The CIOT has responded to HMRC’s consultation on timely payment of tax, which seeks views on moving to more frequent calculation and payment based on current year information, saying it remains ‘unconvinced of the overall benefits to taxpayers’.
‘It is our strong view, that a move to tax liabilities based on in-year calculations could only work if the tax system was fundamentally reformed first,’ the institute said. ‘At the moment, calculations based on an up-to-date view of the in-year tax position seem highly aspirational. This is because the UK’s tax system does not work in real time, it works in arrears.
The CIOT warned that, if payment of tax is to be based more in real time, ‘there needs to be a fundamentally different basis of determining tax liabilities in real time’. It recommends:
Any decisions on timely payment should only be taken after Making Tax Digital for income tax self-assessment (ITSA), and potentially basis period reform and changing the date of the end of the tax year, together with any changes resulting from the tax administration framework consultation, have been implemented and given time to settle down.
Considering that tax is calculated on annual income, profits or gains, which in most cases can only be worked out after the tax year has ended, if payment of tax is to be based more in real time, there needs to be a fundamentally different basis of determining tax liabilities in real time. In other words, taxing liabilities based on in-year calculations would only work if the tax system were to be reformed first.
More frequent payments based on a taxpayer’s previous year liabilities (accelerating or spreading the current ITSA payments on account) seems to be the most straightforward way of increasing the frequency of tax payments and presents the fewest complications.
More frequent payments of tax will likely lead to more adjustments at year end, putting even greater importance on repayments and HMRC will need to ensure the processes around repayments are effective. With tax payments based on in-year calculations, in-year repayments will also be essential.
Further work should be undertaken to understand the policy aims of timely payments and, in particular, the drivers of tax debt. Alternatives to timely payment (including voluntary options) should be explored to address some of the challenges that taxpayers face with regard to meeting their tax liabilities.
In terms of general timings, the CIOT welcomes the confirmation that there is no intention to make any significant changes to the timing of income tax or corporation tax payments within the present parliament.
The CIOT has responded to HMRC’s consultation on timely payment of tax, which seeks views on moving to more frequent calculation and payment based on current year information, saying it remains ‘unconvinced of the overall benefits to taxpayers’.
‘It is our strong view, that a move to tax liabilities based on in-year calculations could only work if the tax system was fundamentally reformed first,’ the institute said. ‘At the moment, calculations based on an up-to-date view of the in-year tax position seem highly aspirational. This is because the UK’s tax system does not work in real time, it works in arrears.
The CIOT warned that, if payment of tax is to be based more in real time, ‘there needs to be a fundamentally different basis of determining tax liabilities in real time’. It recommends:
Any decisions on timely payment should only be taken after Making Tax Digital for income tax self-assessment (ITSA), and potentially basis period reform and changing the date of the end of the tax year, together with any changes resulting from the tax administration framework consultation, have been implemented and given time to settle down.
Considering that tax is calculated on annual income, profits or gains, which in most cases can only be worked out after the tax year has ended, if payment of tax is to be based more in real time, there needs to be a fundamentally different basis of determining tax liabilities in real time. In other words, taxing liabilities based on in-year calculations would only work if the tax system were to be reformed first.
More frequent payments based on a taxpayer’s previous year liabilities (accelerating or spreading the current ITSA payments on account) seems to be the most straightforward way of increasing the frequency of tax payments and presents the fewest complications.
More frequent payments of tax will likely lead to more adjustments at year end, putting even greater importance on repayments and HMRC will need to ensure the processes around repayments are effective. With tax payments based on in-year calculations, in-year repayments will also be essential.
Further work should be undertaken to understand the policy aims of timely payments and, in particular, the drivers of tax debt. Alternatives to timely payment (including voluntary options) should be explored to address some of the challenges that taxpayers face with regard to meeting their tax liabilities.
In terms of general timings, the CIOT welcomes the confirmation that there is no intention to make any significant changes to the timing of income tax or corporation tax payments within the present parliament.
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