The government is planning a radical policy change to collect tax sooner. What’s the full story?
Consultation
On 23 March 2021 HMRC launched a consultation entitled “Timely payment – a call for evidence” (see The next step). Its purpose is to provide HMRC with information that will allow it to advise the government on collecting self-assessment tax sooner. This will have the greatest impact on small businesses, whether they are run by sole traders, partnerships or companies. So when might this change come in and how much sooner will you be expected to pay?
Links to MTD
The consultation revisits the suggestion originally made but abandoned as part of Making Tax Digital (MTD). The idea was to link tax payments with the quarterly MTD reports of business income and outgoings. MTD for income tax is deferred until April 2023 for unincorporated business and landlords with turnover exceeding £10,000 (and later for companies). The consultation suggests that payments could be quarterly, but monthly payments are also being considered.
Will it happen?
It’s invertible that tax will become payable sooner. While this is bad news for businesses, it will bolster the government’s coffers and should reduce the tax increases that will eventually be needed to repay the borrowing because of coronavirus. As for the timing, while not impossible, we think that it’s unlikely to happen as part of the MTD rollout in 2023, but it will come soon after.
Complications
Accelerating tax payments sounds like a relatively simple move but it’s actually fraught with difficulties, including, for example, how to allow tax relief in advance for certain deductions which can’t normally be quantified until after a tax year has ended. For this reason the consultation is open to taxpayers as well as tax experts. If you want to get involved you have until 13 July 2021 to provide your input.
The government plans to demand quarterly or monthly tax payments from companies and individuals who pay tax through self-assessment. It won’t happen for at least two years. Have your say by responding to the consultation.
The next step
- Open consultation: Call for evidence
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.