The Office of Tax Simplification (OTS)'s latest report, “Tax reporting and payment: Simplifying tax for self-employed people and residential landlords” recommends that HMRC make further use of digital systems to simplify how self-employed people and landlords report and pay their tax.
The OTS notes that the self-employed population grew from 3.3 million in 2000 to 4.96 million this year and that the current complexity of the rules confuses people. It says it is important for people to be able to report to HMRC more easily, helping them budget in order to pay the tax they owe on time.
Change may be achieved by speeding up and extending the implementation of the Making Tax Digital (MTD) for Income Tax programme.
Other ideas included:
- matching reports and payments between individuals and their businesses on a single online tax account,
- taking account that some taxpayers were digitally excluded and so more traditional solutions must also be used,
- that the system should have the facility to receive and display information from third parties (including agents).
Currently, self-employed people can have two accounts, one for their business and the other for personal tax credits and benefits. Additionally, the OTS called for third parties to be able to enter tax data for a person, for example multiple temporary employers, so the individual could stay up-to-date.
While the OTS report accepts a single solution will not improve the current situation for all self-employed people, it emphasises an online system that requires more regular reporting and payments is needed. This is in spite of its own survey showing that 74% of the respondents to its self-employed survey, 487 respondents, did not believe that more regular reporting would make budgeting for their tax bill easier.
According to report the “voluntary flexible reporting and payment system as described above would largely be welcomed by those self-employed with lower incomes, are unrepresented, who struggle with cash flow and would like the security of knowing that they have contributed throughout the year towards the tax they owe”.
The OTS said that some landlords were also resistant to the idea of reporting or paying more regularly and any plan needed flexibility so that payments could be varied. In part this was to cover situations such as property renovation or periods when landlords are unable to find tenants.
MTD for income tax is currently scheduled to commence in 2021 and there are very mixed views as to whether acceleration for income tax will simplify tax administration for taxpayers. It is expected that no changes will be made until the results of Making VAT Digital are scrutinised.