The Office of Tax Simplification (OTS) recommendation1 of a new Individual Tax Account2 that combines the features of the current personal tax account and business tax account, meaning all the income of an individual is held in one place, is welcomed by LITRG. The report makes other recommendations, such as allowing people to make ad hoc payments towards their tax bills when they have spare income, which LITRG agrees should be explored further.
The suggestions were included in the OTS Tax Reporting and Payment Arrangements Review, published today. The review explores ways to simplify tax for self-employed people and residential landlords. The OTS makes recommendations for the Government to consider. It does not implement changes.
The report is published as the number of self-employed people is growing, rising from 3.3 million in the year 2000 to 4.96 million this year.3
Victoria Todd, Head of LITRG Team, said:
“By combining the two existing tax accounts into one, the self-employed individual would get a clearer view of their total income. It should enable people to have an overview of their overall tax position in ‘real time’ if the data is kept up to date by HMRC, relevant third parties and the individual taxpayer.”
The OTS says that the new Individual Tax Account should have a facility to allow for payments to be made at any time and in any amount, allowing complete flexibility for the taxpayer so they can make ad hoc payments if and when they want to.
Victoria Todd said:
“Allowing taxpayers to make ad hoc payments would give far more flexibility as to when they make payments and how much they pay at any one time and some self-employed people may find this helpful. LITRG recommends that further work is done to explore the idea in more detail including what impact it may have on DWP benefits and how it would work in practice."
LITRG is keen for the Individual Tax Account to integrate with the Making Tax Digital programme. This will enable taxpayers to see an accurate ‘real time’ reflection of an individual’s tax position. This could pave the way for abolishing the payment on account regime, which many people find confusing and which often creates inadvertently unexpectedly large tax bills, says LITRG.
Victoria Todd said:
“Although we are supportive of HMRC’s digital agenda, they must be mindful that not everyone is able to transact digitally. Those who are digitally excluded must not be left behind.”
Notes for editors
1. Office of Tax Simplification report ‘Tax reporting and payment review: simplifying tax for self-employed people and residential landlords’ published today. See here.
2. The Government should invite the OTS to, or HMRC should, explore the potential for HMRC to offer a fully integrated Individual Tax Account, providing an end-to-end tax reporting and payment service, and the key steps and timescales that would be involved.
This Individual Tax Account, would: • merge the present personal and business tax accounts, so that taxpayers could see information about all their different types of income separately in one place • be able to receive and display data from taxpayers about their self-employment or rental income • offer a running calculation of the additional tax that the individual may need to pay in relation to the year to date, looking across all the information held in the individual’s tax account • offer the facility for the taxpayer to make payments (whether of the calculated amount, or other amounts chosen by the taxpayer) to HMRC towards their overall liability, and to display information about amounts paid • be able, in time, to receive and display data from third parties in selected sectors who have a significant role in relation to the individual’s self-employment or rental business.
4. Making Tax Digital is an HMRC initiative which is currently in pilot phase, and if implemented as it currently stands, will require businesses to keep their business records digitally and upload high-level summary data to HMRC every quarter using third party software.
5. Low Incomes Tax Reform Group
The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. The CIOT’s 18,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
Contact: Hamant Verma, External Relations Officer, HVerma@ciot.org.uk / 0207 340 2702More Articles by Chartered Institute of Taxation (CIOT) ...