This is going to affect all businesses that pay tax under self assessment, including companies.
HMRC is consulting on simpler tax payments. Let’s be clear; “simpler” means more frequent payments, which are paid at a time closer to the period in which the income is received.
There are no firm proposals on exactly how many extra tax payments will be required, and when the new system will come into effect, as this is a first-stage discussion paper. There will be discussion events held around the country (see below), open to any accountants in practice and their business clients. You need to book a place at those events by email, and there may be more events arranged in February and early March.
When George Osborne announced the end of the tax return, the AccountingWEB community were quick to uncover the potential benefits for the government. Some predicted that real-time tax payments for the self-employed would be a bi-product of the proposed quarterly online reporting. And so it appears to be.
The discussion paper makes it clear that accelerated tax payments will apply to corporation tax, VAT and self-assessed income tax, including Class 4 NIC. Class 2 NIC is to be merged into class 4 sometime soon, according to a current consultation paper. It hints that where a business pays several taxes (e.g. CT and VAT), the payment dates for those taxes may be aligned.
That would mean quarterly payments for CT for all companies. This is a logical extension of quarterly reporting of business turnover and expenses, glossing over the need to make adjustments for accruals, prepayments and disallowable expenses.
Companies who already pay CT by quarterly instalments won’t be affected, as they already pay corporation tax within the accounting period in which the profits are made. Also, companies with profits of £20m or more will see their CT quarterly instalments advance by four months for accounting periods starting on and after 1 April 2017.
HMRC justifies the acceleration in tax payments as a way to reduce the burden on taxpayers, as (they argue) it will allow easier off-set of construction industry scheme deductions against other tax liabilities. HMRC also cites research that concludes small businesses would prefer to pay tax in smaller amounts more regularly. The “burden” of companies moving from making a single CT payment nine months after the year end, to quarterly payments starting within the accounting period would also be lifted.
I believe most small businesses will see quarterly tax payments as an increased burden, not a decrease!
Please get involved in this discussion with HMRC. Attend one of the consultation events if you can, or post your views below.