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Her Majesty’s Revenue and Customs have launched a consultation on potential reforms for Income Tax Self-Assessment for self-employed sole traders, partnerships and landlords, with implications for the accounting profession and accountancy recruitment.
The open call for evidence is primarily focused on when self-employed people and landlords must make themselves known to HMRC and begin to interact with the tax system, which due to the past two years has become increasingly relevant with several support payments requiring a tax return.
With more people changing jobs or starting up side-ventures, it becomes increasingly important that people are aware of their obligations so they do not end up with a surprising tax bill or a demand for an extra payment.
It also links into Making Tax Digital, an initiative that changes how people pay their taxes and requires businesses and self-employed people to use digital record-keeping tools and change how they interact with the UK’s tax system.
Here is an overview of the self-assessment system as it currently stands, as well as the scope and early proposals to change it.
What Is Self-Assessment?
In the UK, almost everyone earning above a certain threshold pays income tax, however, the way in which this is paid can vary significantly depending on the nature of the earnings.
Most people in employment will pay their taxes through the pay as you earn (PAYE) system, where their gross income has the tax deducted automatically, which often means that people in full-time employment throughout their adult lives may never directly fill out a tax return.
This changes for people who are partners in a business partnership or have earned more than £1000 of untaxed income, which is the threshold before you need to register as a ‘sole trader’.
There are other thresholds as well, for people who receive dividend payments, support payments over the last two years and landlords who primarily receive money through rent payments.
Because of so many more people interacting with self-assessment, there are certain aspects of the current law that the government is consulting with the accountancy profession to see if they require changes.