A simpler tax life

HMRC to discuss how to make paying tax more straightforward

Paying tax is straightforward for most of us isn’t it? We identify the amount and pay it, albeit begrudgingly. As part of their digital dream though HMRC want to make it simpler for us to pay tax. Of course they do because their dream involves us paying tax earlier.

The government is investing £1.3 billion to transform HMRC into one of the most digitally advanced tax administrations in the world and last month published the ‘Making Tax Digital’ roadmap which sets out what this will mean for both businesses and individual taxpayers. This involves transforming the tax system so that it operates in ‘real time’.

The roadmap sets out how, by 2020, most businesses, including companies, partnerships and individuals who are self-employed and letting property, will be required to keep track of their tax affairs digitally and update HMRC on a quarterly basis, at least. By so doing HMRC believe businesses will find it easier to understand how much tax they owe and therefore more certainty over their tax position and therefore help them to budget more effectively.

During this month and next, HMRC are to hold a series of consultation events with stakeholders to discuss the issue of tax payments. These will consider payment arrangements for Corporation Tax (but not the largest companies, i.e. those with an annual turnover of more than £20 million), Income Tax Self Assessment, VAT, Class 4 NIC and other taxes collected through the Self Assessment process.

Self Assessment is now not good enough for HMRC and want to sell ‘Making Tax Digital’ to us by arguing the merits and advantages of paying smaller amounts of tax on a regular basis. Last year, HMRC conducted a research concluding that many small businesses saw that this could enable them to better plan their finances and avoid shocks, especially where taxes were being paid annually. HMRC even include quotes from some of those that took part in the research:

“You pay your bills monthly why not tax? As long as it’s not more expensive to do it that way” (sole trader).

“It sounds like an attractive proposition, I wouldn’t have drawers full of receipts! It would also save me from paying a huge tax bill at the end of the year” (sole trader).

“Having regular payments for HMRC will mean it’s easier to balance the books and know where the business stands for finance” (company with 10-49 employees).

“Not knowing how much tax is due is difficult as I don’t like shocks and it may mean I don’t have the money available. Hence knowing if I’m over or under paying on a more regular basis will help, and it also helps cash flow” (company with 2-9 employees).

Corporation Tax

Those companies with profits below £1.5 million a year make a single payment of tax no later than nine months and a day after the end of their accounting period. This is later than their contemporaries in any other country in the G20 and HMRC argue creates a significant transitional burden for those that grow and move onto the Quarterly Instalment Payments (QIPs), ie those with annual profits in excess of £1.5 million.

Employees and pensioners with other income of £10,000 or more a year from self-employment or property will also be required to keep track of their affairs digitally and update the Revenue at least quarterly through their digital account. HMRC now consider that having to complete a Self Assessment tax return and pay tax on income earned up to 20 months previously is too complicated a process and feels disjointed.

Paying smaller amounts of tax on a regular basis may well provide more certainty for some businesses but they can already do this if they so wish to by simply crediting their Self Assessment account earlier. Non-incorporated businesses already make upfront payments of tax on a twice yearly basis. Doesn’t this sound like PAYE for the self-employed and who really wants to line HMRC’s pockets sooner than they have to?