The UK's newly launched independent Office of Tax Simplification has been tasked with reviewing the tax regime for the country's small businesses, with the aim of simplifying the system, reducing uncertainty, and cutting red tape.

The OTS has been asked to provide Chancellor George Osborne with an initial report (in time for Budget 2011), which:

- Examines evidence and identifies the areas of the tax system that cause the most day-to-day complexity and uncertainty for small businesses;

- recommends priority areas for simplification; and

- Considers the impact of any simplification in these areas on different business sectors, including large business.

Following consideration by the government of the initial proposals, the Office will then be asked to produce specific recommendations on tax simplification for small businesses.

Despite recently appearing to backpedal on pre-election commitments to roll back the unpopular IR35 regime, the Treasury has stated that:

"The Government has already indicated that reviewing IR35 legislation is a priority and that it will seek to replace it with simpler measures that prevent tax avoidance but do not place undue administrative burdens or uncertainty on the self-employed, or restrict labour market flexibility."

"Therefore, in its initial report to the Chancellor, the Office should also:

- Identify and provide evidence of the complexity and uncertainty created by IR35;

- Consider alternative legislative approaches that would be simpler and create certainty while ensuring that, where intermediaries are used to disguise employment, any income that is effectively employment income is taxed fairly; and

- Consider the scope for tax avoidance and the extent to which alternatives to IR35 would affect it."

It continued:

"The focus of this work should be exploring alternatives to IR35. However, the Government will be interested in issues in relation to the structure of the tax system and the employment status test more generally. This may have a bearing on wider issues about employment status and the boundary between employment and self-employment, including the impact on larger businesses."