Tax proposals meet mixed reaction

It was always going to be a big ask from chancellor of the exchequer Rishi Sunak, trying to make a huge deal about Tax Day exactly a year to the day after most of the UK entered its most demanding lockdown of the pandemic but a mixed response greeted the measures aired for discussion.

National Chairman of the Federation of Small Businesses (FSB), Mike Cherry, welcomed the Chancellor’s recommendations. “The Government is right to take a long-term, consultative approach to tax change. Snap decisions after such a difficult year would have hampered our economic recovery,” he said.

“We need a tax system that works for small firms, companies and sole traders alike as they endeavour to secure our economic recovery. The government rightly highlights the challenge of establishing more regular collections in the context of a late payment crisis that costs our economy billions and destroys thousands of firms every year.

Cherry highlighted the pressure that more frequent tax payments could place on small businesses.

“On the upside, quarterly or monthly payments can make it easier to stay on top of finances, plan and keep debt manageable,” Cherry said.

“On the downside, more regular payments to HMRC could leave small firms and sole traders in the lurch when times are tough.

Looking at the HMRC proposal to take payments on direct debit, much like household utility companies, Cherry flagged up a potential problem in creating a cash surplus.

“It’s interesting to see the paper float a system based on consumer direct debits for utility bills, an approach which has caused many to deposit far more cash with their providers than they had ever intended,” he said.

“Transposing that model to the business world risks a similar build-up of cash in HMRC accounts – cash which should be out there in the economy, spurring investment, job creation and growth.”

Meanwhile, Andy Chamberlain, director of policy at the Association of Independent Professionals and the Self-Employed (IPSE), had concerns about the approach to freelancer taxation being caught up in a wider HMRC “clamp down”.

“While this proposal is apparently focused on freelancers’ tax experience, it is also clear that it is at least in part to clamp down on tax avoidance,” he said.

“And, between this and the soon to-be introduced off-payroll working reforms – which are having a disastrous impact on parts of the sector – as well as patchy support during the pandemic, it is hard to escape the conclusion that the government in general regards the self-employed with suspicion.”

Chamberlain also expressed further concern over practicalities of proposed changes.

“We do have some early concerns that in-year tax payments simply won’t be practical for many self-employed businesses as it is not clear how the system would account for their volatile incomes – and ensure they pay the right rate of tax without added red tape,” he said.

“However, we welcome the fact the government wants to improve the tax experience for self-employed people and we are keen to work with them on this.”

Elsewhere, others expressed a more relaxed view, with Peter Finding, international employment partner at FisherBroyles happy to see the proposed, and long-awaited, digital shift to tax payments.

“The proposed pay-as-you-go tax model appears to be a further step in line with HMRCs Making Tax Digital initiative,” Finding said.

“While there may be concerns around the security of centralised digital tax accounts, especially in respect of the potential for data breaches, fundamentally this is a step forward in improving the fairness of the tax system – the core principle being that the self-employed will have their tax calculated based on transaction records, rather than potentially imperfect periodic returns.

“Indeed,” he said, “if designed well, the system should ease the administrative burden on the self-employed – doing away with the need for time-consuming periodic tax returns.”

Formal feedback to the government’s raft of tax proposals and policy documents is expected from June 1 with the final consultation closing on July 13 this year.