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Readers’ correspondence.
Making tax digital
I read Andrew Hubbard’s excellent, thought-provoking article ‘Pause for thought’ (Taxation, 7 October 2021, page 8).
Andrew’s comments about making tax digital (MTD) having been looked at from the ‘other end of the telescope’ are spot on because the collateral damage that was (and is) due to be landed on the 3.3 million sole traders quoted was (and is) considerable.
As part of the proposed transition to MTD there is also the associated impact of the non-tax year end accounting dates having to align themselves with the tax year end (broadly 6% or 7% of the self-employed traders affected – which aligns with my client base too) and the unintended consequence of them being hit by a one-off additional profits charge which is even harder to explain than the tax due on an ongoing 30 April year end. HMRC ‘invented’ the transition rules back in 1996 (many readers along with myself are unfortunately old enough to remember that). These figures were not inflation-linked and will, in many cases, bear no resemblance to the profits being made by those businesses some 25 plus years later.
I sat in on a Teams call the other week hosted by HMRC and it largely dismissed this effect saying that there would be ‘winners and losers’. I am sorry but I can see very few (if any) winners. HMRC needs to listen more seriously and we need much stronger representation from the profession and the professional bodies on this. I would also add that other than myself and possibly one other, the ‘profession members’ on that call were on the whole from seriously sized larger practices dealing with multi-partner partnerships, international partnerships, etc so it is perhaps excusable that HMRC is forming its opinions without taking account of the underrepresented 3.3 million. I do feel that in its present form, the whole MTD transition will be a ‘road crash’.
Personally, I feel that if HMRC wants to change the landscape again, largely for its own benefit, it should consider some form of ‘amnesty’ for the 6% to 7% affected and work out a way for them just to average 12 months of recent profits and move over that way rather than paying tax on 23 months of profits with a potentially derisory figure for transitional relief being deducted. Paying the affected charge on the current proposal over x years is just a slap in the face.
One unintended consequence of the Covid pandemic has been the use of card payments for everything down to a bar of chocolate when we were always told in the past (pre-Covid) that card payments could not be used for less than £x – or that a charge would be made. As I am sure many will appreciate, these card payments/receipts will have done more to ‘close the tax gap’ than any amount of MTD will have or could have ever done. Mini-cab drivers taking card payments – whatever next?
Personally, I do not have the capacity to interact with the self-employed element of my client base four to five times a year. Equally, I do not see why I should have to take on a member of staff to do this for me, train them, pay them, take responsibility for their work and hope that they can do as good a job as I do – when I have managed to do this largely on my own for the past 18 years. I have built my practice on knowing each and every client (and nearly everything about them – which personally they like) so why should I have to change that just so that HMRC can make life easier for itself with MTD?
I could go on – but won’t. I am all for progression. The introduction of self assessment was great, initial online filing for PAYE good. The jury is out over real-time information – there is way too much additional work involved when either things need to be corrected or, worse still, HMRC’s system puts spurious charges on and they need to be ‘removed’. MTD in its current guise is about as much use as a chocolate fireguard.
If only HMRC realised that people would be much more likely to buy into things if they could see the true benefit for themselves, then it would be more than half way there.
Noel Flanagan.
Basis period reform
The changes to the basis periods are potentially disastrous.
We have many clients that have to file and pay tax overseas (actors etc), and we often prefer a 31 December year end for their accounts, so that foreign tax paid can be matched to their business income; it is otherwise impossible.
Richard Nelson FCCA, Breckman & Company.
