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Small businesses have said that they would like more flexibility in how they pay tax. Two schemes are currently available: certificates of tax deposit and the VAT annual accounting scheme.
Tax deposit certificates have some disadvantages. For example, the minimum initial payment is for £500 and additional deposits must be for £250 or more. The system is paper based so taxpayers have to write cheques. They can only be used for direct taxes, so are little used.
Small businesses have said that they would like more flexibility in how they pay tax. Two schemes are currently available: certificates of tax deposit and the VAT annual accounting scheme.
Tax deposit certificates have some disadvantages. For example, the minimum initial payment is for £500 and additional deposits must be for £250 or more. The system is paper based so taxpayers have to write cheques. They can only be used for direct taxes, so are little used.
HMRC would like to allow taxpayers to make flexible payments, but need to ensure that they pay enough to keep their tax up to date and protect the flow of funds to the Exchequer. Such payment options would be voluntary, so that businesses which are happy with current payment arrangements can stick with these.
A possible option for VAT and PAYE is to have similar budget plans to those for utility bills. Pre-arranged amounts could be paid each month based on the business's likely liability for the year and the actual position would be checked once a year.
With regard to income tax and corporation tax self assessment, taxpayers could pay a fixed amount over a period to meet a particular liability, spreading the amount over a number of months. In this way, businesses would be able to budget more easily for their tax payments.
To begin with, such plans would apply to specific taxes, but if they worked well, could be extended. They could perhaps cover all the tax a business has to pay, including PAYE, VAT and corporation tax, in a single monthly payment. They could also be adapted to help seasonal businesses.
The scheme would also have to consider what would happen if a business missed a payment.
Questions for consultation
To what extent should HMRC allow businesses to pay their tax more flexibly?
HMRC seek views on two possible models for flexible payment schemes. Are there alternative models which would be preferable?
What size of business should qualify for the scheme?
Should any scheme be able to cover all of a business's tax payments?
How should businesses which fail to keep up their payments be handled?
Should HMRC consider additional flexibility, such as variable payments?
