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HMRC wants to speed up self assessment registration

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HMRC has issued a call for evidence on its plans to accelerate the income tax self assessment (ITSA) registration deadline so it’s closer to the start of a new business. Rebecca Cave explores why HMRC wants to make this change and if it is a good idea.

28th Jan 2022
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An individual who starts a new trade or property business, must give notice to HMRC of their liability for income tax by 5 October after the tax year in which their trade or property letting business commenced. This is the rule if the individual is not already within self assessment.

Where the individual is already within the self assessment regime, they can inform HMRC of their new trade or business on the SA tax return that covers the period in which the business commenced.

The delay between starting to trade and informing HMRC of that new trade can be considerable, and this will be important under the MTD ITSA regime.

Example 1

Adam and Ben each commenced trading as self-employed delivery drivers on 6 April 2020. Adam was previously employed and is not within self assessment. Ben owns a let property, so is already within the self assessment regime.

Adam and Ben must inform HMRC of their new trading businesses and register for ITSA by the following dates:

  • Adam: 5 October 2021 – nearly 18 months after the start of the trade
  • Ben: 31 January 2022 - nearly 22 months after the start of the trade

Why change the deadline? 

In its call for evidence paper: Income tax self assessment registration for the self-employed and landlords, HMRC argues that an earlier registration deadline for ITSA will bring benefits for taxpayers as well as for the tax authority.

HMRC believes that the taxpayer will benefit, as interacting with the tax system at an earlier stage will allow the individual to form good record-keeping habits, and give them more time to plan their first tax payment. HMRC, and hence central government, will benefit by having a more accurate and up to date picture of the self-employed community.

MTD effect

The call for evidence paper doesn’t specifically mention that an earlier ITSA registration date may, in future, allow HMRC to change the MTD regulations to require taxpayers to enter the MTD ITSA regime from an earlier date.

From 1 April 2022 VAT registered traders will have to enter MTD from the day the VAT registration takes effect, ie the first day that the business has a liability for VAT.

The mandation into MTD ITSA is referred to as the “digital start date” for the business, to distinguish it from its actual start date. A business that commences on or after 6 April 2023 will have a digital start date of 6 April which immediately follows the filing deadline for the tax return that reports gross self-employed and/or property income in excess of £10,000 (reg 4: SI 2021/1076).

Under the current MTD ITSA regulations the taxpayer will pay and report income tax under the self assessment system for at least two years at the start of their trade, before being required to switching into digital record keeping and MTD reporting once their total self-employed turnover (from trade and property) exceeds £10,000.

Example 2

Bronagh starts her knitwear design business in May 2024, and has sales of £10,100 in the first 11 months of her trade to 5 April 2025. As the tax year basis is likely to be compulsory from April 2024, Bronagh would be well advised to choose an accounting period that aligns with the tax year. Her digital start date will be 6 April 2026 - start of the third year of her trade.

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Replies (34)

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By Catherine Newman
28th Jan 2022 17:19

You still have to register as self employed even though you are in SA to connect with the NI system. Otherwise the NI gets removed from the Self Assessment.

Thanks (5)
Replying to Catherine Newman:
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By jackpot
31st Jan 2022 09:22

Even if you register HMRC rarely process the form correctly, and you end up phoning up to get them to link the two accounts!

Thanks (6)
By ireallyshouldknowthisbut
28th Jan 2022 17:36

I though the whole point of the delayed registration (and in practice of course you just need to file on time, the theoretical registration date is unenforced) was that many small sole trader businesses start up, lose money or barely make any, and never need to trouble the tax system. I think the stats are that well in excess of 50% new business don't make it out of the first 12 months. (stats vary widely)

if HMRC push to start registering business too early they will just end up with 100,000's of 'ghost' returns each year, far too small for agents and so clogging up HMRC's resources battling with automatic fines and all sorts that often happens when the tax payer thinks wrongly "I clearly don't owe anything, I will just ignore all this stuff". Or alternatively think "how hard can it be to file this thing?" and tries to file themselves going through all the newbie mistakes that unrepresented tax payers will naturally make, chewing up huge resources HMRC's side supporting and correcting it all.

HMRC ought to remember their job is collect taxes and not create mountains of work for themselves and the public.

The only people coming forward sooner are likely to be the ones who would have paid anyway.

Thanks (19)
Replying to ireallyshouldknowthisbut:
Tornado
By Tornado
28th Jan 2022 17:48

Clearly this is just another example of muddled MTD thinking by HMRC.

