Are rolling tax payments on the cards for business owners?

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Date: 30 March 2021

Close up of businessman working on calculator

The government has opened a consultation on the idea of replacing annual self-assessment tax returns with a rolling in-year tax payment system for businesses and the self-employed.

HMRC is seeking views on bringing the payment of income tax and corporation tax closer to the time when income is received. It's all part of Tax Day on 23 March when the government published a series of tax documents and consultations as part of its move to create a "more trusted, simple and modern tax system".

The call for evidence on timely payment runs to 13 July 2021. The Institute of Chartered Accountants in England and Wales (ICAEW) said "any changes will be controversial but will not be made within this parliament". However, a move towards timely payments is coming as Making Tax Digital for Income Tax will be mandated from April 2023.

According to the ICAEW, the rate of unpaid income tax due through self assessment (ITSA) and corporation tax (CT) is much higher than for taxes such as VAT and income tax and national insurance contributions collected by PAYE.

An Office of Tax Simplification report in 2019 also found that many self-employed workers - particularly those on low incomes - would welcome paying tax more frequently to help with budgeting. For many taxpayers, however, the amount of their tax liability can only be accurately assessed on an annual basis.

Commenting on the proposals, Caroline Miskin of ICAEW's Tax Faculty said: "Earlier payment is in the government's sights but is not an inevitable consequence of MTD ITSA and CT. It is disappointing that underlying simplification of the tax rules, to make it easier for taxpayers to understand their liability, is not being considered before digitalisation and earlier payment."

Andy Chamberlain, director of policy at the Association of Independent Professionals and the Self-Employed (IPSE), said: "We welcome the fact the government wants to improve the tax experience for self-employed people and we are keen to work with them on this. However, there are some unanswered questions about the proposal.

"First, many self-employed people's incomes fluctuate substantially throughout the year - and while the current annual system accounts for these and ensures self-employed people pay the right rate, it is not clear how this would work with rolling in-year taxes. It is also not yet clear how this would work with late payments - which are a substantial problem for self-employed people.

"We would want to be satisfied this proposal would not pile even more of an administrative burden on self-employed people. There seems a risk here that rolling administrative tax responsibilities could be added to the requirement to complete some form of annual tax return - which would eat even further into freelancers' vital working time."

Written by Rachel Miller.

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