‘No need to inflict upheaval on self-employed’

The Chartered Institute of Taxation (CIOT) is urging HMRC to improve awareness among the self-employed and landlords about how and when they need to register with HMRC, rather than opt for an alternative plan to change when they register to pay income tax.

Currently, a self-employed person or landlord is required to give notice to HMRC of their liability for Income Tax Self Assessment (ITSA) no more than six months after the end of the tax year in which the taxpayer became liable to tax. This gives HMRC time to issue the taxpayer with a Unique Taxpayer Reference (if they do not already have one), a notice to file a tax return, and the taxpayer time to complete and submit it by the statutory deadline. This week, the CIOT has responded to a new call for evidence¹ by HMRC on the case for reforming registration. The Government wants to understand whether bringing forward the point at which the newly self-employed and landlords are required to identify themselves to HMRC will help support taxpayers to develop good tax habits early, ultimately creating a better taxpayer experience.

Any change will impact on the self-employed, landlords, small businesses, accountants, tax agents, legal professionals, bookkeepers, software providers, financial advisers and their clients.

John Cullinane, CIOT Director of Public Policy, said:

“There is no need for HMRC to inflict significant upheaval on the newly self-employed and first time landlords with changes to when they register to pay income tax.

“We believe the current Income Tax Self Assessment registration process works well for most taxpayers and there is insufficient evidence to change the current statutory deadline, which is six months after the end of the tax year in which the business starts.

“Using the tax year as a reference point provides consistency, certainty and simplicity for taxpayers and their advisers. It also means that the deadline is the same for everyone, which is fair; there would be significant complexity in monitoring a deadline based on a variable date, i.e. the date the business commenced, not to mention difficulties identifying the precise date on which the business commenced.

“HMRC should focus on improving its public education work and their own online guidance, as well as improve the registration processes and joining up IT systems, to make the registration obligation easy to understand and comply with for the self-employed and landlords.
“There are difficulties with the current system which lie mainly with how HMRC process applications, how their IT systems support applications and how taxpayers interact with HMRC’s systems. It can often take a long time, for example, to obtain a Unique Taxpayer Reference (UTR) and in the meantime a taxpayer cannot file returns or pay the tax they owe. This is where we believe HMRC need to focus their attention and resources so that the registration process can work successfully and quickly for every taxpayer”.

John Cullinane added:

“We urge HMRC to undertake detailed consultation to assess the impact on other parts of the self assessment regime if any changes are taken forward, such as bringing forward the registration deadline, linking it to the date a business starts trading or even abolishing the legal notification obligation altogether.”

CIOT welcomes that this is an early-stage consultation by HMRC and forms part of the Government’s 10-year tax administration strategy. There is no final recommendation in the consultation and no date set for any change to the way people report to pay their income tax.