Problems in ‘pay as you go’ tax proposal, warns ATT

The Association of Taxation Technicians (ATT) welcomes today’s call for evidence on more timely payment of tax but warns of the many problems ahead for a move to ‘pay as you go’ tax.

HMRC launched a call for evidence on timely payment of taxes today.1 This explores the possibility for individuals and companies to pay tax on a more frequent basis than they currently do.

ATT President Jeremy Coker said:

“Some taxpayers may welcome the opportunity to pay their tax closer to real time, particularly where this would help them with cash flow and budgeting. However, a widespread move to more frequent, in-year calculation of income tax and corporation tax is very tricky to achieve.

“Both income tax and corporation tax are charged on a yearly basis and do not naturally lend themselves to more frequent calculation and payment.  While VAT is generally paid quarterly, this is a transactional tax which operates and is calculated in a very different way. Similarly, while employees have had tax deducted in real time under PAYE for many years, the position is more complicated for businesses which often have expenses to consider, as well as tax and accounting adjustments.”

Under Making Tax Digital, taxpayers in income tax self assessment will be required to keep digital records and submit quarterly reports of income and expenditure from April 2023. A recent consultation2 also proposed that Making Tax Digital will be extended to corporation tax in April 2026.

Jeremy Coker said:

“Today’s call for evidence suggests that the quarterly update information submitted by taxpayers under Making Tax Digital might be used to enable more regular calculation and payment of income tax and corporation tax. We remain concerned that quarterly updates are unlikely to give much of an indicator as to a taxpayer’s eventual tax liability because they will not take into account necessary tax and accounting adjustments.

“How the annual nature of income tax and corporation tax could be adjusted to fit a more frequent cycle of calculation and payment needs careful consideration. We welcome the early engagement of HMRC on this issue, and the commitment in the call for evidence not to make significant changes to the timing of income tax or corporation tax payments within the present parliament.”


Notes for editors

  1. The call for evidence can be found here
  2. See the ATT’s previous press release on this consultation

 

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