The Government has recently stated that it wants to move to more frequent, in-year tax calculations and payments for individuals and small businesses.
It has suggested the change could come into force as early as 2024.
The intention is to bring payment under Income Tax Self-Assessment and Corporation Tax for small companies, closer to the point where the income or profit arises.
In theory this may seem like a good idea but in practice it is fraught with difficulties and unintended consequences that are far from desirable.
HMRC has launched a call for evidence on the subject, which closes on 13 July 2021.
To inform AAT’s response, we contacted our panel of 100 or so AAT licensed accountants to ask them a series of questions about these plans (if you’re an AAT Licensed Accountant email us to join the panel).
Respondents were unable to highlight any significant benefits to their clients that new Timely Payment arrangements would deliver, or indeed any benefits to them as accountants. This was indicative of their uniform opposition to the proposals.
What’s the problem?
Various difficulties need to be considered.
As many readers will know, recent changes to the payment of CGT (Capital Gains Tax) liability (payable within 30 days of a property sale) have been extremely challenging for accountants and their clients alike. This is reliant on clients setting up a CGT account online) within 30 days – a process that can take at least two weeks. Agents are prevented by HMRC from doing this for their clients, which means this deadline is often missed. Inevitably the same would be the case if these requirements were replicated in other areas of the tax system.
Responding to our survey, one AAT Licensed Accountant wrote;
“ …who does this help? There is added administration, increased costs, more payments to manage. The feedback from my clients to this has been entirely negative. HMRC need to understand that self-employed and small company incomes can vary wildly month by month … How do you know what the overall tax liability would be if they purchase a capital asset? …It is difficult enough at the moment to manage two annual payments including payments on account for the self-employed. This may also be beyond the capabilities of many agents to support. Finally most start-up businesses do not make taxable profits in the first or second year so where is the benefit to them having to file more returns?”
Another AAT licensed accountant witheringly stated;
“The only benefit I can see here is improved tax receipts for HMRC and the Government, for the business it will be added cost and complexity and will discourage more entrepreneurs from starting a business.”
So, having considered all the facts, especially the views of our licensed members, AAT doesn’t believe there is a strong case for moving millions of self-employed individuals and small businesses to what would effectively be real time payments in as little as three years’ time.
As we made clear in our submission, the likely scale of costs and challenges imposed on individuals and small businesses – including a likely increase in accountancy costs – is very difficult to justify for rewards that fall almost entirely to HMRC and the Government.
AAT also believes the proposals are incompatible with the Conservative Party’s 2019 Election Manifesto upon which this Government was elected. This is a point we have comprehensively made in our response to the Call for Evidence. The manifesto clearly states, “…we will ensure that regulation is sensible and proportionate, and that we always consider the needs of small businesses” If that is genuinely the case, then these proposals should go no further.
To read AAT’s response in full please visit our Public Policy page.
To let HMRC know your thoughts, please email: firstname.lastname@example.org
Phil Hall is AAT's Head of Public Affairs and Public Policy.