More frequent tax payment proposal for small businesses worries ATT

The ATT made the warning in its response¹ to a government consultation on bringing payment under Income Tax Self-Assessment (ITSA), and Corporation Tax (CT) for small companies, closer to the point where the income or profit arises.²

Jon Stride, Co-Chair of ATT’s Technical Steering Committee, said:

“We consider that more timely tax payment should be offered on a voluntary basis only, and not be made compulsory. While some businesses may find the ability to make more frequent and timely tax payments useful when it comes to budgeting for their tax bill, many would not. A voluntary system allows those businesses who would stand to benefit from earlier tax payments to do so, without imposing potential cash flow issues or extra administrative burdens on those businesses for whom it would provide no advantage and who wish to continue to pay on the current basis.

“Many businesses are experiencing tough economic conditions because of the pandemic and possibly because of the fallout of Brexit. This is not the time to make decisions on changing payment timings. In that light, we welcome the Government’s commitment to not make any change ‘within this parliament’.”

ATT states that businesses likely to find that timely payment has a negative impact on their cash flow include:

• those who buy stock, especially those where there is a gap between purchase and sale of stock
• businesses who are looking to invest in their business and/or incur significant capital expenditure and/or are expanding rapidly
• those that receive an unexpected large expense – for example a bad debt, or having to replace or repair essential equipment 
• those that are not paid straight away and invoice on credit

All of these businesses may experience a squeeze on cash flow if they are expected to pay tax over to HMRC more frequently, rather than having the flexibility to use those funds in their business.

ATT is urging HMRC to better promote its largely unknown and unused Budget Payment Plans before embarking on a wholesale change to the tax system to achieve more timely payments. Individual taxpayers can set up a budget payment plan with HMRC if they want to put aside money to cover their next income tax self-assessment bill. This is different from income tax payments on account, which individuals normally make once every six months towards their next tax bill. The budget payment plan lets individuals decide how much to pay each week or month and stop paying for up to six months. But individuals must be up to date with their previous self-assessment payments before they set up a plan.³

Jon Stride said:

“HMRC already have a facility for income taxpayers who want to make regular payments in advance, it is just that hardly any taxpayers know about it or are made aware of it by HMRC. The low take-up may also be due in part to the lack of flexibility in requiring regular payments to be made.

“We recommend HMRC expand this offering so that it is available to small companies as well as individuals and so that it allows taxpayers to choose to make payments as and when they are able, rather than requiring a regular contribution.”

If the Government pushes ahead with making more timely tax payments compulsory, the ATT cautions that if the frequency of tax payments were to be increased, payments should not be required more often than quarterly.

Jon Stride said:

“We are against a move to more frequent payments on a compulsory basis on the grounds that it will be overly onerous for most taxpayers. If the Government insists on pushing ahead with it, then we consider that a move to a quarterly payment frequency would be the least worst option. This would at least achieve some sort of balance between assisting businesses with cash flow and minimising administrative burdens."

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Notes for editors

1. The ATT’s submission on Timely Payments is here.

2. HMRC’s consultation document on Timely payment is here.

HMRC argue that tax administration needs to keep pace with rapid change in society, the economy and technology. They claim a modern system should allow people and businesses to understand how much tax they owe, and why, and to pay the right tax with ease. COVID-19 has further reinforced, for HMRC, the need for a more flexible, resilient and responsive tax system.

3. See GOV.UK page Pay your Self Assessment tax bill – here.