The OTS has published its final report, based on the responses to the discussion document issued in July, concluding that ‘lookthrough’ does not offer sufficient simplification to justify its introduction. Given the additional rules that would be needed, it might actually be more complicated than the current corporation tax system.
The discussion paper, part of the OTS review of small company taxation, explored the potential for lookthrough to offer tax simplification benefits to small companies.
The basic premise of lookthrough taxation for a small company is that direct profits taxes are not levied on the company; rather one ‘looks through’ the company and levies taxes directly on the shareholders on their allocated share of the profits.
The simplification gained by eliminating the need for corporate tax compliance is outweighed by the technical issues that such a process raises, specifically the need for an ‘adjustment of profits’ exercise. In addition, the OTS has identified that lookthrough potentially damages the funds retained for investment by taxing retained profits at full income tax/NIC rates.
Of the minority of respondents who supported lookthrough, most did so on the basis that it would be optional.
Nevertheless, the OTS sees merit in a long range, strategic review of taxation in this area, to look at the whole question of how labour income should be taxed and whether capital returns should be taxed differently.
The OTS has published its final report, based on the responses to the discussion document issued in July, concluding that ‘lookthrough’ does not offer sufficient simplification to justify its introduction. Given the additional rules that would be needed, it might actually be more complicated than the current corporation tax system.
The discussion paper, part of the OTS review of small company taxation, explored the potential for lookthrough to offer tax simplification benefits to small companies.
The basic premise of lookthrough taxation for a small company is that direct profits taxes are not levied on the company; rather one ‘looks through’ the company and levies taxes directly on the shareholders on their allocated share of the profits.
The simplification gained by eliminating the need for corporate tax compliance is outweighed by the technical issues that such a process raises, specifically the need for an ‘adjustment of profits’ exercise. In addition, the OTS has identified that lookthrough potentially damages the funds retained for investment by taxing retained profits at full income tax/NIC rates.
Of the minority of respondents who supported lookthrough, most did so on the basis that it would be optional.
Nevertheless, the OTS sees merit in a long range, strategic review of taxation in this area, to look at the whole question of how labour income should be taxed and whether capital returns should be taxed differently.
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