HMRC has announced the postponement of Simple Assessment, resulting in many contractors worrying it could affect their tax declaration. Some experts claim there is no need for contractors to feel concerned, although they do support simplifying the complex UK tax system.

What is HMRC postponing?

HMRC announced it would delay the introduction of more digital services and release project capability to work on EU exit. As a result, it would postpone Simple Assessment.

This does not affect the Making Tax Digital for businesses. But, Making Tax Digital for individuals has been postponed for now. This will have no bearing on tax declaration of individuals, including contractors and freelancers.

The reason

The HMRC announcement blames Brexit for the delay in Simple Assessment. Tax professionals and experts believe that it is due to the uncertainty brought on by Brexit. The tax authority does not have adequate resources and also is under pressure, needing more time to get new forms into the system.

While contractor companies will have to fulfil the requirements of Making Tax Digital and digital VAT collection, they need not worry about Simple Assessment, which is a tax form used until now by those who have started getting state pension in the financial year 2016-17 and their pension is more than their personal allowance. Simple Assessment also covers those contractors judged within the PAYE, but their taxes cannot be collected via PAYE.

How are contractors affected?

Based on the HMRC announcement, it looks doubtful that contractors will be affected by the postponement of Simple Assessment. But, if a contractor is working through an Umbrella Company, they will receive the Simple Assessment form in case their taxes cannot be collected via the Tax Code and their tax exceeds £3,000.

Sole traders and limited companies with a turnover below £85,000 per annum will not be affected by Simple Assessment postponement. Making Tax Digital for such entities will be introduced in April 2020. But, Making Tax Digital for VAT for April 2019 is on track and will cover sole traders and limited companies with an annual turnover of more than £85,000 per annum.

This has prompted speculation that the proposed IR35 reform to cover private sector may also get postponed. Tax experts believe this is not the case. IR35 reform looks to harmonise taxes paid by contractors and employees. This will increase the tax collection by HMRC. Hence, the reform will not be delayed or postponed.

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