Thanks (5)
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By Paul Crowley
28th Jan 2022 18:01

Am I out of date?
I thought there was an expectation that a new trader is supposed to use CWF1 within three months of commencement
Either way this is just HMRC looking to maximise penalties
Expecting new traders to jump into an untried untested new regime is wholly unrealistic
If HMRC could answer letters in less that three months perhaps we could believe it to be realistic to expect comparable admin performance for new traders
Seriously
Calm down HMRC
It is only tax
And tax is not meant to be taxing (per your telly ads)

Thanks (11)
Replying to Paul Crowley:
By ireallyshouldknowthisbut
29th Jan 2022 10:08

@Paul in theory only on the CWF1. In practice you just need to register at any point before you need to file, and if you have a UTR number just file at any time with the sole trader pages and remember to register for NI for the same dates as is in your SA return.

We regularly have clients show up with no registration and nothing ever comes of it.

Thanks (0)
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By Hugo Fair
28th Jan 2022 20:04

I know it's late on a Friday, but why would Sarah (Example 3) need to .. register for ITSA within a few months of that total exceeding £1,000?
Is this assuming a new lower annual turnover threshold for mandating MTDforITSA?

But, whether it's an intrinsically good or bad idea, I do wish HMRC would learn to respect that we (and taxpayers in general) have functioning brains ...
"HMRC believes that the taxpayer will benefit, as interacting with the tax system at an earlier stage will allow the individual to form good record-keeping habits, and give them more time to plan their first tax payment."

Can they please provide some sort of evidence that there is ANYONE out there who, as a trader of any type, believes those to be a benefit worth any additional effort or cost.

Thanks (9)
Replying to Hugo Fair:
By Nebs
12th Feb 2022 10:05

"HMRC believes that the taxpayer will benefit, as interacting with the tax system at an earlier stage will allow the individual to form good record-keeping habits, and give them more time to plan their first tax payment."

"I believe that the taxpayer will not benefit, as interacting with the tax system at an earlier stage will allow the individual to form the opinion that it is acceptable to wait 6 months before they have to deal with anything that comes through the letter box from the taxman."

Thanks (0)
ghm
By TaxTeddy
29th Jan 2022 11:26

I realise this may be frowned upon but my honest reaction to this call for evidence is that we should not participate in it whatsoever.

With the clear disregard to practitioners' comments which HMRC have shown in the MTD 'so-called' consultation process and many other consultations with which practitioners will be aware, I think we are just playing into the hands of HMRC if we participate in this ongoing nonsense.

As Tornado has said many times, in relation to MTD, this is a problem of HMRC's making and we should not scramble around to be part of the solution.

Leave them to it - it's their mess.

Thanks (14)
Replying to TaxTeddy:
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By Catherine Newman
29th Jan 2022 14:54

I agree Tax Teddy. HMRC think they know better.

When I was in the Tax Department at Eagle Star, I answered some consultations. HMRC start with "This is how it is and we propose to change bits" and not start with a blank sheet.

Thanks (1)
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By DMBAcc
31st Jan 2022 09:41

Rebecca, I think we are all fed up with HMRC and their consultations. Agents like us are treated with disdain. This just seems like yet another rubber stamping exercise where HMRC can tick the box which says "consulted with customers?". Customers eh? what a joke; as if we could go anywhere else to receive a first class service from a first class Gov't Dept NOT

Thanks (5)
Replying to DMBAcc:
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By yogibear47
31st Jan 2022 10:28

Totally agree, HMRC should spend more time and resources equipping what they have to work properly, fed up with constant delays, both written and by telephone. Most of our clients accept our explanations but try explaining that to someone fighting to survive and waiting an agreed repayment, just one example.
Since March 2020 we have all been under a lot of pressure and thankfully there have been some positive responses from HMRC so can only hope "Things will really get better"

Thanks (3)
By Charlie Carne
31st Jan 2022 09:54

The requirement to register a new trade by 5th October is simply (so I understand) to give HMRC time to issue the statutory 3-month notice to file a tax return by 31st January, which is why the 5th Oct date is not in point where the new trader already has a UTR. It is hardly surprising, therefore, that HMRC don't issue penalties for not notifying by that date, where the return is filed by 31st Jan. What is more surprising is that I have seen new clients (without a UTR) register a new trade after the following 31st January, at which point they are, of course, given the statutory 3 months to file their tax return. Whilst no late filing penalty can be due in these cases, I have not seen HMRC issue even a late notification penalty.

Thanks (1)
Replying to charliecarne:
By ireallyshouldknowthisbut
31st Jan 2022 12:16

This is our experience, HMR are just pleased you have come forward and are paying some tax.

It makes no sense to penalise people for coming forward or they wont come forward.

Thanks (1)
Replying to charliecarne:
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By justsotax
01st Feb 2022 15:30

Given the Revenue's recent form, they would do well to adhere to their own rules before pushing deadlines on their 'customers'......

