UK government bows to pressure for delay to digital tax reforms

UK tax updates

Bowing to pressure from professional bodies, the UK government will delay for a year far-reaching changes to the way businesses report their profits and requirements for digital record-keeping by self-employed people.

The “making tax digital” programme was scheduled to make 4.3m self-employed people and small businesses keep digital records and report their income to HM Revenue & Customs every quarter rather than annually from April 2023.

Instead, the measures will take effect in April 2024, the government announced on Thursday.

Plans to change the date some businesses report their profits — which will affect 280,000 sole traders and 250,000 partners including big city law and accountancy firms — were also pushed back a year.

This reform of the so-called basis period rules, which is likely to bring in billions of pounds into the Treasury years before it would otherwise have received the money, had been set to take effect from April 2022.

Lucy Frazer, the newly appointed financial secretary to the Treasury, said the government had taken the decision after listening to stakeholder feedback.

“The government recognises the challenges faced by many UK businesses and their representatives as the country emerges from the pandemic over the past year,” Frazer said in a written ministerial statement.

The statement added that general partnerships will not need to report their income quarterly via digital records until April 2025 — with other types of partnerships such as LLPs being spared from the reforms until a yet unspecified date in the future.

The introduction of a system of penalties for late filing and payment of tax that was to be brought in alongside the digital-reporting programme was delayed from April 2023 to the following year.

Regarding the basis period reform, Frazer said the government had listened to concerns that more time was needed to implement the changes.

Andy Chamberlain, director of policy at IPSE, an association that represents independent professionals and the self-employed, said the delay would provide “much-needed breathing space before another painful hit to the self-employed”.

Emma Rawson, technical officer at the Association of Taxation Technicians, one of five accounting and tax bodies that wrote to the Treasury last month urging a delay, also welcomed the announcement. “It’s a pragmatic decision as we were nowhere near where we needed to be,” Rawson said.

Many people who would have to buy software in order to comply with the changes had not been aware it would have been needed from next year, she said.

Meanwhile, only seven software providers are listed on HMRC’s website that offer products that meet the planned digital requirements for income tax.

In contrast, hundreds of software providers are available for HMRC’s digital VAT programme, which has been operating since 2019.

“If HMRC is going to make people buy software, then they need to make sure there’s a proper market,” Rawson said.

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