The UK’s plans to overhaul how self-employed people pay income tax needs a fundamental rethink, says ACCA.
The Association said the proposals on implementing more timely payment in Income Tax Self-Assessment (ITSA) are basically flawed, unfair, and risk creating another damaging administrative burden for businesses.
Glenn Collins, Head of Technical and Strategic Engagement, ACCA UK, said: “HMRC’s intention to help taxpayers manage their liabilities more effectively is one we support, but good intentions need workable proposals, and these fall short. Given the scale and significance of what is being proposed, we would have expected far greater development of the detail at this stage of the consultation process.
“The reality is that forecasting income in-year is genuinely difficult for a huge number of self-employed people, particularly those in sectors where profits fluctuate significantly from month to month. Rather than creating a new system with all the complexity and administrative burden that entails, HMRC should be looking at how to improve what already exists.
“The voluntary payment mechanisms in place today could, with the right enhancements, achieve the same objectives far more effectively and at far lower cost to HMRC, to agents and to taxpayers themselves.”
At the heart of ACCA’s concerns is the mismatch between HMRC’s proposals and the reality of running and developing a small business in the UK. The proposals require taxpayers to forecast their income tax liability in-year – a task ACCA argues is inherently problematic for businesses whose profits fluctuate, and particularly damaging for those in the agricultural, retail, hospitality and construction sectors.
ACCA warns that poorly designed forecasting requirements will inevitably lead to widespread overpayments and underpayments which will create cash flow difficulties for exactly the kinds of small businesses the proposals are supposed to support.
Among the most significant concerns raised by ACCA is the proposal to collect ITSA through PAYE. The accounting body believes this would give employers far greater insight into an employee’s personal financial situation. ACCA argues this raises serious taxpayer confidentiality concerns that have not been adequately addressed in the consultation.
Rather than creating an entirely new and complex system built on flawed tax liability forecasting, ACCA is recommending a more effective approach: enhancing the voluntary payment regimes already in place and introducing a flexible budgeting option linked to self-assessment accounts, which would pay a commercial rate of interest and represent a more cost-effective use of HMRC’s limited resources.
