Accounting bodies call for delay to basis reporting
Five UK tax and accounting bodies have urged the government to delay reforms to the tax system which would affect how self-employed people and businesses report their profits
In a letter sent to Treasury financial secretary Jesse Norman, ICAEW, the Institute of Chartered Accountants of Scotland (ICAS), the Association of Taxation Technicians (ATT), Low Income Tax Reform Group (LITRG) and Chartered Institute of Taxation (CIOT) have said that the reforms for income tax self-assessment (ITSA) and for Making Tax Digital (MTD) are being ‘implemented too quickly’.
The letter outlines concerns about the introduction of the reforms in April 2023 due to Brexit and the Covid-19 pandemic, stating that the ‘rush to implement’ the new reforms could risk ‘undermining the integrity of the tax system’.
Although the reform will bring simplification for some businesses, the letter highlights that it will also bring ‘complexity’ for others, particularly businesses with international connections that change their accounting year-end.
It also states that the reforms will result in earlier payment of tax by many which will need to be explained, and budgeted. The letter states that this will be difficult for many self-employed individuals in a post-covid-19 environment as many will still see their business’s incomes as fragile.
The letter also says that the major changes to the tax system require an ‘extensive public education exercise’, similar to what was undertaken when the UK moved to self-assessment in the 1990s.
The accounting bodies highlight that the basis period reform will affect many ‘small and underrepresented’ businesses which will not fully understand the technical aspects of the changes, and this will put ‘enormous strain’ on HMRC and tax charities.
The groups have already raised concerns that the changes would put a strain on tax advisers, pointing out that when businesses came under the scope of the Treasury’s new Making Tax Digital rules for VAT in 2019 waiting times for HMRC calls more than doubled in a matter of months.
The letter states that the bodies ‘support tax simplification and the modernisation of the tax system through a further move to digital, but sufficient time must be allowed for this to happen at a manageable pace’.
An HM Treasury spokesperson said: ‘Simplifying the basis period rules will allow self-employed people to spend less time doing tax admin and will also help reduce errors and mistakes in returns.
‘We suggested this proposal in a call for evidence we published in March, and are now consulting on the detailed design of the reform.’
Under the government’s new Making Tax Digital rules an estimated 4.3m self-employed individuals and businesses will have to start reporting their income to HMRC on a quarterly basis from 6 April 2023.
If you’d like to discuss how a change in basis period may effect you self-employed business, contact us on 0161 713 0157.
Story by Ruby Flanagan from Accountancy Daily