Reforms to tax calculations for the self-employed, announced by the Chancellor at today’s Budget, will result in a significant acceleration of tax payments by businesses affected by the change, says the Chartered Institute of Taxation (CIOT). The £1.7 billion raised by the measure over the next five years makes it the biggest tax raising measure confirmed today.
This change will mean that affected businesses will pay tax on profits for more than a 12-month period in the tax year 2023 to 2024 as they transition into the new ‘tax year basis’. Whilst it will be possible to spread any excess profits over five tax years, the Exchequer Impact of the change is significant. Between 2024-25 and 2026-27 it is expected to raise an extra £1.715bn. There will be further impacts over the following two years so the overall impact could be over £2bn. This is a significant acceleration in the amount of tax revenues flowing into the Exchequer.”
The impact assessment published today recognises that there will be one-off costs for businesses including familiarisation with the rules, updating software, and deciding whether to change their accounting date to 31 March or 5 April. However, the estimated cost of this is considered to be negligible, which we think is unrealistic.
The continuing annual costs are estimated to be £9.1m; this will be mainly the additional compliance involved for those businesses for which it will not be commercially practical or possible to change their existing accounting date. However, the ongoing savings are estimated to be £10.2m, meaning that the overall impact is a negative £1.1m. Given the additional ongoing compliance and administrative burdens that we believe affected businesses will suffer to comply with the new rules, we find it hard to believe that these are outweighed by savings elsewhere.