Thanks (1)
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By Mr J Andrews
31st Jan 2022 09:52

Accelerating Self Assessment registration, coupled with the general quarter of a year delay by HMRC in dealing with just about anything that comes their way, makes sense - when you think about it !

Thanks (1)
Replying to Mr J Andrews:
By Nebs
12th Feb 2022 10:07

They don't have to wait 3 months for their payslips.

Thanks (0)
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By norstar
31st Jan 2022 10:09

HA! I've got 3 clients currently still waiting for their UTR having registered online over a month ago. Speed up the deadline to register all you like - if you don't give people the reference having done so, the system is not fit for purpose.

On the other side of the coin and more worryingly, HMRC are blocking people from filing under self assessment despite being self employed - purely to avoid repaying overpaid tax.

I've got a couple of clients not of english origin who either didn't return the "repayment security check" form, or didn't complete it to HMRC's satisfaction so despite still working and earning profits, now can't file as the UTR is closed... HMRC sitting on £3k for one of them. Not sure how this sits with the legal requirement to register and in my opinion, is questionable behaviour.

Thanks (5)
Replying to norstar:
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By raycad
31st Jan 2022 15:33

(Replying to Norstar)

"I've got 3 clients currently still waiting for their UTR having registered online over a month ago."

Only a month, Norstar?? I've got a husband and wife who started an FHL business in April 2021. Both in employment and not in the SA system, so no UTRs. I submitted an online request for UTRs for them on 19 October - still no reply after three and half months. I need the UTRs before I can apply for online agent registration so can't do that either. Consequently I also can't ring up to chase.

I resorted to sending in paper 64-8s before Xmas and mentioned that I was still awaiting the UTRs applied for. I've recently received two letters from the Agent Maintainer Unit - TWO WEEKS APART, and one for each client - both asking me for proof of my AML registration. I sent them copies of same. My AML Supervisor is - yes, you've guessed it - HMRC!!

I have other cases where I have written to HMRC - in one case on 20 March last year - and despite reminders, have heard absolutely zippo! It saddens me to say so as in a former life I spent over 20 years with the then Inland Revenue, but HMRC nowadays is simply not fit for purpose. Speeding up SA registration, indeed!? Don't make me laugh. Pot, kettle, black!!

Thanks (2)
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By lme
31st Jan 2022 10:11

I expect that the change will be highly inefficient:
- The earlier requirements will put a new hurdle up front that will put some people off starting a business, who we would wish to start
- It will create an enormous load of work that’s avoidable, because so many businesses fail within the first year.

Thanks (1)
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By 4b4
31st Jan 2022 10:42

My answer, as always - Penalty Farming, anyone?

Thanks (2)
Replying to 4b4:
Tornado
By Tornado
31st Jan 2022 11:13

"My answer, as always - Penalty Farming, anyone?"

In order to farm, you generally need to have tractors, farm hands and other equipment that works. HMRC have no working tractors, a distinct shortage of farm hands and barn loads of equipment that does not work properly, especially the equipment that enables them to communicate with their customers.

The net result of this is that no matter how many penalty notices are issued, HMRC do not have the resources to harvest them and most will probably just rot away in the fields.

Who cares about penalties any more anyway?

There are so many potential penalties now that they are no longer incentives to comply, especially when vast numbers of HMRC customers do not have the resources to pay them anyway.

Thanks (1)
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By Moo
31st Jan 2022 10:43

What sort of utter horlicks is this? The only consultation that HMRC really needs is on how to get their own act together.
We have clients (not self employed, need to file because of dividend income) where a paper SA1 and 64-8 has been submitted many, many months ago and still waiting for UTR numbers.

Thanks (1)
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By Michael C Feltham
31st Jan 2022 10:46

"HMRC Call for evidence."

In other words, as usual, they have already decided and are simply mounting yet another time wasting exercise to pretend they might consider perspective and evidence from indolent professional bodies who clearly don't give a flying fig for the members who pay their bills!

Thanks (3)
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By Sue Murby
31st Jan 2022 11:24

If HMRC could get their Fetch system to work properly it would be a great help. Yesterday I "fetched" a client's data. She has two NHS employments. The gross salary and tax for one employment was shown correctly. For the other just the tax deducted was shown. No gross salary. The only other figure was total earnings qualifying for Class 1 NIC of approximately £35k. Her combined salaries amount to just under £50k. Luckily I did have her P60s.

How can we trust them when their systems make mistakes like this?

