the point that some plans, while fine in theory are unworkable in practice is something only the accountant “at the coalface” can do. While you may have doubts whether the effort is worth it, 2008 showed us that the combined might of ordinary accountants, professional bodies and publications can and does get results. We have the shelving of income shifting and the about turn on the Taxpayers Charter to evidence this. The Taxpayers’ Charter (whatever it is eventually called) will now have statutory force – in spite of the fact that the decision that it should not have the force of law seemed to have been a fait accompli. Who knows whether income shifting will ever reappear or not? It is clear, however, that all of those involved in developing the legislation understood that irrespective of the intention of the legislation, the existing plans were practically unworkable. So two important battles won – where should we turn our attention to next? New legislation on penalties for non payment of tax are quite well advanced, and with a closing date of 13 February probably only those with a special interest in the area will have time to comment. Of much broader application is the plan to simplify corporation tax computations for smaller companies. This proposal has been kicked around for some time already, and eventually “went public” as the consultation document Corporation Tax calculations and returns for smaller companies; the reply date is 20 February. HMRC wants to make some big inroads into administrative burdens, and this document explores two of the more radical proposals along those lines. The introduction to the document indicates that the simplification will only be developed further if there is convincing support from businesses for either approach. In essence the short document (only 7 pages of text) seeks to examine how the corporation tax computation might be made simpler for smaller companies. Many accountants will comment that this is already a fairly simple task – add back entertaining and depreciation and deduct capital allowances. Most very small companies don’t have any other adjustments in their tax computation – and indeed in the current climate probably very few have disallowed entertaining expenses. So how could this be materially simplified? HMRC does not want to “tinker round the margins”, it wants to make significant changes. The list of alternatives boils down to two for serious consideration (see page 6) : - Developing an accounting standard which complies with tax obligations. This option will allow the easy introduction of online corporation tax dovetailed with Companies House online filing. A single filing operation will be optional, but online filing for corporation tax is planned for 2011, and by that time it will probably be simplest to file a single XBRL file meeting both Companies House and HMRC requirements. It is clear that online Corporation Tax with XBRL will increase the administrative burden for small companies and their advisers, at least initially, through the requirement to invest in new software and/or learn new systems. This idea seeks to minimise the impact of the change. If proceeded with, there are a number of difficult points to resolve, such as whether accounts prepared under the new standard (which would by definition require no adjustment for tax purposes) would show a true and fair view. The underlying principle of this option is that the tax liabilities would not change, but that the accounting treatments would, to reflect the tax rules. Key issues such as depreciation of fixed assets present very real reporting and business analysis issues – with companies either depreciating assets by 100% when Annual Investment Allowance is available, or not at all when no capital allowances would be available. As an accountant I have very real doubts about this approach, but of course I might be giving the accounts of smaller companies too much weight. Does anyone use them as a measurement tool?
- The second option is even more radical. It would allow companies to pay tax based on their cash flows. So at the end of the period, the inflows less the outflows would be the taxable profit, and tax calculated on the result. This would, of course, alter the tax liabilities of companies, potentially quite considerably, but has the merits of simplicity. When HMRC examined the users of small company accounts, the view was expressed that the banks would prefer to concentrate on cash flow rather than statutory accounts. So basing the tax on the cash flow, which the company needs to prepare for the bank in any event, has some merit. It also means that the company has the cash to pay the tax (at the end of the period at least) and should therefore find it easier to meet its tax liabilities. However, this plan is fraught with difficulties – not least how cash flow accounts could pass muster under Company law. In a demonstration of how radical HMRC is prepared to be, there is a suggestion that company law could be modified to allow the smallest companies to prepare cash flow statements rather than statutory accounts.
This is a subject on which most accountants advising small companies will have a view, and where the development of policy which has a huge potential impact would benefit from the views of the man on the street. It is an illustration of how, if we are pro active, we can shape the future of tax in the UK. Yes, there may still be issues about which we are not consulted, or with which we strongly disagree, but 2008 has shown us that the tax authority is ready and willing to listen, if we are prepared to speak up. This article first appeared on AccountingWEB.co.uk on 11.1.09 |
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