In line with our position here at IWORK, the Institute of Chartered Accountants in England and Wales (ICAEW) has argued that HMRC’s proposal to change how self-employed people manage and pay their tax should be dropped.
The proposal would replace the ‘current year basis’ method for establishing taxable profits / allowable losses with a ‘tax year basis’ method instead. This would mean that self-employed people would pay their tax according to the tax year, not when their own accounting year ends.
Echoing our concerns, ICAEW’s Tax Faculty argues that implementing such changes ahead of the introduction of Making Tax Digital for income tax self assessment would not provide any genuine simplification to the UK’s tax system.
Instead, it argues such reforms would be likely to “… increase costs, complexity and uncertainty for those businesses affected and could damage the UK’s attractiveness as a place for the location of international service firms”.
The proposed change would result in less certainty over tax liabilities and, for many businesses, is likely to lead to an increase in compliance costs which would be an unwelcome result of a proposal to simplify the tax system. Furthermore, for those businesses already using the tax year for their accounting period, it will provide no additional simplification.