Digital tax reform proposals should be delayed as ‘pace of change’ will hit self-employed

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The Association of Taxation Technicians (ATT) is urging the Government to delay a major change in how trading profits are assessed for tax purposes, specifically calling for more consultation and a clear roadmap for small businesses.

Specifically, the ATT is concerned that affected small businesses will not have enough time to provide feedback to the Government before the change’s introduction, with the “pace of change” overwhelming some businesses.

Jon Stride, Co-Chair of the organisation’s Technical Steering, voiced his support for the tax simplification agenda but expressed concern over how it was being implemented.

“The proposal to tax businesses on profits arising in the tax year itself is sensible and will eventually simplify matters for unincorporated businesses,” he said.

“We also support bringing in the change in advance of the introduction of Make Tax Digital (MTD) for income tax.

“But it is vital that the design and implementation is fully considered and not rushed if it is going to work for businesses and the Government. Given all the current upheaval for businesses, both this change and the MTD roll-out should each be delayed by a year.”

The ATT’s primary concern is the consultation period for this drastic change is only six weeks, which is half the 12-week period recommended in the Government’s guidance and coincides with the summer holiday season.

Part of the ATT’s recommendation is an extension of the consultation deadline to September 30, 2021.

Self-employed: Woman working from home

Self-employed: ‘Pace of change’ of tax reforms for self-employed may hit self-employed (Image: GETTY)

Stride explained: “Pushing back both the start of MTD for income tax and this new proposal would give time to ensure that the basis period change works as smoothly as possible – and it would also allow a full 12-week consultation period.

“HMRC’s consultation recognises the wide range of issues which will require detailed consideration in finalising the design of the necessary legislation to implement the basis period change.

Furthermore, Stride revealed the organisation’s recommendation that HMRC publish a detailed roadmap which sets out the later consultation stages for the self-employed.

He added: “Regardless of whether delays to the plans are possible, it is essential for HMRC to give a clear indication of the steps towards implementation of the basis period changes between now and April 2022 so that businesses and their advisers can identify relevant issues needed to manage the transition.”

Many financial services institutions, including the Chartered Institute of Taxation (CIOT), believe the reforms are evidence that the Government is committed to introducing MTD for income tax as part of its tax simplification agenda.

Published earlier this week, the draft legislation reveals the Government’s plans to reform the current ‘basis period’ rules.

‘Basis period’ rules relate to how trading income for smaller businesses, such as self-employed sole traders and partnerships, is decided to tax years.

Notably, the proposal outlines the Government’s plan to change how this is decided so it will be based on profits or losses which come around during the tax year.

Self-employed: Woman at desk

Self-employed: ‘Basis period’ rules relate to how trading income for smaller businesses is decided to tax years (Image: GETTY)

Currently, this allocation is determined based on the accounting period ending in the tax year.

In their description of the new policy’s objective, the Government said: “The overall objective of the proposal is to simplify the taxation of trading profits. This is in line with stakeholder requests to simplify this part of the tax system.

“The current year basis requires a set of rules to cover all eventualities. After the transition year in 2022 to 2023, the tax year basis would require much simpler rules to cater for the taxation of businesses.”

The new ‘tax year basis’ will start from the year 2022-23 to prepare for the start of MTD for income tax self-assessment, which is currently set to happen in April 2023.

Legislation will be also introduced as part of the reform to officially name March 31 as equivalent to April 5.

This means that businesses which draw up their accounts to March 31 will no longer have to make up apportionments of a few days to determine their profits or losses for a particular tax year.

Roy Walsh

Roy Walsh

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