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How HMRC could make tax less of a pain

As part of The Entrepreneurial Audit (a joint project from the RSA and Crunch) twenty policy ideas have been proposed to strengthen self-employment in the UK. One of the sections of the report focuses on tax simplification – no doubt a cause every self-employed worker in the UK can get behind.


Making Tax Digital, the Government’s programme to move all personal and business tax online, is underway. Online tools help automate away as much administration as possible, and are an encouraging step forward – but there are other moves that can be made to make tax less of a pain. Here are just three of them.


Tax simplification – how it could be handled


The Office of Tax Simplification (OTS) has recommended aligning the filing and payment dates for different taxes such as PAYE and VAT. Mercifully, companies would then only have to provide their information once.


A need for HMRC to provide more support on evenings and weekends was also highlighted in the report. It’s good to note HMRC is now piloting access to support including chat facilities outside standard office hours.


“Small business owners don’t keep standard office hours so it’s important that public services reflect that in the support they offer,” said Crunch’s Head of Policy and Public Affairs, Jason Kitcat. “Furthermore having to spend time submitting similar information multiple times is dispiriting, so we hope this research will encourage greater simplification in the requests on businesses that government makes.”


Sole Enterprise with Protected Assets


According to Ipsos MORI polling, 78% of company owners agreed that gaining financial protection through limited liability was an important consideration in their decision to incorporate.


The Entrepreneurial Audit advocates the idea (also backed by the OTS) of establishing a tax form called a SEPA – a Sole Enterprise with Protected Assets. This would give sole traders a degree of limited liability protection for their assets, removing the need to incorporate their business and having to take on the additional administrative burdens that come with doing so.


Accruals accounting


Year End accounts are produced using the “accruals” accounting concept. This requires small businesses to record their income and expenses at the point they’re incurred, regardless of whether the money has yet been received or paid. This can unfairly result in a small business owner having to pay tax on money they have invoiced for, but are yet to receive.


In contrast, cash accounting methods allow for the recording of income and expenses as receipts and payments – only as and when money enters and leaves a business. The report suggests this would be a much more suitable and simplified method for small business owners, if only more businesses were allowed to implement it.


We know that many small business owners and freelancers think of their accounts in cash terms, regardless of how they’re formally prepared. Widening the scope of cash accounting would simplify matters, thus making it easier for many to truly understand the accounts they file.

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