Proposed digital tax reforms impacting self-employed people are moving at ‘breakneck pace.’
According to the Chartered Institute of Taxation, proposed tax reforms for the self-employed demonstrate the government’s commitment to implementing Make Tax Digital (MTD) for income tax (CIOT).
The CIOT, on the other hand, is warning that firms may not be prepared for the government’s measures, which it describes as “full speed ahead.”
The draft legislation, which was released yesterday, indicates the government’s plans to change the present “basis period” rules.
Smaller enterprises, such as self-employed single traders and partnerships, are subject to ‘basis period’ restrictions, which govern how trading income is allocated to tax years.
The proposal, in particular, describes the government’s plan to change how this is determined, such that it will be based on earnings or losses incurred during the tax year.
The allocation is currently established based on the accounting period that ends in the tax year.
“The general objective of the plan is to simplify the taxes of trading profits,” the administration said while defining the new policy’s goal. This is in response to stakeholder requests that this aspect of the tax system be simplified.
“A set of rules covering all scenarios is required on the current year basis. The tax year basis would require significantly simpler procedures to provide for the taxation of enterprises after the transition year in 2022-2023.”
The new ‘tax year basis’ will begin in 2022-23 to prepare for the implementation of MTDl for income tax self-assessment, which is scheduled to begin in April 2023.
In addition, as part of the reform, legislation will be proposed to designate March 31 as the equal of April 5.
This implies that firms that file their tax returns by March 31 will no longer have to make up apportionments of a few days to figure out their profits and losses for the year.
While this happens frequently in practice, this will be the first time it is enacted into law.
The reforms were commended by Pete Miller, Chair of the CIOT’s Owner Managed Business Committee, although he acknowledged the problem they caused to firms due to the rapidity with which they were implemented.
“This is a welcome simplification of the current system, which has been with us in some form or another since the 1920s, but we are concerned about how quickly it is being implemented and if it will be effective.”Brinkwire Summary News”.