OTS calls for a new type of sole enterprise

The Office of Tax Simplification (OTS) is calling for further work on the potential for a new form of trading vehicle, the sole enterprise with protected asset (SEPA), which would be simpler to administer

The OTS’s work in this area stemmed from research findings that one of the main reasons for forming a limited company is to obtain limited liability protection, but that many people who do so then struggle to deal with the tax, accounting and reporting requirements.

A SEPA would allow traders to protect their primary residence while continuing to trade as a sole trader, and would simplify the tax and accounting requirements for unincorporated businesses by obviating a key non-tax reason for incorporation.

In its document detailing the outcomes of its 2016 consultation on the idea, the OTS concedes that introducing a new trading vehicle does present some potential issues but says none are ‘insurmountable’, and it is encouraged by the interest in the concept by some bodies with particular connections to the potential target groups.

There would be a ‘light touch’ reporting regime, requiring a description of the business and the address of the property covered. Aspects of the register of SEPAs would be public, for consumer protection reasons, but this would not extend to identifying the asset (house) protected.  The OTS also suggests further consideration of whether other assets, principally the trader’s pension fund, could also be protected in this way.

The OTS report points out that a critical issue is whether or not banks would lend to a SEPA, and whether a SEPA business could access credit with suppliers.  There were also concerns about possible confusion as to how businesses operate, given developments such as Making Tax Digital.

The consultation responses indicated that the SEPA model is likely to appeal to traditional trades such as painters and plumbers, rather than ‘knowledge workers’. The reason for the latter being less interested in SEPA is that they mostly work with businesses or agencies who demand they work through companies as insulation against possible PAYE issues and employment rights concerns.

The OTS also predicts interest from those in their 40s and 50s who are starting up a new venture, either diversifying or enforced through redundancy and who are far more likely to have property that they wish to protect.

Its report concluded: ‘The case for SEPA’s introduction is not by any means cast-iron. But our work indicates that SEPA has the potential to be a useful simplification for those that would otherwise consider incorporation. Furthermore it could provide a boost to enterprise.

‘Accordingly, we recommend that it should be developed into a formal proposal. While doing so, one would have to address some of the issues that we have raised in this report as well as fully assessing any impact on the creditor and debt collection markets.’

SEPA: Sole Enterprise with Protected Asset is here

Report by Pat Sweet

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