IFA calls for greater clarity of tax admin framework in HMRC consultation

IFA calls for greater clarity of tax admin framework in HMRC consultation

Greater clarity on the tax administration framework in HMRC consultation called for by the Institute of Financial Accountants

If there is one simple conclusion to be drawn from HMRC’s recent call for evidence on timely payment, it is that confusion reigns supreme among taxpayers. This is the general consensus presented by the Institute of Financial Accountants (IFA) in its response, and its flagged concerns must be addressed to better understand and accommodate the impacts on different groups of taxpayers, according to its director of professional standards, Anne Davis.

As part of the government’s 10-year strategy to build a trusted, modern tax administration system, HMRC’s recent consultation encouraged a collaborative, open and transparent discussion between government and a wide range of stakeholders on the opportunities and challenges of more timely payment of tax. The IFA’s response included the views from 40 of its members, who, on behalf of their clients, conveyed the need for greater clarity on the tax administration framework.

A simpler approach

In providing a narrative, members highlighted the main issue of central concern in relation to HMRC’s proposal, in that some taxpayers are confused by tax year-end and accounting year ends on different dates, suggesting for instance that “April 5 end of personal tax year should be aligned to a month-end e.g. March 31”. Other comments include the recognition that “most people do not understand the complexities of the UK tax code and are horrified to find that they have to pay payments on account following their first tax year ending towards the following year. Most feel this is unfair.”

One recommendation made is for ways to improve clients’ general understanding of their personal or business tax accounts. Nearly 98 percent of members suggest that allowing tax agents to access the personal tax account and business tax accounts of their clients would help those taxpayers, as it means tax agents would be able to explain the data presented in those accounts. When addressing attempts to service the needs of clients and resolve issues with HMRC, one said it was akin to currently “having our arms tied behind our backs” and as a tax agent having authority to deal with such matters, why it was not permitted to access the personal tax and business tax accounts, was “a mystery”, particularly “when clients have approved it”. Another member summed up the situation succinctly: “HMRC should help agents to be in a position to work with them to get things right”.

Self-assessment and corporation tax

Regarding the challenge of current payment timings, a slim majority of IFA members (55 percent) feel that clients have some problems in understanding what tax payments they need to make and when.

New ITSA taxpayers also face challenges with understanding the tax administration system, with nearly 78 percent of IFA members reporting that clients have difficulty in budgeting for paying tax in the first two years of the business. There is further confusion for clients by having to make payments on account of income tax due.

IFA members are not enthusiastic about accelerating payment dates for corporation tax or income tax self-assessment (ITSA). Some 45 percent of members believe a more frequent tax regime should be based on the current year liability and 55 percent of members believe it should be based on the immediate prior year liability.

Suggestions were made on other reforms that could support bringing tax payment closer to the point of transaction, which show IFA members are almost evenly split over whether ITSA payments should be made on four dates in the year (55 percent) or retain the current two dates (45 percent).

A majority of IFA members (67.5 percent) feel that flat-rate expenses should be restricted to smaller businesses. Also, a large majority (80 percent) are against flat-rate expenses replacing actual costs. On balance, 54 percent feel that flat-rate expenses should only act as a proxy for in-year calculations, with the actual expenses used to determine the final amount of tax due.

The IFA’s general summary

Of the 40 members who provided feedback, there was limited support to increase the frequency of payments to monthly payments, with some of their clients having problems paying tax on a quarterly basis based on Making Tax Digital (MTD) quarterly updates. For example, those businesses which have cyclical or seasonal trading patterns or those businesses where working capital is tied up. In fact, IFA members are generally not in favour of expanding the number of ITSA payments on account from two to four in the year (55 percent are against this idea).

It is stressed that any increases in the frequency of payments are only considered if there is a reliable method and information for calculating earlier payments which is not currently the case for some businesses. This is supported by 55 percent of IFA members agreeing that these payments should be based on the profits of the immediate prior year rather than the current year’s liability.

With the above factors in mind, other considerations for timely payment methods are recommended, such as paying by instalments. However, any changes encouraging early payments should be voluntary, given the financial instability of many smaller businesses which are recovering from the economic and disruptive impact of Covid-19.


The Call for Evidence ran until 13 July. The IFA’s full response can be viewed here.

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