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ACCA: Basis period reform – response to HMRC’s consultation

by | Oct 8, 2021 | ACCA, business taxation

We are sharing this update from ACCA, our professional body, for the interest of clients and contacts. The content is (c) ACCA

Read the key points from our response to these significant new proposals

Businesses are currently able to set their year-end date for assessment of trading income. New proposals from the government seek to set the tax year as the basis for tax assessment (April to April – with proposed flexibility for businesses to use a date between 31 March to 5 April).This will affect the way income for sole traders, partnerships and trusts is assessed and will change the profits and losses subject to tax.Informed by member feedback and drawing on our response to the Tax Day consultations on Timely Payment and a 21st Century Tax System, ACCA submitted a response to HMRC making a number of suggestions for a more joined-up consultation approach and raising concerns about the potential impact on accountant workload and HMRC digital readiness.Key points from ACCA’s response

  • A more joined-up consultation approach: ACCA expressed disappointment that HMRC chose a reduced consultation timetable during the summer period to propose major changes that could affect tax liabilities for up to five years. Additionally, proposals have been made before HMRC has given proper consideration to the tax day consultations on Timely Payment (proposals for income and corporation tax to be paid quarterly) and the creation of a 21st Century System (exploring options for simplified, digital tax administration). ACCA believes HMRC needs to take a wider ranging view and consider all proposals to produce a comprehensive plan.
  • MTD for Income Tax Self-Assessment (ITSA) concerns: While ACCA appreciates these proposals have been made to simplify the implementation of MTD for ITSA, we continue to have concerns about the ability of SMEs and SMPs to meet the workflow needs of regular reporting, unmanageable software costs and the low threshold for reporting under MTD for ITSA, bringing a significant number of SMEs under MTD requirements.
  • Accountant workload: The proposals, alongside MTD requirements for quarterly reporting, could create a ‘bottleneck’ around deadlines, resulting in unmanageable workloads for accountants which could seriously affect the ability of businesses to pay on time.
  • HMRC readiness: Throughout consultation with members a significant number raised scope for improvement of HMRC digital systems and staff education. This affects HMRC’s ability to give accurate calculations and resolve inquiries and disputes. ACCA has concerns about the readiness of HMRC systems and believes HMRC should focus on the integrity of the tax administration system and staff training before making major changes. A lack of investment may, as with many proposals, end with SMEs and agents bearing the cost of change.