OTS proposes simplifying freelancer accounts

Money, News

We haven’t heard much from the Office of Tax Simplification lately. Freelancers were keeping a close eye on them last March as they unveiled their proposals for IR35 reform, and now – following a directive from the European Union’s financial and economic affairs council last week – they have issued a similar proposal on how to simplify accounting for freelancers, contractors and micro-businesses (businesses with up to ten employees). The proposals address three key areas.

Improvements to HMRC’s services for small businesses

These include two-way email communication, better VAT rulings and – perhaps most importantly given recent news – a dedicated telephone hotline for small businesses.

Improved and simplified taxation

Specifically aimed at freelancers, the OTS recommends allowing receipts and payments accounting instead of the traditional “full” accounts all companies must submit regardless of size. They also identify the burden of limited company expenses recommend introducing a number of flat-rate expense tariffs (presumably similar to how the flat-rate VAT scheme operates currently) that would apply to micro-businesses automatically, with an opt-out available to those who would benefit more from a traditional expense system.


This is an interesting one. We’ve talked endlessly about the advantages of being a sole trader vs a limited company, and allowing small businesses to disincorporate and return to sole trader status would be a good way to make the decision less taxing – if a freelancer finds they cannot stomach the extra paperwork, they can simply shut down their limited company with minimal cost.

You can read more information on the proposals on the OTS website.

The accountants at our parents company Crunch have looked the proposals over and are keen to keep everything in perspective until we find out if the Government will act on the proposals in March’s budget:

“Nobody should be popping champagne corks just yet. Although cutting red tape for small firms is an admirable cause – and one we 100% support – until the reforms are laid out, nobody knows what reporting duties micro-businesses will be exempt from.”

The OTS’ John Whiting said:

“We have spent a lot of time gathering the views of businesses and their advisers about the tax system from the sharp end. That has led us to recommend a range of practical changes to the way the system runs that will help businesses with their everyday tax affairs – and will help HMRC as well.”

Photo by Maggio7