Businesses, sole traders and landlords who keep digital records would be able to budget towards their tax bills by having the facility to make voluntary payments on a PAYG basis in respect of expected IT, NIC and CGT liabilities from 1 April 2018. The method will also apply to VAT from April 2019 and CT for unincorporated businesses from 2020.

The facility to pay these taxes voluntarily as you go will not change the normal due dates for each tax liability, so the usual non-voluntary tax payments will still be due on their respective deadlines if the amounts are not already covered by voluntary payments.

HMRC will allocate each voluntary payment against any tax liabilities as they become due. The method of allocation will be clearly set out on the digital account to give an integrated picture across all of a customer’s taxes. This will prevent non-payment of a specific tax.

Smoothing out cash flow

It is hoped that PAYG will ensure there are no shocks or problems down the line, and could thereby improve cash flow and reduce exposure to late payment penalties and interest charges, particularly if repayments are able to be made earlier.

HMRC want to increase flexibility for its customers by allowing them to decide how often and what amount they want to pay at any time: choices which can be amended if needed.

Digital Account

They may also pay at the same time as they submit an update on their digital account, or more regularly by direct debit. HMRC wish to make sure that these regular sums will be clearly visible on a customer’s account and making any changes will be a simple process.

They aim to protect contributions towards benefit entitlements, ring fence sums for onward transmission (i.e. in relation to VAT) and review the appropriation order where more than one tax is due and payments made are insufficient to cover them all.
HMRC anticipates that there will be a digital facility to request a repayment of an unallocated voluntary payment if a customer’s circumstances change. However, a repayment may be restricted where a tax liability will shortly become due for payment. Comments are invited on whether this is a reasonable approach.

Security

Minimum/maximum payment limits may be needed for security, as well as anti-fraud and money laundering provisions, especially if a bank account is linked up to the digital account.

With regard to payments on account, HMRC envisage that the digital account would compare the estimated tax liability shown by the updates with the actual payments due, and recommend either making further payments or the option to reduce POAs.

They also wish for customers to be able to elect for overpaid credits to be held on their digital account as a voluntary tax payment rather than being repaid to the customer.

In this case, no overpayment interest would then be payable, but otherwise, current interest rules on under/overpayments will continue to apply, subject to the consultation responses.

Partners could see their estimated liabilities flow through from a partnership’s own account.

Third parties may make a payment on behalf of a customer using the correct reference, but repayment to a third party may be an issue.

Summary of Consultation Questions

• Question 1: Do you see any challenges with the voluntary payments process described? Do you think there are alternative options that should be considered, and if so, what are these?
• Question 2: Do you have any views or suggestions on the display of voluntary payments in the digital tax account?
• Question 3: Should there be a ‘period of grace’, and if so, what period would be appropriate to allow for separate payment of an amount becoming due?
• Question 4: Do you have any general comments to make on the allocation of voluntary payments?
• Question 5: Do you foresee any problems with HMRC’s intended approach to the allocation of voluntary payments?
• Question 6: What improper or inappropriate use of the repayment facility do you think there may be, and what rules do you think should be applied by HMRC to stop that happening?
• Question 7: Do you agree with a restriction on repayment shortly before a liability becomes due, and if so, what period or terms of restriction do you think should be put in place?
• Question 8: Do you have any views or evidence on whether, and how, HMRC should revisit the sums paid as payments on account to match more closely to the sums being reported under MTD?
• Question 9: Do you have any views or suggestions on customers’ ability to elect for overpayments to be held as voluntary credits?
• Question 10: What are your views on how voluntary payments might work for partnerships? Do you think partners will see the convenience of direct payment towards their total liabilities as outweighing a loss of a limited amount of confidentiality?
• Question 11: Do you think there are any special considerations that should apply to third party voluntary payments?
• Question 12: What additional processes or measures would make customers feel more confident about making voluntary payments?
• Question 13: Do you have any suggestions for the basis on which earlier repayments could be reasonably claimed?
• Question 14: Please tell us if you think there are any other costs or benefits not covered in the summary of impacts, including any detail you may have.

What do you think?

We will be responding to HMRC’s consultation and making representations on our clients behalf so please let us have your views by emailing MTD@goodmanjones.com.

Other areas covered by the consultation

This is only one part of the consultation. See summaries of the other areas here.