The Association of Taxation Technicians (ATT) is calling for a delay to HMRC’s plan to change how partners and sole traders calculate their taxable profits each year.
The ATT made the appeal in its response1 to an HMRC public consultation on reform of the basis period rules which is proposed to take effect from April 2022.
In its submission, the ATT also urges the Government to delay its Making Tax Digital for Income Tax programme, which will require self-employed people to keep digital records and report their income and expenses to HMRC every quarter from April 2023.
ATT President Richard Todd said:
“We fear that introducing the proposed basis period changes in 2022, followed immediately by Making Tax Digital for Income Tax in 2023, represents too much change in too short a timeframe. We have serious concerns that individual taxpayers, accountants and tax advisers will all struggle to cope with the pace of change. In particular, those individual taxpayers affected by the change to the basis period rules need time to prepare for the potentially significant additional administrative burdens and tax bills.2
“HMRC’s services are already under severe pressure, and we think that HMRC will be unable to cope with an increase in demand from many people and businesses confused by these reforms.
“We strongly suggest that the implementation is pushed back in order to allow for more consultation with business and their representatives. We believe the basis period reform should not proceed until tax year 2023/24 at the earliest, with Making Tax Digital for Income Tax also delayed to at least April 2024. More time is needed for the basis period reforms to ‘bed in’ before Making Tax Digital for Income Tax arrives – businesses and tax advisers tell us they need at least a year, but preferably more.”
The ATT and other professional bodies have written to Financial Secretary to the Treasury Jesse Norman3 to outline concerns over the proposed timetable for these changes, highlighting that a rush to implement them too quickly, especially on the back of the impact of Brexit and the COVID-19 pandemic on individual taxpayers, accountants tax advisers and HMRC themselves, risks undermining the integrity of the tax system.
Notes for editors
1. The ATT’s submission on basis period reform is here.
2. The consultation proposes, from 6 April 2022, the profits of all unincorporated businesses should be assessed on the profits which they actually earn in any tax year to 5 April (or 31 March). Under current rules, businesses pay tax on the profits earned in their accounting year which ends in that tax year.
The proposed changes will not affect the majority of unincorporated businesses that already have a 31 March or 5 April year end, but those who are affected face potentially significant additional administrative burdens and tax bills.
3. The letter can be found here.