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Tax Day: Modern tax system must work for self-employed

The government have an “opportunity to build a fairer tax system” for the self-employed say experts in response to ‘Tax Day’

The Treasury published a series of tax documents and consultations on ‘Tax Day’, outlining future policy changes, which include an aim to build a “trusted, simple and modern tax system”. Typically, these changes would have been announced in the Budget earlier this month, but to allow for greater scrutiny, the government chose to delay the event.

As part of its strategy to modernise the tax system, in the Finance bill 2021, the government extended Making Tax Digital (MTD) to smaller VAT registered businesses, which will come into effect in April 2022. It now also plans to extend MTD for self-employed tax returns from 2023.

The 17-page command paper, which lists more than 30 tax policy changes, also details the government’s approach to tackling non-compliance and tax avoidance schemes.

New tax system to work ‘close to real time’

The paper includes publishing external research into the impact of IR35 reform in the public sector, introduced in 2017. Although the document states this will available later this year, the report has been published. Contractor Weekly will analyse and report on it in the coming days.  

Financial Secretary to the Treasury, Jesse Norman, stated in the foreword that the improvements outlined in the document will help create a tax system which “works close to real time”, will enable “people and business to pay the right tax with ease” and reduce the tax gap.

On publishing the documents, Norman said: “We are making these announcements in order to increase the transparency, discipline and accessibility of tax policymaking.

“These measures will help us to upgrade and digitise the UK tax system, tackle tax avoidance and fraud, among other things.”

‘Tax Day’ leaves ‘unanswered questions’ for self-employed

While the pledge to modernise the tax system has been welcomed, Andy Chamberlain, Director of Policy at trade body IPSE, said ‘Tax Day’ leaves the self-employed with “unanswered questions” with regards to how proposals would work for them.

“First, many self-employed people’s incomes fluctuate substantially throughout the year – and while the current annual system accounts for these and ensures self-employed people pay the right rate, it is not clear how this would work with rolling in-year taxes. It is also not yet clear how this would work with late payments – which are a substantial problem.

“We would want to be satisfied this proposal would not pile even more of an administrative burden on the self-employed. There seems a risk here that rolling administrative tax responsibilities could be added to the requirement to complete some form of annual tax return – which would eat even further into freelancers’ vital working time.”

Seb Maley, CEO at Qdos echoed Chamberlain’s concerns. He said: “If the government wants to modernise the tax system, they must explore ways to make tax actually work for the self-employed. For far too long, the self-employed have been hit hardest by reckless tax hikes and short-sighted reforms. It’s time for change.

“The government has an opportunity to build a fairer tax system, but whether they actually do it remains to be seen. I’m sceptical.”

More ‘flexible, resilient and responsive’ tax system needed

The existing tax system meant many freelancers and self-employed missed out on COVID-19 support, Joanne Harris, Technical-Commercial Manager at SJD Accountancy, told Contractor Weekly:

“Difficulties with the administration of the tax system was one of the reasons that the government could not provide support to newly self-employed people at the start of the pandemic, and there has been a long-term desire for the government to align the self-employment tax system more closely with that of PAYE workers.”

Harris highlighted that in July last year, the government published its Building a trusted, modern tax administration system report, which recognised that the current tax system was one of the reasons why many self-employed people fell through the gaps of the emergency support schemes.

She added: “The stringent eligibility of the schemes, which cut off many self-employed people, was down to the limitations of the tax administration system. It also noted that if the government had access to better quality data, HMRC would have had more flexibility to enable a more inclusive and perhaps targeted approach to financial support. 

“The report continued to state that COVID-19 has highlighted the need for a more flexible, resilient and responsive tax system. There’s little doubt that SEISS could have been delivered more quickly without the need for eight weeks’ intensive work extracting, cleansing and reconfiguring the relevant data.”

By Contractor Weekly

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3 thoughts on “Tax Day: Modern tax system must work for self-employed”

  1. Andrew Harrison

    Love the objectives, skeptical about what will be achieved. To get a view on how to make the tax system trusted I have some suggestions.
    Start by looking at how directors of large companies are remunerated – look at total annual increase in their wealth and the tax raised.
    Look at the multinationals, compare global profits and global turnover with UK turnover and UK tax raised.
    Look at the really wealthy families and their tax contribution.
    This isn’t so much about efficient raising of tax but more about the social attitude towards the tax man, is he Robin Hood or does he work for the Baron?

  2. Gary Andrews

    Same sentiments and be in no doubt, the tax man works for the Baron alright. A narcissistic, dishonest blond Baron.

    Yes, the tax system needs a systemic overhaul but the time for such planning was five years ago. D-Day has arrived and if commanders haven’t planned the boats, planes and artillery the troops are going to perish today.

    Let’s check some of the track record of incompetence:
    • Pandemic planning – discarded 2019 (austerity)
    • Health service – defunded, we won’t need this
    • Lockdown (1, 2 and 3) – Massively late every time, huge death toll
    • Test track & trace – a £37bn fraud, 1 year late, only tests
    • PPE goldrush – VIP channel racket, expensive, defective products
    • Brexit deal – Xmas eve, one weeks’ notice, economy decimated
    • Education – Exam results fabricated last minute
    • Education – Same again the next year (who could have predicted)
    • 3 million left behind – Punishment for the politically unfavoured
    • 40% increase in nuclear warheads – What? Why? Anyone?
    • IR35 – More punishment for the politically unfavoured

  3. Andy

    This isn’t about simplification, this is about cashflow. Cashflow in favour of HMRC. Paying tax in advance of knowing the actual liability. HMRC are doing this everywhere they can.

    Look at income tax; if self-employed, they estimate how much you will earn and make you pay up sometimes before you have made the money.

    CGT on residential property another one; calculate yourself (not easy), pay up on the property, estimate if it needs adjusting for other capital gains/losses in that tax year, before they have happened. Then, in all likelihood, get a fine if you get it wrong.

    Yes, there’s no simplification going on, just payment in advance and, if anything, additional complexity and bureaucracy from a small business hating govt.

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