Changes to SME monthly tax payments?

The Government has launched a consultation to look at changing the current timing of tax payments to make them more frequent and ‘in-year’. This is as part of its strategy to modernise the tax administration system. The consultation will focus on Self Assessment and any company paying Corporation Tax, unless they are part of the Quarterly Instalment Regime.

The Government has already acknowledged that to move to more recent reporting, calculation and payment could increase the admin burden on businesses, and has said it will minimise this as far as possible. As part of the announcement of the consultation, the Government has confirmed there will be no amendments to the timing of tax payments within the present parliament.

The HMRC consultation document stated: ‘Calculating and paying based on in-year information could provide taxpayers with greater certainty about their tax liability and, by spreading out the payments, could help taxpayers better manage their tax affairs, reducing the risk that they would be faced with an unexpectedly large tax bill at the end of the payment dates.’

The government is considering two options, either quarterly or monthly payments of corporation tax, and has also noted that annual allowances would have to be considered as part of any reforms. These are normally calculated at year end which would raise complications when the aim is to simplify the current regime.

From April 2023, the expansion of Making Tax Digital will include businesses and landlords with income over £10,000. These tax payers will need to keep digital records and make quarterly reports of income and expenses. The implication is that the information for more timely submissions would therefore be available more readily.

Any system where tax is collected in-year will need to include a process for taxpayers to report their expenses in-year to avoid distorting cashflow further by only allowing those expenses at the year end. However, there is a trade-off between how accurate the calculations need to be, and the effort required to provide regular updates.

Glenn Collins, head of policy at ACCA echoed our thoughts on this consultation when he said: ‘SMEs will be vital to the UK’s economic recovery and while data is vital for the running of their businesses they can’t afford to be tied up with complex quarterly tasks solely for tax purposes, so we hope the government will keep it as simple as possible.’

There are numerous tax and accounting adjustments that take place at year end, and any in-year reporting will be wholly inaccurate unless there is some way to adjust for these. Without a crystal ball, though, in many cases this is going to be extremely tough to do!

The consultation closes on the 13th July 2021. You can see the full Consultation Document here.

If you’re struggling to make your tax payments, either for Self Assessment or Corporation Tax, please don’t ignore the problem! Calling HMRC as soon as possible will make it easier to make a Time to Pay arrangement, and reduce the stress around the problem. Find out more here.