Employees pay their taxes immediately through PAYE i.e. “in tax year” and then additional taxes may be paid on other taxes for rental income, dividends and interest earned via self assessment tax returns after the end of the tax year. The same position sist for people only being able to reclaim higher rate tax relief on pensions when self assessment is completed. More recently, capital gains tax has been brought into line with taxes payable within 30 days.
The Treasury is now looking to reform the tax administration framework for self employed, company directors and smaller limited companies.
Self Employed and Company Directors (drawing mainly dividends as income) in the current tax year 2020/21 will have only just paid their Payment on Account in January 2021, with a second payment of account due in July 2021 and any final tax balances not due until 31st January 2022. That is nearly 10 months after the end of the tax year in April 2021. In short, taxes are not paid “in tax year”.
Limited companies too must settle their corporation tax bills 9 months after company year end.
HMRC wants to explore how it can amend the tax administration framework to collect taxes earlier and “in tax year” as well simplify the position for those claiming tax relief as well as resolving the anomaly where Lower Earners paying into company pension schemes on a ‘net pay’ arrangement i.e. pension contribution before taxation is applied, not technically getting any tax relief at all as they are none tax paying, low earners anyway.
We suggest the whole reason behind the government setting up Personal Tax Accounts online is just the start of us all filing, albeit an automated, monthly or quarterly tax return.