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George Osborne has commissioned a new project aimed at simplifying or scrapping the complex tax laws faced by small businesses.

He has enlisted top accountants Michael Jack and John Whiting to spearhead the Office for Tax Simplification (OTS), and charged them to produce a report by the autumn detailing the reliefs, exemptions and allowances that could be streamlined.

A second report will be produced before the next Budget – likely to be in March – outlining how to address the Chancellor's desired reforms to the IR35 contractors' levy. The OTS will subsequently deconstruct the personal tax system.

David Gauke, the Exchequer Secretary, to whom the OTS will report, said it was a crucial initiative to assist the millions of families and businesses across the UK whose tax affairs became infinitely more complicated under the previous government.

"The OTS will provide important advice that will help inform us in making the right reforms to the tax system [and] pave the way to bringing more international business to the UK," he said.

"This will give our economy the boost it so urgently needs in the years ahead.”

Mr Jack and Mr Whiting will recruit full-time civil servants to run the OTS, largely drawn from the Treasury and Revenue & Customs. It is also hoped that secondments will be made from management consultancies such as KPMG and PricewaterhouseCoopers.

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The UK's tax regime has prevented a large of proportion of small businesses in the UK from taking on more staff and growing their organisations, according to new research.

Over half of firms questioned by the Federation of Small Businesses (FSB) said taxes have had a negative impact on their chances of economic recovery. Businesses in the south-east of the country feel particularly strongly, closely followed by the north-west and London.

Concerned that the temporary boost to employment figures provided by the Christmas period is reaching an end, the FSB is stepping up calls for the government to freeze National Insurance Contributions and provide a National Insurance rebate for small businesses with fewer than 50 staff that take on more employees in the coming year.

"What the UK economy needs is real action to get more people into work, especially under-25s, who make up a large proportion of those currently unemployed," commented John Wright, the body's national chairman.

A cut in National Insurance Contributions would encourage small businesses to take on more staff and grow their companies, he continued: "Small firms can help to strengthen economic recovery if they are given a chance to grow and flourish, but they will need a helping hand."

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Give us a Break: that's what the Federation of Small Businesses (FSB) is urging the government in light of proposals to change the tax rules on furnished holiday lettings.

Under the changes, eight in ten small firms in the holiday sector could go bust, the FSB says. And all because taking away their tax breaks is likely to force job losses, stifle trade and cost the tourism industry millions.

As the situation stands, furnished holiday lettings must be available to rent for at least 20 weeks of the year and rented out for ten. This gives the owners of self-catering properties a variety of tax breaks.

But the government's proposed changes would mean such firms are assessed as residential landlords rather than trading businesses. Over half of holiday lettings owners polled by the FSB said they'd be forced to lay off staff as a result and 81 per cent admitted their "financial viability" would be affected.

FSB national chairman John Wright commented: "Small firms know they are crucial to pulling the economy out of recession and on to the road to recovery, but they need the government to create a tax-friendly environment to do so."

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From next April, small business owners of holiday homes will not be able to use their properties to offset losses made on their investment or defer capital gains tax payments.

Hidden in the small print of the Budget, and not actually mentioned in the Chancellor’s speech, the decision has outraged second home owners across the UK.

Ross Elder, managing director of holidaylettings.co.uk, said that the existing rules on offsetting losses on holiday properties These rules have served to encourage greater use of holiday properties, rather than sit empty, and in turn boosted UK tourism and supported local economies. For the home to qualify as a ‘holiday property’, it needs to be fully furnished, and run as a commercial business. It must also be let for at least 70 days in a year and available to the public to rent for a total of 140 days of the year.

The rule meant that for those people facing hefty capital gains tax bills, investing in holiday homes was a popular option. There is now every likelihood that the extra tax bill on property owners will have the effect of severely raising prices for UK holidaymakers next year.

Toby Ryland, senior tax partner at Blick Rothenberg, agrees: “It’s going to make letting a second home as a holiday let less attractive. It will restrict availability and potentially push up the cost of renting a holiday home.”

At least the change in tax legislation won’t be retrospective, so the capital gains tax will not need to be paid by existing owners of holiday properties until they sell it.

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Don’t think that Alistair’s partial u-turn on CGT means that small businesses are being treated well by this government.

In each of the last three budgets, the government has steadily added to the tax burden of small businesses, and lightened the load on larger corporations. Take a look at this illustration:

Profit (net and pre-tax): £11,000

Fixed assets brought forward: £6,500

Depreciation at: £1,625

In 2010, the corporation tax for this business will be: £2,228

Compared to their corporation tax total in 2005 of: £184

Wow! That is an increase of over 1000 percent!

If you applied a similar tax calculation for a business 1000x larger, you would see that their tax bill actuall REDUCES by over 2% over the same time period. See the actual figures over at Figurewizard.com (thanks Joe for that).

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Alistair Darling, the UK chancellor has finally made up his mind on the new capital gains tax regime due to take effect after April 5th this year, and announced a major concession for owners of small businesses.

Any business owner making a profit of one million pounds or less on the sale of his or her business will only be liable for CGT at 10%, rather than at the previously proposed rate of 18%. The 18% rate will apply to all gains above the million pound mark, however.

For once, it seems the Chancellor has actually listened to some of the business community. Business groups were united in their dismay at the proposed tax changes. Although many medium to large businesses are not so impressed with today’s announcement, many small business owners are breathing a sigh of relief.

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