Volunteering to pay tax

HMRC consult on pay as you go

As part of the Making Tax Digital project, HMRC are looking at a voluntary pay-as-you-go (PAYG) arrangement that would give businesses the opportunity to budget towards their tax bills.

In December 2015, HMRC published the Making Tax Digital Roadmap and at the same time a discussion paper on simpler tax payments. The latter considered options on the simplification of payment of taxes, aligning payment arrangements and bringing payment dates closer to the time of the activity or transactions giving rise to the tax liability.

In March 2016 Budget it was announced that businesses, the self-employed and landlords who keep their records digitally and provide HMRC with regular updates would be given the opportunity to make voluntary payments on a PAYG basis.

The timeline for PAYG is as follows:

• 1st April 2008 – income tax, NIC and Capital Gains Tax for unincorporated businesses, sole traders and landlords
• April 2019 – VAT
• 2020 – corporation tax

The consultation, ‘Making Tax Digital: Voluntary pay as you go’, looks at:

• Options for taxpayers to make and manage their voluntary payments
• Considers how voluntary payments will be allocated across a taxpayer’s different taxes, and
• Explores the best way of dealing with the repayment of voluntary payments

It is important to note that the opportunity to voluntarily PAYG will not change the statutory due dates for the above taxes.

What might voluntary payments look like?

HMRC considers the overarching principles for voluntary PAYG to be:

• Making of voluntary payments should be flexible
• Simple administration for both taxpayer and HMRC
• HMRC will allocate voluntary payments against tax liabilities as they become due
• Voluntary payments will be refundable
• Payments and repayments will be made electronically

As businesses move into Making Tax Digital and start to update HMRC regularly through their software/digital tax account, they will be able to see all of their tax liabilities in one place be they paid, outstanding or becoming due, as well as their estimated liabilities. PAYG will enable a person to set aside money, ensuring that there are no shocks or problems in meeting their taxes, helping them improve cashflow and reducing exposure to any late payment penalties or interest charges. Taxpayers, however, already have an existing facility to do a similar thing in HMRC’s Budget Payment Plan whereby a person can set up a direct debit to make regular payments towards their future tax bills.

A taxpayer would need to indicate their intention to make a voluntary payment, probably by selecting an option in their software/digital account. This would not however commit them to making payments.

Repayments

During the period of discussion one of the concerns raised was the loss of access of working capital by making voluntary payments. For various reasons a person may need to access their money, e.g if they unexpectedly need to replace a business asset, a business falls into unforeseen losses or seasonal variations in trade prove more serious than expected.

Where circumstances change HMRC will make it easy for a person to have money returned to them via a facility within the software/digital tax account to request a repayment.

Where a taxpayer has a tax liability shortly becoming due HMRC are considering whether any repayment should be restricted to the credit over and above that liability so that a person can budget for their tax bills.

HMRC will be carrying out a randomised controlled trial of voluntary PAYG but is open to considering any suggestions that would encourage businesses adopting PAYG such as:

• Incentives similar to those offered some years ago to encourage electronic filing of PAYE returns (cash rewards)
• A National Savings Scheme link, with perhaps a monthly draw
• Paying interest on credits
• Streamlining HMRC’s security processes related to repayments to make them faster

Closing date for comments is 7th November.