SEPA OTS Final report

Mon 07 Nov 2016

The OTS Final report on Sole Enterprise with Protected Asset(s), or Self Employed with Protected Asset(s) according to your preference, (in either event, SEPA, although there is discussion in the document as to whether it should be renamed SEPR: Sole Enterprise with Protected Residence – emphasising the point that the asset being protected is the residence) has now been published.  The project to further develop the concept of a SEPA model followed the recommendation in the OTS Small Company Taxation review published on 7 March 2016. The discussion paper on SEPA was the basis of a consultation that ran until 12 September 2016.

The basic proposition of the study was whether a SEPA, which would allow traders to protect their primary residence while continuing to trade as a sole trader, would meet the trader’s needs in a way that offers simpler administration and less reporting – the conclusion of the OTS was, essentially,  “yes”. The OTS recognised that the tax simplification aspects of the idea are indirect as a SEPA would not mean that the tax position of a sole trader would be any different. Further, the OTS anticipates that it would take between 3 and 5 years to introduce.  Optimistically believing that this would allow time for MTD to have settled in!

The OTS proposed a very simple, ‘light touch’ registration process with limited details that is being modified to drop the suggested declaration of solvency and industry sector code but requiring a description of the business and the address of the property covered. It, however, proposes to retain an annual return or confirmation of detail as part of the tax return. It also proposed that only the main residence (using the CGT concept) would be protected but consider more work needs to be done to assess whether certain pensions should also be protected.  It was noted that the alternatives of a single person LLP or use of “catastrophe” insurance could be attractive alternatives to SEPAs.

There is also more research that needs to be done to evaluate the potential consequences to access to finance – whether from Banks or suppliers,  

SEPAs would apparently be of particular interest to:

• Traditional trades (painters, plumbers and so on) rather than ‘knowledge workers’. The latter, it is recognised, mostly work with businesses or agencies who demand they work through companies as insulation against possible PAYE issues and employment rights concerns.
• Those in their 40s and 50s who are starting up a new venture, either diversifying or enforced through redundancy. They will of course be far more likely to have property that they wish to protect.

The overall conclusion is that SEPA has the potential to be a useful simplification for those that would otherwise consider incorporation, it could provide a boost to enterprise and the OTS recommend that it should be developed into a formal proposal.