Simplify tax system and taxes for SMEs in Spring Budget, urges AAT

In its Spring Budget representation, the Association of Accounting Technicians (AAT) called for Chancellor Jeremy Hunt to use the Budget to simplify the UK tax system and taxes for small and medium-sized enterprises (SMEs).

It also urged the government to take action to address the issue of late payments to small firms. Here, we take a look at the AAT’s proposals in greater detail.

Simplifying the tax system

In its Budget representation, the AAT stated that the current tax system is failing to allow small businesses to navigate their tax affairs efficiently. It said that tax policy has been introduced in a ‘disjointed’ fashion, with a lack of clear guidance.

The AAT stated that clarity is required on tax simplification priorities, and has called for the government to outline how it is taking the tax simplification agenda forward. According to the AAT, a new body separate from the government should be created, dedicated to the design, administration and delivery of tax policy.

The body should have a ‘broader remit’ to improve tax policy and deliver genuine simplification throughout the UK tax system.

Reforming taxes to support SMEs

In its representation, the AAT said that SMEs are facing ‘disproportionate administrative burdens’ on tax compliance. It said that the complexity of tax rules, addition of taxes, the frequency associated with submitting tax returns and the many different layers of government involved with collecting tax are all adding ‘greater costs’ for SMEs.

Tax obligations for SMEs should be ‘streamlined’ in order to help with costs and reduce the time spent on tax issues, the AAT said. Additionally, there should be ‘greater promotion of tax relief and clearer guidance from HMRC tailored to SMEs’.

It has called for an acceleration of the ‘Transforming HMRC Guidance and Forms for Small Businesses’ programme, which was announced at the 2023 Spring Budget.

Reinvigorating Making Tax Digital

The AAT said that whilst it remains a ‘strong and vocal supporter of Making Tax Digital (MTD)’, the ‘continual delays’ in implementing the initiative in its entirety must be addressed. It has urged the government to begin the pilots for the next phase of MTD ‘as soon as possible’ in order to reach the MTD deadline.

According to the AAT, the previous delay of Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) from 2024 to 2026 was ‘frustrating’ for the UK accountancy profession. It warned that HMRC ‘must not deviate’ from the current timetable.

Within its representation, the AAT also stressed that technology could outpace MTD if the initiative is delayed any further. Technological advances could render large elements of the MTD programme redundant, which would cause additional uncertainty for UK businesses.

Tackling late payments

Late payments are an ‘increasing threat’ to SMEs in the UK during the ongoing tough economic period, the AAT warned. Research carried out by business group the Federation of Small Businesses (FSB) recently showed that 52% of small firms experienced late payments in 2022, and 25% reported an increase in late payments.

The AAT urged the government to take further action to ensure large businesses are held accountable for paying their suppliers on time.

It also called for the existing Prompt Payment Code compulsory for organisations employing more than 250 staff, and said that such a move would have a ‘significant benefit for suppliers’ and would send a ‘strong message’ to large businesses in regard to what is expected of them.

Championing small business growth

The AAT stressed that it is an ‘active supporter’ of the government’s Help to Grow initiative. However, it stated that Help to Grow: Digital was ‘poorly designed’, with little promotion as to its benefits amongst the business community.

The AAT has called for the creation of a new scheme with similar aims to Help to Grow that addresses the shortcomings of the past. The new scheme should ensure eligibility criteria is not too restrictive; the availability of software is sufficiently broad; and that the government works with industry bodies to ensure proper promotion of the scheme.

Chancellor Jeremy Hunt will present the 2024 Spring Budget on 6 March. Mercia’s tax experts will be watching and will provide detailed analysis of the day’s announcements. Keep your clients up to date with our range of Budget products.