OTS Discussion document - Lookthrough Taxation - CIOT comments

The Office of Tax Simplification’s (OTS) discussion paper considers a Lookthrough taxation model which was first mooted during the OTS’s recent small company taxation review. 

The CIOT has responded saying it recognises that there is an intellectual appeal in trying to even out the taxation treatments of different businesses structures, but that in practical terms it will be very challenging to devise a satisfactory model. We do not believe that the way to address the differential is to introduce a completely new taxing mechanism, such as Lookthrough taxation. We think it would be too complicated, and will not provide a simpler tax system for those taxpayers who will be affected. In addition, it will be extremely unlikely that businesses would opt to use it, as in many (if not the majority of cases) it will probably increase their tax liabilities.  We are therefore unclear whether the policy objective of the measure is merely simplification, as a key effect of Lookthrough taxation, particularly if it were to be made mandatory, seems to be to generate an increase in the tax yield from small business. With both Brexit and Making Tax Digital (MTD) on the horizon, it seems to us that now is a completely inappropriate time to be putting more costs and burdens onto the small business sector. We also believe that the recent changes to dividend taxation should be given time to bed in and take effect, before further changes are made to the way in which the proprietors of small companies are taxed.  If the idea of a Lookthrough approach is progressed, then we are strongly of the view that a formal consultation process should be conducted by HM Revenue and Customs (HMRC) and HM Treasury in line with the usual consultation principles.