Self-employed business owners could end up with inflated tax bills, it has been claimed.
A downturn in earnings during the recession could affect the balance of some self-employed business people's tax bills, the Federation of Small Businesses (FSB) has said.
Stephen Alambritis of the FSB, said: "The problem is that the HMRC's assessment of what tax is due for the current year is based on earnings for previous years, but we reckon that most self-employed people will earn less this year than they did in previous years."
The FSB has suggested that eight out of ten self-employed people experienced a fall of ten per cent in taxable income during the current financial year.
Based on average UK earnings of £25,000, that would deliver a decline of £2,500 in income for 2.4 million self-employed business owners.
Mr Alambritis continued: "If HMRC assumes these people will earn the same in 2009/10 as they did in 2008/09 then it could be overestimating their income by £6 billion. At a 20 per cent tax rate that would amount to an excess tax bill of £1.2 billion."
A spokeswoman for HMRC said: "We usually base our estimate of an individual's current year's earnings on their previous year's earnings. But we will take into account any evidence that these earnings are lower this year."
Date:2 February 2010
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