The Ministry of Finance suggests that all small businesses should digitize taxes by 2024
Millions of self-employed and small businesses are paying income and corporate tax bills much sooner as the Treasury Department seeks to close its £ 31 billion tax gap.
The £ 31 billion is the money HMRC was supposed to raise but falls through loopholes in the current tax system.
And small businesses, including freelancers, are the worst culprits as they account for £ 13.4 billion of that tax gap.
> See also: As an independent person, you have to pay a tax bill that is higher than what you have earned
In a series of 30 consultations and updates, the Ministry of Finance has proposed that payment be given priority over self-assessment of personal income tax and corporation tax for small businesses. The Treasury suggested accelerating all tax payments after 2024 in order to realize its “vision” [for] a control system that works closer to real time ”.
The consultation proposed that the introduction of the requirements for the digital filing of tax returns under Making Tax Digital over the next two years should be used to “bring the calculation and payment of taxes closer to the point where Income or profit is generated “.
Jesse Norman, Treasury Secretary of the Treasury, said the government recognized the plan would represent a substantial change and therefore “has no intention of making any substantial changes to the timing of income tax or corporation tax payments within the current parliament.”
Glenn Collins, Director of Policy at ACCA, said, “It’s important not to wag your dog when it comes to small business taxes. These SMEs will be vital to the UK’s economic recovery and while data is vital to the running of their business, they cannot afford to do complex quarterly tasks solely for tax purposes. We hope the government will keep this as simple as possible. “
Self-employed taxpayers more like employees
In the meantime, a modern “pay-as-you-go” system is being reviewed, which will tax the self-employed more like employees.
The government believes that taxing self-employed income in real time while they are earning, in the same way that employees pay monthly taxes, limit errors and make people “bend and break the rules”.
Around 30 million employees pay weekly or monthly taxes via PAYE, while freelancers usually pay taxes in larger installments two or three times a year. The government argues that this is more difficult to manage and leads to the self-employed going into debt when their unmanageable tax burdens come in.
> See also: The self-employed should pay the same taxes as employees, says top thinktank
Seb Maley, CEO of contract insurance company Qdos, said, “If the government is to modernize the tax system, it must find ways in which taxes actually work for the self-employed. For too long, the self-employed have been hardest hit by ruthless tax hikes and short-sighted reforms. It is time for changes. The government has an opportunity to build a fairer tax system, but whether it actually does so remains to be seen. I am sceptical. If you ignore IR35, which is arguably the elephant in the room, you can tell that you have already clarified your position. “
Tax relief with super deduction – what is it and how does it work?