Prime Accountants say good record keeping will be essential to proposed changes to tax payments

West Midlands-based accountants, Prime, have offered their unique insight into newly proposed changes to Income Tax Self-Assessment (ITSA) payments, which could be implemented in the next few years.

Millions of ITSA taxpayers could be required to pay their tax bill in regular instalments during the tax year, rather than annually, under a new proposal that has been set out by the Government.

Paislei Godley, a Director at Prime Accountants, said: “People are likely to be cautious about the change, as they’re so used to the current regime for settling their tax bill.

“Many self-assessment taxpayers do not respond well to change, as we have seen with MTD (Making Tax Digital), and this is another step that will shake up the system.

“For many, the key concern will be making more regular payments, especially in the initial transition period.”

The first change concerns ITSA taxpayers with a PAYE source of income. These taxpayers would have more of their ITSA liabilities taken throughout the year via their tax code in 12 monthly instalments.

The second change covers taxpayers who make payments on account. The Government is exploring a move from the current twice-yearly payments to monthly or quarterly instalments.

The current £1,000 threshold that determines who needs to make payments on account could also be reduced, pulling more taxpayers into the system.

Paislei said: “The biggest issue for people is that it will create cash flow problems, particularly for those who have fluctuating income.

“When you have got people in trades that have busy months and slower months, the constant changes in payments will inevitably cause problems. For those taxpayers, I don’t think this will go down well.”

The Government has stated that these changes, which may be introduced in 2029 if the proposal goes ahead, aim to reduce the number of people who are falling into tax debt.

They note that one in five ITSA payments is currently being paid late. However, the move will also be another step that will help to close the tax gap – the difference between what the Government is paid in tax and what it is owed.

Paislei said: “There has been a real emphasis on the taxpayer having the right records since the introduction of MTD.

“The more people who are reporting their MTD correctly, the easier the transition will be, as taxes are already being reported quarterly. This just means paying them at the same time.”

While this is still in the consultation phase, it is widely believed that this will more than likely happen due to the direction of travel that tax is heading in.

Paislei said: “Obviously, there is going to be the beginning cash flow crunch where everybody is worrying.

“However, once people get into a routine, they will just get used to doing a submission and then making a payment.

“With the emphasis on digital record keeping coming first, this is the key thing that taxpayers can do now to be prepared. Having a clearer picture of your finances now by going digital will mean less of a shock in the future.

The Government is yet to confirm the penalties associated with late payments of tax under this new system, but it is widely believed that it will follow the penalty point system already used for VAT.

“There is a lot more detail to come out yet, but self-assessment taxpayers should carefully monitor the situation once the consultation closes next month and seek help once the plans are confirmed.”