Don't Be Dwarfed By The Tax System - Seven Ways To Make Tax Less Taxing

Dear Sajid Javid

Following your ambition to simplify the tax system and as we approach your 1^st Budget, may I pass on a few things that will make a difference to business’ actual experience of the tax system.

Many good people looking at simplification tend to make changes from a macro viewpoint. Here, we’re looking at the micro level. The things that make people scratch their heads every day of the week.

1. How many tax references do you need?

A VAT registered owner-managed limited company with even only one shareholder-director has to obtain SIX different tax references, which arrive in different formats from different departments: 

1. Government gateway
2. Corporation tax
3. VAT
4. PAYE
5. PAYE accounts office
6. Income tax

Not forgetting if there’s overseas trading, they’ll need a further VAT reference and in the construction trade, another reference. In the confusion they often end up setting up numerous government gateways. 

There are attempts to make the system look combined but it soon breaks down into the same old silos once you scratch under the service. Please do not believe this is getting better.

2. Names given to tax reliefs

Please revisit the names of the following reliefs: 

Substantial Shareholdings Relief – Part of the government’s business friendly agenda, to qualify and save capital gains tax, a company needs to own only 10% of shares in another company, hardly ‘Substantial’. Companies and many accountants miss out on this relief. 

Adjusted Net Income – Affecting high earners and the amount of pension they can pay with tax relief, this is NOT net of tax. This is GROSS income and easily misunderstood so that unexpected tax bills arise. 

Reinvestment Relief – This applies to SEIS capital gains tax savings when a gain is reinvested into SEIS shares. EIS also offers capital gains tax relief when a gain is reinvested into EIS shares. It’s not the same outcome (delay instead of reduction) but with both requiring a reinvestment into new shares, it’s endlessly confusing.

3. Van tax

What is a van? 3 different things according to the tax system depending on whether it’s:

1. VAT
2. Benefit in kind
3. Capital allowances 

Get this wrong and even taxpayers who run a simple van-based business, might get caught out and suffer financial hardship later.

4. Change of company address

With over 70% of limited companies registered at a home address, it’s quite common for the address to be changed. However, you can’t do this direct with HMRC. You change it with companies house and wait forever for that simple bit of information to be sent and/or dealt with by HMRC.

If there needs to be the link, please ensure the information is acted upon. With electronic communication surely this should be almost immediate?

There’s no point even trying to get the year end changed with HMRC via companies house. An accountant just has to do a workaround. If clients haven’t used an accountant before, they tend to appear at this point.

5. CT61s

Often needed when paying interest on a loan, perhaps to a shareholder-director for lending money to his/her company to help get it off the ground or expand.

These forms record the income tax which still needs to be deducted despite the new £1k ‘simplification’. If tax still has to be deducted, surely the form should be available online? It’s about the only one that isn’t.

Why the added administration for a busy start up who is responsibly lending money to ensure his/her company can pay its creditors. What’s so bad about that?

6. IR35 and off-payroll working

This gets more and more confusing. Recent Tribunal cases turn on a single judge’s casting vote, so how is anyone else supposed to decide?

Surely the definition needs to either be very simple, such as after 2 years working for the same single client, you’re deemed an employee. Or people weigh up the pros and cons of being an employee and decide for themselves. With the new dividend tax, the government is now receiving some NI ‘replacement’.

7. Agent Authorisation

Due to the above, businesses need to use qualified accountants, who have to navigate HMRC's agent gateway. To become an agent for a company the only box that works is the postcode and don’t forget to put the space in the right part of the postcode! No other website is so sensitive in this and other areas.