The future for tax payments

The government receives its tax money on different dates depending upon the type of tax
charged. Taxpayers taxed under PAYE usually pay their tax bills monthly; the self employed
make two Payments on account plus a balancing payment, companies pay nine months and
one day after the company year end and ‘Large Companies’ (broadly those with profits
above £1.5m) make quarterly instalments.
If any taxpayer finds that they cannot pay by the due date then an agreement may be
reached with HMRC in an attempt to provide some ‘breathing space’ for the taxpayer
allowing cash flow to improve and HMRC more certain that payments will be made and
made on time.  A ‘Time to Pay’ (TTP) arrangement is a method by which tax payments are
spread over a more extended period of time than would otherwise be available and is used
for arrears of corporation tax, VAT and PAYE.
HMRC also offers a little-known ‘Budget Payment Plan’ (BPP) for taxpayers who are up-to-
date with their past payments and wish voluntarily to make regular weekly or monthly
payments towards the next tax bill. If the total paid during the year does not fully cover the
taxpayer’s bill, the difference must be paid by the usual payment deadline.
The similarity between the two plans is that provided the agreement is adhered to, no
interest and penalties will be due on any tax paid after the normal due date. Payment plans
can be entered into for income tax, Capital Gains Tax, or corporation tax. The difference
between the ‘BPP’ and ‘TTP’ arrangements is that the ‘Budget’ plan is for future tax
payments whereas ‘TTP’ plans are for tax already due.
Under HMRC’s initiative ‘Making Tax Digital’ they are looking to take the ‘Budget plan’ one
step further intending to bring the tax calculation closer to the point where the income or
profit arises. HMRC believes that submitting quarterly reports will enable the taxpayer to
‘budget’ for their future tax bill more effectively as the calculation will be based on the
taxpayer’s current year position using, where possible, up to-date data.
MTD reforms announced so far do not change payment dates or amounts and HMRC has
said that more regular reporting under MTD need not lead to more frequent payments being
forced on the taxpayer. Rather, HMRC believes that taxpayers will be able to estimate their
tax liability for the year based on updated information and as such, this will prepare the
taxpayer for future payments, leading to reductions in tax debt collection.

However, it is clear from various consultation papers issued by HMRC that their preference
for the future will be for all taxpayers to use a variation of the ‘Budget’ scheme and make
monthly payments on account of the calculation of the final tax liability. Their reasoning is
that they are aware that the current payment timings can cause difficulties for some
taxpayers coming into self assessment for the first time – particularly for the newly self-
employed and new landlords. Many self employed are unaware that (depending upon the
choice of year end) the first tax bill could be up to 22 months after commencement of trading
and this can lead to taxpayers getting into debt which impacts on HMRC as additional cost
for collection.
Currently the ‘Budget’ scheme allows the taxpayer to be flexible in their payments. There is
no set amount to pay and many of those taxpayers who use the scheme do so in a similar
guise as putting money aside in a separate bank account (although the ‘downside’ is no
interest and once the payment is made it cannot be clawed back). HMRC believes that
making monthly payments mandatory will lead to surety not only for the taxpayer but will also
mean more certainty for the governments’ cash flow.

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