Consultation alert: Basis period simplificationby
The “school’s out” mood has taken hold in Whitehall, as the Treasury cleared its shelves of draft legislation and consultation documents before Parliament breaks up for summer.
HMRC has opened up a six-week consultation period to solicit views on proposals to simplify basis period rules for taxing income from self-employment. The tax department wants to make it easier for businesspeople to work out what tax they should pay when their accounting periods cut across the 5 April tax year end.
“The current rules date back to the mid-1990s and are themselves derived from a system that dates back to the 1920s,” noted first secretary to the Treasury Jessie Norman in his introduction to the consultation.
The rules are “straightforward” for the 93% of sole traders and 67% of business partnerships that draw up their annual accounts to align with the 5 April tax year end (or 31 March, which HMRC normally treats as equivalent to 5 April), the minister said.
“But choosing an accounting date different to the tax year-end creates complexities that lead to businesses making many thousands of tax return errors every year. While large firms and those with professional advisers understand the rules and find them straightforward to apply, less sophisticated taxpayers find the rules opaque, illogical and unfair.”
The proposal, which is the culmination of a five-year conversation that started at the Office of Tax Simplification, would make the 5 April/31 March tax year end the default basis period for all trading income, aligning it with all other forms of income.
The idea is fuelled by the march towards Making Tax Digital, which revolves around end-of-quarter reporting and prompted a counter proposal from ICAEW Tax Faculty manager Anita Monteith to change the tax year end to 31 March. Issues of this nature generate a lot of emotion and debate, so the firing gun has started now.
More draft legislation
The Treasury's shelves of draft legislation will be a little lighter today. Alongside the clauses to reform the basis period rules, the latest tax policy consultation tracker flags up further draft legislation that was published on Tuesday 20 July, including:
- Clamping down on promoters of tax avoidance - Summary of responses; see previous articles on this subject for analysis and reactions from AccountingWEB members.
- Notification of uncertain tax treatment by large businesses
- Taxation of asset holding companies in alternative fund structures
Did someone mention MTD?
Not to be overlooked in the documentation clear-out is a study into the impacts of MTD for VAT on business. The 49-page report by IFF Research was based on a survey of 2,000 businesses during November and December 2020 and offers some headline estimates on the costs and changes that were required by the switch in VAT reporting in 2019.
Just over half (55%) the respondents reported incurring additional costs to prepare for MTD, with new accounting software the frequently mentioned expense (26%). Just under a quarter of businesses of all sizes (24%) undertook discussions with their accountants or bookkeepers and 16% increased their use of outside advisers.
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