MPs demand new legal entity for small firms

The government should work on creating a new regime which reduces the tax and regulatory burdens on modern small businesses, a group of MPs has said

In an early day motion (EDM), Labour MP David Drew and Tories Bob Spink and Peter Bottomley called on ministers to look at how small firms can be provided with a "suitable legal entity designed for use in the 21st century".

The MPs claimed that the current limited company system, a 19th century model, imposes too high tax, accounting and regulatory burdens on small enterprises.

The politicians said the time created by the announcement that regulations outlawing income shifting will not be implemented until April 2009 instead of next month as originally planned allows ministers to work on new ideas.

Simplification, the EDM continued, would free up small business owners to "generate wealth and employment in the UK economy, whilst ensuring that they can with minimum effort comply with the taxation and other requirements imposed upon them by law in a way that minimises risk of tax avoidance".

But George Bull, head of tax at accountants Baker Tilly, claimed that the call for a new legal entity for small businesses is not appropriate and throws up similar difficulties involved in trying to deal with income shifting.

"At the heart of this EDM are the same problems for HMRC," he said. "How do you value the contribution of different people in a small business' You end up with the same problem of having to find a statutory method of measuring an individual contribution to a business."

Tax justice campaigner Richard Murphy however welcomed the EDM as a positive step. "Small business does not now need a 'lash up' solution on income shifting," he said. "Real change is needed to provide it with an appropriate structure and accounting and tax environment for the 21st century."




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