REV/C&E 2
7th March 2001
SIMPLIFYING THE TAX SYSTEM
A package of changes to simplify the operation of the tax system and to help and support small businesses in their dealings with Government was announced by the Chancellor today.
The Government keeps the whole tax system under review, acting where possible to change tax rules to minimise burdens on business whilst still meeting the Government's objectives for a fair and efficient tax system. In this Budget, the Chancellor announced consultation on:
- a radical proposal to reduce regulatory burdens for small businesses through aligning their profits for tax purposes broadly with those reported in their accounts, providing scope to avoid dealing with the complexities of the tax system. The Government will consult with small businesses and their representatives to produce a regime that blends the twin aims of simplicity and fairness;
- proposals to change the rules for life insurance companies that invest in venture capital limited partnerships, which will significantly reduce compliance costs; and
- proposals to simplify and reduce the VAT burden for small VAT businesses by introducing an optional flat rate scheme and enhancing the annual accounting regime.
In addition to these consultations, the Chancellor announced that the Budget will modernise and simplify the tax system offering further help and support to small businesses.
Modernising and simplifying the system
Proposals announced to help make the system easier for business to administer include:
- package of measures to allow small firms to manage their entry into the VAT system, reduce burdens and improve their cash flow;
- modernisation of the VAT zero rate on children's clothing and footwear to help families and make it easier for businesses to administer;
- introduction of a simpler system allowing creative artists (authors, composers, etc) to average profits over two consecutive years, similar to the system already operated by farmers. Draft legislation is being published today by the Inland Revenue;
Aligning rules and making the system clearer
Proposals announced to make the law easier for business to understand include:
- simplifying VAT reduced rate legislation to make it clearer and more consistent with other legislation on VAT reliefs, in response to requests from business and the accountancy sector;
- making provision to pay compensatory interest to excise traders both where duty has been wrongly levied or where there is an undue delay in Customs repaying duty. This brings excise legislation in line with compensatory payment arrangements for VAT and other taxes and duties administered by Customs and Excise; and
- increasing to £50 the de minimis limits within corporation tax, self-employed income tax and VAT for business expenditure on gifts, so that fewer minor items need to be reported and tracked by business.
Further help for small business
The Chancellor also announced a package of further help to small business (see press release REV/C&E 1) and confirmed his continuing commitment to improving the support systems Government offers business to help them cope with regulatory burdens.
Details
Other measures
Other measures announced today that help to simplify the tax system include:
- measures to lift the requirement to withhold tax on most payments of interest, royalties and annual payments between companies within the charge to UK corporation tax on that income;
- measures to make clearer the tax treatment when part of the rights in a life insurance policy is transferred, for example on marriage;
- improvements to the information given by insurers to make it easier for taxpayers with a gain from a life policy to complete their SA return;
- improvements to the new All-Employee Share Ownership Plan (AESOP), to make the plan easier for companies to administer. One change that will be particularly welcomed is a new exemption from Stamp Duty when employees buy shares from an AESOP trust;
- improvements to Enterprise Management Incentives (EMI) to make it easier for companies to operate, removing the limit on the number of employees in each company who can hold EMI options, doubling the limit on the total value of shares under EMI option to £3 million, and offering advance assurance on whether or not a company qualifies;
- draft legislation to implement the Stamp Duty Reserve Tax exemption for units in unit trusts and shares in open-ended investment companies held within Individual Pension Accounts; and
- a package of measures to improve and clarify the legislation governing assessment, amendments, appeals and collection under Self Assessment.
Support for business
Building on the substantial help and support Government provides small businesses/employers in dealing with their payroll and other obligations the Inland Revenue launched their new Starting up in Business guide on 10 January 2001. Sent to anyone registering as self-employed, it contains all the information they need to know about tax (including VAT), NICs, record keeping and where to go for further help.
NOTES FOR EDITORS
1. Inland Revenue have today issued a technical Note " A Review of Small Business Taxation". It is available from the Inland Revenue website or from:
David Easton
Inland Revenue
Business Tax
Room 335
22 Kingsway
London
WC2B 6NR
The closing date for replies is 31 May 2001.
2. Details of these measures and further help to small business are in the following press notices, Inland Revenue Budget Notes and Customs and Excise Budget Notices:
Press notices
| REV/C&E 1 | Further help for Small businesses |
| REV 3 | Tax boost for employee share ownership |
IR Budget Notes
| REV BN 6 | More flexibility for Enterprise Management Incentives |
| REV BN 8 | Stamp Duty Reserve Tax and Individual Pension |
Accounts
| REV BN 12 | Profits averaging for authors and creative artists |
| REV BN 13 | Withholding tax on intra-UK corporate interest etc. |
| REV BN 17 | Business gifts: increase in de minimis threshold |
| REV BN 18 | Machinery legislation for Self Assessment |
| REV BN 19 | Life insurance: transfers of shares in life policies and information duties of insurers |
C&E Budget Notices
| C&E BN 63/01 | VAT: Modernising relief for young children's clothing and footwear |
| C&E BN 73/01 | VAT: simplification of the legislation on VAT reduced rates |
| C&E BN 74/01 | VAT: Annual Accounting |
| C&E BN 78/01 | VAT: Cash Accounting |
| C&E BN 82/01 | VAT: Increased turnover limits for registration and deregistration |
| C&E BN 84/01 | VAT: Increase in the cost limit for non-taxable business gifts |
| C&E BN 105/01 | Excise: Provisions to pay compensatory interest and extend basis for refunding overpaid duty |
3. The Inland Revenue Helpline number for the newly self-employed is:
08459 15 45 15.
INLAND REVENUE PRESS OFFICE
Media enquiries to: 020 7438 6692 / 6706 / 7327 (out of hours: 07860 359544)
Non-media enquiries to: 020 7438 6420 / 6425 (Office hours only)
Inland Revenue information is on the Internet:
External links
CUSTOMS AND EXCISE PRESS OFFICE
Media enquiries to: 020 7865 5471/5472
(out of hours: 020 7620 1313)
HM Customs and Excise information is on the Internet: