Delay needed to both basis period reform and Making Tax Digital for income tax

In its response to the recent basis period reform consultation, Chartered Accountants Ireland recommends that basis period reform and Making Tax Digital for income tax (“MTD ITSA”) both be delayed given all the current upheaval for businesses and the clear need for more detailed consultation on basis period reform in particular. Separately, the Institute wrote to the Financial Secretary to the Treasury (“FST”) also setting out the need to delay these initiatives. A copy of the letter to the FST has also been sent to the NI Economy Minister.

The response to the basis period consultation sets out that these proposals are especially important in the context of the Office of Tax Simplification’s review of moving the tax year end, the Tax Administration Framework Call for evidence and other major consultations which have recently taken place as it makes sense for changes to be coordinated.

It is vital that the design and implementation of basis period reform is fully considered and not rushed if it is going to work for businesses and HMRC alike. Commencing these changes in just six months’ time just to suit the timetable for MTD ITSA is simply not feasible, according to the submission.

In our letter to the FST, the Institute notes that the current timetable for basis period reform (commencing with the transition year 2022/23 in under six months’ time) and the commencement of MTD ITSA from 6 April 2023 is placing huge additional pressure on taxpayers, businesses and agents alike.

Preparing for these changes comes at a time when many businesses have only recently reopened, are not operating at full capacity and are also dealing with trading arrangements changes and new compliance obligations as a result of the UK’s departure from the EU. Our members are also reporting to us severe resource constraints in the professional services market which have not been experienced for many years.

Businesses are also grappling with other major changes including the recent changes to the IR35 rules from April 2021 and are preparing for further seismic changes from April 2022 with the extension of MTD for VAT to businesses with turnover below £85,000 in addition to the introduction of a new penalty regime.

We also remain concerned that the £10,000 turnover limit for MTD ITSA is simply not workable, fair nor is it feasible to expect the smallest businesses, whose taxable profits may be such that they are not required to pay any tax, to maintain digital records and report information quarterly.

To forge ahead with the current timetable for basis period reform and MTD ITSA unchanged is therefore likely to lead to more, not less errors, one of the key objectives of MTD ITSA in particular. This would severely undermine the integrity of the UK tax system and the UK’s attractiveness as an investment location.