Farmers risk tax shocks under payment shake-up
Self-employed farmers could face cash-flow problems under HMRC proposals requiring taxpayers to forecast and pay income tax liabilities sooner, a leading accountancy body has warned.
The Association of Chartered Certified Accountants is calling for a fundamental rethink of proposed reforms to Income Tax Self-Assessment payments.
ACCA said the plans were disconnected from the realities of running small businesses with seasonal or fluctuating profits.
Its response to an HMRC consultation was informed by feedback from UK members and partner organisations.
The accountancy body said the proposals risked adding complexity and administrative costs for taxpayers, agents and HMRC.
It also questioned whether the plans met the principles of simplicity, certainty and stability expected from an effective tax system.
Glenn Collins, head of technical and strategic engagement at ACCA UK, said: “HMRC's intention to help taxpayers manage their liabilities more effectively is one we support, but good intentions need workable proposals, and these fall short.”
“Given the scale and significance of what is being proposed, we would have expected far greater development of the detail at this stage of the consultation process.”
A central concern is the proposal for taxpayers to forecast their income tax liability during the year.
ACCA said this could be particularly difficult for people working in agriculture, retail, hospitality and construction, where profits can change substantially between months or seasons.
“The reality is that forecasting income in-year is genuinely difficult for a huge number of self-employed people, particularly those in sectors where profits fluctuate significantly from month to month,” Mr Collins said.
The organisation warned that inaccurate forecasts could produce widespread overpayments and underpayments.
Overpayments could restrict the cash available to businesses, while underpayments could leave taxpayers facing unexpected bills later.
ACCA also raised concerns about different treatment for people who receive employment income alongside earnings from self-employment.
It questioned whether HMRC could manage several income streams without repeatedly changing individuals’ tax codes.
One proposal involves collecting self-assessment liabilities through Pay As You Earn.
ACCA argued that this could give employers greater insight into workers’ personal financial circumstances, raising confidentiality concerns that it said had not been adequately addressed.
Rather than introducing a new forecasting system, the organisation wants HMRC to improve existing voluntary payment arrangements.
It has proposed a flexible budgeting facility linked to self-assessment accounts, allowing taxpayers to set money aside while receiving a commercial rate of interest.
“The voluntary payment mechanisms in place today could, with the right enhancements, achieve the same objectives far more effectively and at far lower cost to HMRC, to agents and to taxpayers themselves,” Mr Collins said.
Jason Piper, ACCA’s head of tax and business law, said taxpayers’ experience of HMRC systems could influence their willingness to pay correctly and on time.
He argued that Making Tax Digital records payments and receipts but does not necessarily provide new information for estimating a final tax liability.
“The UK is already falling behind some of its peers, and HMRC should be doing everything it can to reverse that trend by listening to the users of their systems to help improve them,” Mr Piper said.
ACCA said it would continue engaging with HMRC during the consultation and press for reforms that were proportionate, practical and supportive of small businesses and self-employed workers.
