HMRC eyes earlier payment of income and corporation taxes

HMRC is consulting on “timely payment” of income tax under self-assessment and corporation tax for small companies with proposals that would mean many businesses and the self-employed pay their taxes earlier – and possibly more often as well.

The consultation, Call for evidence: timely payment, will run until 13 July 2021 and affected taxpayers, their advisers and wider stakeholders such as software providers and representative bodies are invited to submit comments by this date. The consultation document defines timely payment as “bringing the calculation and payment of tax closer to the point where the income or profit arises, paying tax based on the taxpayer’s current year position using, where possible, up-to-date data”.

“Closer to real time”

Financial Secretary to the Treasury Jesse Norman states that “at the heart of the government’s vision is a tax system that works closer to real time” as part of the government’s “10-year vision” to modernise and digitise the tax system.

“The delays that are at present inherent in the UK tax system can make it hard for people to manage their cash flow, particularly for the newly self-employed, whose first tax bill could be up to 22 months after they start trading,” he said. However, Norman added that the government “has no intention to make significant changes to the timing of income tax or corporation tax payments within the present parliament”.

The call for evidence document focuses on income tax and national insurance contributions paid outside of existing regular payment regimes such as Pay As You Earn (PAYE) or other deductions at source, as well as corporation tax paid by companies outside of the quarterly instalment payments regime (broadly those with profits below £1.5 million). It also invites views on whether more timely payment options should be explored for capital gains tax (CGT) outside of the existing regime for UK property, as well as other taxes that HMRC might potentially bring forward payments for.

Questions include the possible basis period for a more frequent tax payment regime (i.e. whether this should be based on current, in-year liability or not, and whether payments should be made monthly or quarterly), an evaluation of the advantages and disadvantages of the current regimes, possible flat-rate expense schemes, Making Tax Digital (MTD) issues, the impact on cash flow of tax payments (especially on various trades), and possible transition issues from the current regime to any new regime. There are 45 questions in all.

A 21st century tax system?

In conjunction with the timely payments consultation, HMRC also published another call for evidence document, titled The tax administration framework: supporting a 21st century tax system, which was linked to in the foreword of the former document. This consultation also runs until 13 July 2021, seeking views on how the legislation – or how tax system administration – could be updated.

HMRC said it “welcomes engagement from any individual or business with views on how taxes should be administered”, and that responses “will inform any future policy proposals to reform the tax administration framework”, which will also be publicly consulted on.

Meanwhile, Mr Norman called it “an opportunity for reform, but also an opportunity to challenge areas of tax administration that have become entrenched over the last 50 years”. He added that “future reforms will need to be underpinned by a framework that takes account of increased digitisation”, something which wasn’t available when the Taxes and Management Act 1970 first came into force.

The consultation contains 29 questions, including those around tax payment rules, compliance, improving how tax liabilities are calculated and assessed, and ensuring taxpayers can enter and exit the tax system smoothly.