The UK's plans to overhaul how self-employed people pay income tax have been met with a significant challenge from leading global accountancy body, ACCA (Association of Chartered Certified Accountants).
ACCA has responded to HMRC’s consultation on implementing more timely payment in Income Tax Self-Assessment (ITSA), calling on the tax authority to fundamentally rethink its approachand warning the current proposals fall well short of what UK businesses need.
ACCA warns the proposals are flawed, unfair and risk creating another damaging administrative burden for businesses, HMRC and taxpayers alike.
ACCA's response - informed by insights from a cross-section of its UK membership and partners - raises serious concerns about the practicality, fairness and effectiveness of the proposals and questions whether they meet the basic cornerstones of a well-functioning tax system: simplicity, certainty and stability.
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 construction sector.
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.
The body is also raising a fundamental fairness concern: the proposals treat taxpayers differently based on whether they receive employment income alongside self-employment income - a distinction ACCA questions both in principle and in practice. The practicality of HMRC accounting for multiple income streams, and the prospect of multiple tax code updates for individuals, raises further questions about whether the system is workable in the real world.
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.
Jason Piper is ACCA's Head of Tax and Business Law from the Global Policy & Insights team: "Our long running global research series into Public Trust in Tax highlights that the user experience of taxpayers and their advisers is a crucial factor in building tax morale - the propensity to pay taxes on time and without tax authority intervention. In many cases, MTD doesn’t bring anything new to estimating final tax liability - it is a payments and receipts recording mechanism.
“The UK is already falling behind some of its peers, and HMRC should be doing everything it can to reverse that trend by listening to the users of their systems to help improve them.”
ACCA will continue to engage with HMRC throughout the consultation process, advocating for an approach to ITSA reform that is proportionate, practical and genuinely supportive of the small businesses and self-employed individuals at its heart.
