Landlords and Self Employed PAYE On Way

Landlords and Self Employed PAYE On Way.

In yet another round of government consultations, HMRC has issued one in connection with the new digital tax system that looks set to be in place overall by 2020 but could affect landlords and self employed by as early as 2018.

What is PAYE?

Pay As You Earn is a system that has been in place for employees since 1944.  It is a system where income tax and national insurance social security contributions are deducted at the point of being paid i.e. taxed at source.  Your employer then forwards that same tax and national insurance contributions to HMRC by the 19^th of the next month.

Self-Assessment and Delayed Tax Payments for Self-Employed and Landlords

Landlords, Self Employed and Directors of firms that receive dividends live in a World where a tax return is completed by 31^st January in the year following end of tax year.  E.g. A self-employed person works from 6^th April 2016 to 5^th April 2017 and does not file a full tax return until 31^st January 2018.

This means a full tax settlement is not made until up to 21 months after the first income was earned way back in April 2016. There are some tax payments on account made in two instalments in January and July but this is still a slow process for government to collect its revenue.  The same principle applies for buy to let landlords with rental income profits.

HMRC New Pay As You Go Digital Tax System

In the proposed “phase 1” roll out of the new digital system, landlords and self-employed who earn more than £10,000pa will be encouraged “voluntarily” to use an online digital accounts system with HMRC and settle tax liabilities quarterly.

The plus points being tax revenue is collected quicker and even for the self-employed and landlords, they do not have the cloud of a large tax bill to be settled in over one year’s time.

The downside is that this creates an additional administration burden for small businesses to keep records up to date.

Comment

We think this makes perfect sense.  For years now, technology has been there to be able to export bank statements and import into digital accounts systems.  There is little barrier for most of us to keep our records up to date and we see this as simply British business and revenue collection moving forwards.  Why should a landlord, self-employed or any business be allowed to pay taxes due months and years after the trade year or tax year finished?

Many smaller businesses already have to keep their books up to date to file quarterly VAT returns, so we see nothing different in this, save of course a professional accountant doing your year-end books and making adjustments for expenses or other writing down allowances and capital allowances that you may not have been aware of.  We assume that if after professional adjustment, any over paid taxes will then be refunded as is normal with self-assessment for those employees already on PAYE.