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HMRC consults on accelerating tax payments by small businessesby
HMRC has issued a call for evidence concerning suggestions of how to reduce the gap between when income or profit arises, and the related income tax or corporation tax is paid.
While the consultation document explores a number of different ways in tax payments could be accelerated, it’s clear there are a number of issues to overcome to realise this change. The consultation is focussed on payments made under income tax self-assessment (ITSA) or corporation tax for small companies, which do not fall under the quarterly instalments regime.
The current situation
There can currently be a significant delay – of up to 22 months – between self-employed taxpayers starting to trade and when they pay their first tax bill. Even then, that tax payment covers the trader’s liability for their first tax year, in addition to a payment on account towards the second year’s liability.
While the situation isn’t quite so stark for established traders, payments on account are still generally made twice a year, with a balancing payment rounding out any outstanding liability.
For corporation tax, there is also delay between making the profits and when a small company pays the corporation tax due. All of the corporation tax due is payable in one amount, nine months and one day after the end of the company’s accounting period.
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