Proposed reforms to tax calculations for the self-employed are a “clear indicator that the government remains committed” to the implementation of Making Tax Digital in April 2023, the Chartered Institute of Taxation (CIOT) has said.
Nonetheless, the group said it had “reservations over the pace of the change”, noting that the six week consultation process is “not sufficient” for the industry to “assess the detail of this significant change”.
Draft legislation and consultation documents released this week outline the government’s plans to reform the ‘basis period’ rule, which determine how trading income for unincorporated businesses is allocated to tax years.
This proposes changing the allocation so that it will be based on the profits or losses arising in the actual tax year, rather than in accordance with the accounting period ending in the tax year.
As part of the reform, legislation will also be introduced to formally deem 31 March as equivalent to 5 April, meaning that businesses which draw up accounts to 31 March will not have to make small apportionments of a few days to determine their profits or losses for a tax year.
Commenting on the proposal, Pete Miller, chair of the CIOT’s Owner Managed Business Committee, said: “This is a welcome simplification of the current system which has been with us in one shape or form since the 1920s, but we are concerned about the speed at which it is being introduced and whether there will be enough time for businesses to absorb the impact of the change on their individual circumstances and take action to avoid any adverse or unforeseen consequences.
“We are also concerned that the government consultation on this reform is inadequate. Six weeks during the holiday season, in the middle of a pandemic, is not sufficient for tax professionals and others to assess the details of this significant change, how it will affect them and their clients, and provide constructive feedback to government on it.”