The Office of Tax Simplification (OTS) have recently published a report on the ‘Simplification of the corporation tax computation’. This sets out their recommendations for how the corporation tax landscape should change.
A significant suggestion from the report is that smaller companies should be taxed on their accounting profits. This would remove the need for making separate and complex adjustments for tax purposes. A company’s profit then could then be the same with Companies House and HMRC. The target being greater compliance.
However, R&D tax relief for SMEs is applied when making those adjustments to a company’s corporation tax liability.
The report has rightly highlighted that additional reliefs such as R&D should remain in place. Therefore, an adjustment would be required if R&D tax relief remains the same.
The Association of Tax Technicians have noted that smaller companies could be guided so that they know which parts our extensive tax legislation can be ignored.
Making Tax Digital (MTD) will arrive in due course and it will be interesting to see if the bill (postponed by the general election) will be updated to reflect the OTS’s recommendations. Indeed, the OTS has stated that some simplifications should be brought in with MTD.
MTD is a key part of the Governments plans to make it easier for businesses to get their tax right. This vision for modernising the tax system was introduced in March of 2015, but we're looking at introduction beginning in 2019
The reporting for corporation tax will be changing, but a place for claiming R&D tax relief will remain.