Simple Assessments: one less thing for PSCs to worry about – for now
Reading as contractors did last month that Simple Assessments will be shelved by HMRC sounds worrying.
Mainly because we’re a fan of any ‘simplification’ initiative from HMRC that seeks to lessen the complexity of the UK’s tax system. And of course, maybe because imitation of our name felt like the sincerest form of flattery from the taxman, writes GoSimple Software Tax director Amanda Swales.
What HMRC is postponing / proceeding with
But actually contractors, there’s no need to panic. The suspension of ‘SAs’ (‘Simple Assessments’) probably won’t influence how you declare cash throughout the year. Before I tell you why, keep in mind what HMRC has said in an email to tax bods like us:
“We have made the decision to delay plans to introduce further digital services for individuals, to release project capability to EU Exit work,” the tax authority wrote. “This means halting progress on simple assessment”.
For businesses however, Making Tax Digital (referred to in the HMRC email as ‘digital services’) is staying on track. At least, from what we can gather. As regards MTD for individuals – a bit like the SAs – it’s on the shelf for the time being.
As the HMRC email hints at, it’s all largely due to Brexit, or more specifically the lingering uncertainty about what will need to occur when we leave the EU. An already under-resourced and under-pressure HMRC wants more leeway to prepare for new forms of trade and revenue.
So while there’s no respite for your contractor company in regard to MTD, including a requirement for digital VAT collection after April 2019, there is a pause on SAs.
SAs are a tax form, so far only used by those who started receiving a State Pension in 2016-17 where the pension exceeds their Personal Allowance, or those workers on PAYE income where their Tax cannot be collected through PAYE.
Impact on contractors
So it’s unlikely that you’ll be affected by the contents of the entire HMRC email.
If, however, you are a contractor working under an umbrella company, you will receive the Simple Assessment if the tax due cannot be collected through the Tax Code i.e. if it exceeds £3,000
And if you’re a sole trader or limited company with an annual turnover of less than £85,000 (the VAT threshold), it’s good news if you’re fine with the status quo, because you’re not going to have to do anything different until MTD for business is introduced in April 2020. As said, MTD for VAT is still on track however -- for April 2019 for those with a turnover in excess of £85,000.
But this delay by HMRC to both a bit of MTD and to new SAs, comes amid talk that Budget 2018 this Autumn might be delayed too. It’s no surprise, then, that we’ve heard voices asking – rather hopefully – whether the IR35 proposal for the private sector is going to be postponed as well.
Don't bet on IR35 reform being shelved too
This is doubtful. Firstly, because Brexit is the reason for pausing Simple Assessment – itself a means to help people submit their tax, not pay more than they used to. Adjustments to IR35, on the other hand, are aimed at levelling the tax paid by a contractor to that of an employee – effectively increasing the tax collected by HMRC.
Secondly, MTD literature we’re seeing since the HMRC email is exactly the same: there doesn’t seem to be any alternative timeframe in place. We can therefore safely assume that the Simple Assessment ‘issue’ is happening on its own terms, unrelated to other aspects of HMRC. So as much as it makes a good headline or soundbite to say the contrary, Brexit isn’t stopping a digital taxation overhaul. And there’s not much reason to suspect it’ll derail private sector IR35 reform either, but we’ll have to await the Treasury in the Autumn, or before, to hear if it’s April 2019 or 2020.
Carry on Contracting
So while there is indeed plenty happening to contracting at the moment, the current tax payment landscape is largely the same for such consultants (even if we might wish it was slightly different for IR35 in the public sector). At present, your only real option is to carry on contracting as normal, while diligently preparing for MTD and organising your VAT receipts. One thing you likely need not worry about is Simple Assessments – albeit at least for now, because remember, the government has a knack for bringing back what we all thought was banished. The dividend tax changes and MTD at Finance Bill 2017, anyone?