The Office of Tax Simplification (OTS) report Simplifying everyday tax for smaller businesses outlines the tax challenges faced by smaller firms and makes recommendations to improve the tax system for small employers.
In particular, the report highlighted that problems with PAYE lead to significant costs for employers, agents, employees and HMRC itself. In addition, the current system does not handle the fluidity of the modern workplace very well, for example in relation to changes of job mid-month or individuals holding multiple jobs or concurrent employment and self-employment.
Bill Dodwell, OTS Tax Director, said: “It is time for a new review of PAYE, to look at areas where the inputs from employers do not work well and how they are processed by HMRC to update tax codes and the new personal tax accounts. The review needs to update PAYE for modern working patterns.”
Small businesses make up more than 99 per cent of all the 5.7 million businesses in the UK, employ 12.9 million people and pay over £205 billion in tax. However, tax compliance is a major issue for some companies.
The report considers other areas that need change, including the need for better and more accessible guidance for new businesses that is joined-up across government and communicated through multiple channels. It also recommended that tax agents are given greater leverage to support their clients. Currently, agents are not provided with the same information as their clients and are not enabled to carry out a range of tax transactions on their clients’ behalf.
Kathryn Cearns, OBE, OTS Chairman, said: “The long-standing concerns highlighted [in this report], about businesses avoiding mistakes as they get going, the workings of the PAYE system and the priority given to the role of agents, are not easy things to improve quickly. So it’s all the more important that the OTS continues to highlight these issues.”
