No registration changes for the self-employed and landlords

Following a call for evidence, the government has decided not to move ahead with proposed changes to 'Income Tax Self Assessment (ITSA) registration for the self-employed and landlords'. Making taxpayers register early for taxes is likely to cause more problems than it would solve.

In January 2022, the government issued a call for evidence Income Tax Self Assessment (ITSA) registration for the self-employed and landlords. This explored some hypothetical changes to the tax registration system which included, reducing the notification deadline to 2-4 months after the end of the tax year and changing the obligation to notify based on income source and turnover thresholds. Its rationale is to get taxpayers registered ahead of Making Tax Digital for Income Tax.

Some 31 organisations and businesses responded to that consultation pointing out that:

• Income tax registration is currently an overly-complex operation.
• It's difficult to tell at the outset whether your hobby will become a business or vice-versa.
• It is difficult to de-register if you register by mistake.
• HMRC could produce better guidance and make processes a lot easier for taxpayers.

As a result of the feedback received, the government says that it will reflect on the evidence provided and will not move ahead with changes to the ITSA notification obligation now. 

Noting appreciation for the time taken by respondents to share alternative options for change, it will now further explore:

• Better communication of the current deadlines and opportunities to look for innovative ways to educate new and potential future taxpayers earlier.
• Reviewing the obligation for ITSA taxpayers to notify HMRC of a tax liability and considering whether it could be merged with the more familiar filing and payment obligations around 31st January.
• A review of the circumstances in which HMRC requires taxpayers to file a self-assessment tax return.
• Enabling taxpayers to make themselves known to HMRC sooner to access products, services and guidance in a process that is separate from registering for ITSA.

The government is progressing several initiatives to address this, including:

• Investing in IT infrastructure via programmes like MTD and the SCA. In future, taxpayers and their agents will de-register through their digital account.
• It is exploring options to obtain more consistent data by including structured data fields on the Self Assessment return for trading start and end dates.
• Knowing when a taxpayer has ceased trading will allow HMRC to remove that taxpayer from the self-assessment regime if they no longer need to be there.
• Reviewing guidance and accessibility as part of the regular schedule of guidance improvements. This includes reviewing guidance on registration, allowances and de-registration.

Moving on the government will:

• Conduct further research with new self-employed and landlord taxpayers to better understand the experiences of unrepresented taxpayers at ITSA registration.
• Consider what it can do to better publicise the date of the current notification obligation.
• Encourage taxpayers to check additional income on gov.uk. The tool will help most taxpayers and may be especially helpful to workers with more than one source of income. The HMRC Business Income Manual is also available to view on gov.uk and section BIM20205 discusses the nine badges of trade.
• Work on options to provide platforms and other intermediaries with guidance products that they can use or share with platform workers. This will help them make decisions about tax and registration

Useful guides on this topic

Self-employment: Registering for Tax
You are self-employed, you have started working for yourself, what do you need to do to now? How to register for tax. When do you pay tax? What records do you keep?

New business: Sole trader compliance checklist
Starting in business? A new business registration checklist.

Badges of Trade: Are you trading or not?
Are you trading, running a business, or just buying and selling investments? The 'Badges of Trade' are a set of indicators, built up over time by the courts, to decide when an activity is a trading or investment activity.

Making Tax Digital for Income Tax
When do you need to sign up for MTD? What are the MTD rules for the self-employed and for landlords?