Chas Roy-Chowdhury
ACCA

Tax system needs urgent review

Chas Roy-Chowdhury, ACCA head of taxation explains why an urgent government review of the UK tax system is needed.

HMRC’s (Her Majesty’s Revenue & Customs) famous mantra of ‘Tax doesn’t have to be taxing’ is a thing of the past, especially if you are one of the 4.2m people in the UK who are self-employed.

According to the Office of National Statistics there has been a significant rise in self-employed people in the UK in the last 2 years. Since 2010, one in three jobs created was a self-employed role. Figures released last week that showed a fall in UK unemployment was almost entirely down to those starting their own business.

Given the government’s incentives for those wanting to start their own business this is perhaps unsurprising, but it does come at a cost. The self-assessment tax process is confusing and complicated, and all self-employed people are currently required to complete a self-assessment return.

HMRC have a standard £100 fine for anyone missing a self-assessment deadline, and that applies even if you owe no tax. The self-assessment regime is, in effect, the public doing the government’s tax collecting paperwork for them, but if it is wrong or late they can be penalised.

The complication doesn’t end there, the proposed GAAR (General Anti-Avoidance Rules) due to come in to force later this year muddy the waters even more for small firms. While large firms have the capacity to make sure they are compliant with these new rules, self-employed and small firms often do not and could fall foul of these new rules.

The rise in self-employed people is good news, but the reality is that those who have turned to freelance work in order to pull themselves out of unemployment, now face a challenging tax maze that could land them in hot water should they get it wrong. Self-assessment was supposed to be easy, but the needlessly complicated nature of the UK tax system means that the self-employed are going to be facing the same challenges that SMEs currently face. Globally, SMEs spend, on average, 36 working days a year ensuring they meet with tax regulations.

The impact of the changes to child benefit will also pull more people in to self- assessment, with an estimated 500,000 parents having to complete the self-assessment tax form each year in order to pay the higher rate charge. The system has been designed so that more tax is paid to cancel out or reduce the gain from child benefit.

The higher number of self-employed and families who are looking to self-assess means that there are a lot of first-timers entering this confusing process. No tax system should be a hindrance to businesses or families, but the self-assessment process is far from straight forward.

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