Thanks (2)
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By Burlington Bertie
31st Jan 2022 11:27

'...speed up self assessment registration...'?
Within weeks of commencing self-employment, a new client submitted a paper CWF1 & 64-8 to HMRC on 05.08.21
Client received their UTR & appeared on my SA clients' list last Friday, 28.01.22
I suggest HMRC fire a (very large) rocket up their own backside first?

Thanks (2)
Morph
By kevinringer
31st Jan 2022 12:57

"Where the individual is already within the self assessment regime, they can inform HMRC of their new trade or business on the SA tax return that covers the period in which the business commenced."

That's not correct because HMRC won't setup the NI record. It is still necessary to either register using one of the formal channels (online or CWF1).

Thanks (1)
Morph
By kevinringer
31st Jan 2022 13:06

Before Class 2 became part of SA and was paid by monthly DD, it was necessary to register within 3 months of commencement. But that was only so the DD could start. Now that Class 2 is part of SA there's no need for that 3-month deadline. However there are numerous problems within HMRC.

1. When agents register using the online SA1, HMRC will reject registrations where there's already a UTR in place. But if we submit a Return without registering HMRC consider it an unsolicited Return which will delay refunds. HMRC needs to fix their SA1 process to permit registration even if a UTR already exists.

2. HMRC will permit agents to register a sole trader via the agent portal. But once HMRC start processing it, the registration disappears off the agent portal and we have no way to check progress or receive the UTR. Surely in this digital age HMRC can leave the registration on our portal and show what stage is at and ultimately the UTR.

3. We can register a partnership and the nominated partner online via the agent portal, but only if the nominated partner is not already in SA. If the nominated partner is not in SA we have to use another partner as the nominated partner, but if all the partners are already in SA HMRC's system won't work and we have to register on paper. HMRC need to fix this problem.

4. Until 6 years ago agents could register non-nominated partners online. But HMRC removed the online registration and now we have to use paper SA401. HMRC needs to restore the digital registration process.

Most registration I've submitted via the agent portal result in the client receiving the UTR about 3-4 weeks later. Where HMRC's systems won't accept an online registration and we have to use paper, I can still be waiting for the UTR 6 months later. That's a major problem if the client is in CIS.

Solution: HMRC needs to fix their systems so that agents can undertake ALL registrations via the agent portal.

No need for a call for evidence. HMRC just needs to fix its broken systems.

Thanks (4)
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By Jdopus
31st Jan 2022 14:11

This is a bit of a strange request since in my experience HMRC have no interest whatsoever in enforcing the deadlines for registration even as they exist now!

I regularly have clients come into my office who have no idea that they were supposed to register with HMRC months earlier and I have never known HMRC to issue a penalty or any sort of notice for these late registrations.

I perhaps naively thought that this represented a dose of common sense from HMRC and an attitude of "No sense in punishing someone who has complied with the rules even if they complied late" but I gather from the article above that it was just commonplace HMRC C**k-up

Thanks (0)
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By snickersinatwix
31st Jan 2022 15:32

"HMRC argues that an earlier registration deadline for ITSA will bring benefits for taxpayers as well as for the tax authority. "

I call (insert rude word) on that one. I see no benefit to the taxpayer whatsoever. They can register early if they like now.

Thanks (2)
Replying to snickersinatwix:
Morph
By kevinringer
01st Feb 2022 08:15

snickersinatwix wrote:

They can register early if they like now.


With the length of HMRC delays, they have to register early if they want a UTR by the filing deadline.
Thanks (2)
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By RobertD
31st Jan 2022 20:23

I want HMRC to speed up answering my correspondence.

Thanks (5)
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By steve 12321
01st Feb 2022 07:18

This stupid MTD for ISTA is going to lose HMRC money in the first instance with early retirement. That’s from my own conversations with clients. Then the disaster will ensue as it will take up will be slow as the non represented may struggle. It’s a massively complex unnecessary move. They really need to leave it as is. It’s forcing me to get out of the profession as it’s a step too far. Do they care? Not one bit. Maybe they could support business who are after all the having it hard as it is. Why make it harder?

Thanks (0)
Replying to steve 12321:
Morph
By kevinringer
01st Feb 2022 08:14

I agree Steve with just about everything you have said, though MTD is a godsend to the unrepresented because the software permits them to claim VAT on everything even if there is no VAT on it: drawings, insurance, even the VAT payment itself. And HMRC aren't at all concerned. HMRC seem to accept any rubbish as long as it is digital rubbish. And if that digital rubbish permits the unrepresented to claim VAT and tax relief on everything, then that's HMRC's lookout. We warned them way back in 2016 when HMRC first announced their crackpot ideas and we've been warning them ever since. We've been proved right when it was revealed the VAT tax gap has increased under MTD. But HMRC steamroller on with MTD. The Emperor's New MTD.

Thanks (4)