Major Reforms to Self-Employed Tax Administration
Government proposals for tax reforms may sound very technical, but they have huge implications for self-employed workers.
Back in August the government published a set of Consultation Documents on their proposed reforms to the UK tax system under the rubric Making Tax Digital. These reforms have huge implications for all self-employed workers with a projected start date for unincorporated business of April 2018. Equity, along with other unions, has been formulating its responses and we are seeking the views of our members by 31st October 2016. HMRC’s closing date for responding to the Consultations is 7th November 2016.
There are six Consultation documents and an Overview document summarising some of the main questions.
Among the raft of changes there will be:
- quarterly updates on income and expenditure using HMRC approved software
- a new system of real-time record-keeping with taxpayers being expected to upload data as closely as possible to the transaction date
- a new system of penalties based on a topping up system similar to points for driving offences (including penalties for late filing of updates)
- a voluntary pay as you go system for tax payments and the pre-population of members’ business accounts with data from third parties such as insurance companies or building societies.
All of this could have advantages and will in due course spell the end of the tax return as we know it. However, there is a lot of devil in the detail and why this has to be mandatory from the word go is not clear.
HMRC’s analysis suggests that improved record-keeping will bring over £900 million into the Treasury in year one and thereafter over £600 million per year. This is based on their finding that smaller businesses are more prone to errors in their tax returns. Such sums pale into insignificance by comparison with the tax avoidance practised by large corporations but leaving that aside we have major concerns about how manageable this new system will be for the small trader. Among these are the following:
- ”Sole traders” (as many self-employed workers are called) will be expected to be uploading data more or less continuously and allowing access to their agent or accountant to do the quarterly submissions. This could become very burdensome in terms of both cost e.g. increased accountancy fees and/or time spent photographing receipts, etc. and uploading the data. The software will only be free for the smallest businesses and it is unclear how much it will cost for the rest.
- We have yet to see any pilot of the suggested software although various commercial providers are in discussions with HMRC. It is unclear whether it will have all the functionality it needs e.g. to deal with foreign earnings for those working abroad on a contract or for any non-standard scenarios.
- HMRC have said that the important thing is to file the submissions and that it doesn’t matter if they are full of errors as these can be adjusted at end-of-year but this seems to undermine the whole rationale of more accurate record-keeping.
- The government is proposing to exempt businesses with turnovers of less than £10,000 from these new requirements. We think this figure is far too low and a more appropriate threshold would be the VAT limit, currently £83,000. Additionally, it would be better to look at net profit figures rather than turnover.
- Implementation will be delayed by one year for smaller businesses – it is unclear at this stage which businesses this would include. In any event, many cannot see why this has to be mandatory and could not be taken up, at least initially, on a voluntary basis.
- HMRC has said that it would try to avoid making use of the new penalty system in the hope there will be voluntary compliance. However, any such system will inevitably put a lot more pressure on small businesses, particularly those who cannot afford to use accountants, and in many cases there may be good reasons why they cannot supply all the data needed on time.
- The speed at which this will be implemented is worrying. The proposals are being brought in with great haste with more details expected in the Autumn Statement with enabling legislation in the Finance Act 2017. This is a very short lead in time for such a major change and leaves very little time for adequate piloting of e.g. the software to try and iron out glitches or improve systems.
Last month, Andrew Tyrie, MP, Chair of the Treasury Committee, wrote to the Chancellor, Philip Hammond:
“HMRC’s proposals are major changes. There remains considerable cause for concern with the proposals. Better to get it right than to stick to a rigid timetable.”
We completely agree with this and think it is essential that the proposals are given much more time for piloting and proper consideration.
Have your say
Union members can respond to the Consultations by email to [email protected] or by letter to HM Revenue and Customs, Making Tax Digital, for Business consultation overview, Room 3C/12, 100 Parliament Street, London SW1A 2BQ
Alternatively, you can respond to the questions in the Overview document by completing a survey