Accounting body urges government to scrap tax reform plans
The Institute of Chartered Accountants in England and Wales (ICAEW) has today called for the government to drop tax reform plans which, the accounting body says, “will likely to create as many problems as it might solve”.
The ICAEW today published a response to the UK government’s consultation on basis period reform. It reiterated the concerns which led the body to issue a joint letter with other tax and accounting organisations last week, to the Treasury financial secretary Jesse Norman, warning that changes were happening “too quickly.”
Today the ICAEW went one step further and said the plans should be scrapped altogether.
“We think plans for basis period reforms should be dropped,” Frank Haskew, ICAEW head of tax, told City A.M.
Any benefits in simplification from the changes would likely be relatively small and outweighed by increased costs and uncertainty for businesses,” Haskew explained.
“However,” he added, “if the Government is determined to proceed, the reforms should be introduced over a longer period to allow for greater consultation and detailed consideration of the impact on those affected.”
The accounting body said it supports any simplification of income tax ahead of Making Tax Digital for income tax self assessment but argued that the proposed basis period reform “does not achieve this”.
It made the case that businesses often have to adopt a particular year end for commercial reasons.
Instead of simplifying the tax system, the ICAEW argued, the reforms were more “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.”
This would come about because businesses may be forced to use estimated figures in their tax returns.
Under the government’s new Making Tax Digital rules an estimated 4.3m self-employed individuals and businesses will start reporting their income to HM Revenue & Customs on a quarterly basis from 6 April 2023.
The tax basis period will be altered in the 2022/23 tax year so that earnings are reported on a ‘tax year basis’ rather than a ‘current year basis.’
The change could cause difficulties for companies with international partners with different tax reporting dates, but is is expected to generate billions of pounds for HMRC ahead of schedule.
HMRC said it was considering responses as part of the ongoing consultation.