Millions of people could be facing earlier tax payments as the government considers bringing payments “closer to real time” during the next parliament.
As part of the government’s 10-year strategy to build a “trusted, modern tax administration system”, the government said the call for evidence is the “start of a conversation” about the benefits and challenges of the current tax payment timings, and for moving to more frequent, in-year tax calculation and payment.
It focuses on Income Tax Self Assessment and Corporation Tax for companies outside the quarterly instalment regime, but welcomes feedback on other taxes.
It added the call for evidence is of interest to everyone paying Income Tax and National Insurance contributions outside existing regular payment regimes (such as Pay as You Earn) and those in Corporation Tax Self Assessment who are not within the quarterly instalment payment regime.
It comes as HMRC launched a consultation on bringing the payment of income tax and corporation tax closer to the point when the income arises as part of its wider “tax day” documents released yesterday (23 March).
In the consultation financial secretary Jesse Norman said: “The delays that are at present inherent in the UK tax system can make it hard for people to manage their cash flow, particularly for the newly self-employed, whose first tax bill could be up to 22 months after they start trading.
“They can thus lead to taxpayers getting into debt, which causes stress and difficulties for them, creates additional cost for HM Revenue and Customs to manage, and contributes to the non-payment tax gap, taking away revenues needed to support public services.”
He added that many countries are already operating with, or considering the introduction of, modern, digital tax regimes that bring tax payment closer to earning the income, and it is important “the UK keeps pace”.
However, in the consultation the government recognises that alteration to the timing of tax payments would be a “major change”. It also recognises that many businesses are struggling at the moment due to the economic impact of the coronavirus outbreak.
For that reason, Norman revealed that it has no intention to make significant changes to the timing of Income Tax or Corporation Tax payments “within the present parliament”.
“If change happens it will be reforming and not revolutionary: gradual, structured over the longer term, and carried out in close collaboration with stakeholders,” Norman concluded.