When the Budget was announced a couple of weeks ago, most of the attention naturally went to the headline-grabbing topics. The big stories like an extra 2% for landlords and savers, tax breaks for pensioners and the introduction of the new Founders’ Relief are what the next day’s headlines covered.
But buried in the detail was something that, for many small business owners, could affect day-to-day life more than some of the tax measures dominating the news. We covered this briefly in our Budget Blog. It’s about paying your tax sooner.
The Tax Bill Might Not Change. The Timing Could.
The Government has confirmed plans to move Self-Assessment taxpayers towards making more frequent tax payments, with a proposed start date of April 2029. On the face of it, that doesn’t sound particularly worrying.
After all, if you’re paying the same amount of tax, does it really matter whether it goes in January and July, or monthly throughout the year? Well, for many business owners, it absolutely does.
The reality is that cash flow often matters far more than profit. For years, business owners have become accustomed to working around the current tax system. The money stays in the business longer and helps fund growth, buy stock, replace equipment, cover payroll, or simply provide breathing room when times are uncertain.
Many businesses don’t deliberately set money aside and ignore it until the tax bill is due. That money is often working inside the business. So, while the tax itself may not increase, the time you have access to that money could shrink significantly.
There are generally two types of taxpayers. The first group puts money aside as they go. They know the tax bill is coming, so they gradually build up a pot and largely treat that money as if it already belongs to HMRC.
The second group use the timing difference as part of their cash flow strategy. That money might help buy stock, replace equipment, invest in marketing, recruit staff, cope with seasonal fluctuations or simply provide a financial cushion.
Neither approach is inherently wrong. Many successful businesses have operated this way for years. However, the second group is likely to feel the biggest impact. If tax starts leaving the business monthly or quarterly instead of sitting in the bank account for several months, that flexibility starts to disappear.
And that’s why this isn’t really a tax story at all. It’s a cash flow story. If you are in that second group, it’s now time to think about how you manage your cash flow moving forward.
Will the proposed changes go ahead?
Many SMEs, freelancers and tax professionals have already raised concerns about how these proposals might work in practice. And they’re not unreasonable questions.
- How will seasonal businesses cope?
- What happens if profits suddenly fall?
- How often will payments be recalculated?
- How much flexibility will there be?
To be honest, there isn’t much clarity right now. We know the proposed changes are intended to bring the tax payment date closer to when income is earned. By 2029, Making Tax Digital (MTD) will be in full swing, and as a landlord or self-employed individual, you will submit quarterly returns. It’s not hard to imagine the government asking you to pay tax based on the returns you submit, a little like your VAT Returns.
However, the worrying part is that in 2029 you will be due to make self-assessment payments under the old system in January and July 2029, while starting the new system in April 2029. That’s going to hurt your cash flow unless you have planned.
The government is still consulting on many practical details, so they may consider this issue. And let’s be honest, we’ve all seen Governments announce policies, rethink them, delay them, tweak them and occasionally abandon them altogether.
Could this proposal change? Possibly. Could it be delayed? Wouldn’t be the first time. Could it disappear entirely? Maybe. But if running a business teaches you anything, it’s that hope isn’t a strategy.
It’s usually better to understand what’s coming and prepare for it than to assume it will quietly go away. We are of course here to help you every step of the way. There isn’t much to add right now, but we’ll update you as we learn more.
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The Real Lesson Isn’t About Tax
Whether these plans arrive exactly as announced isn’t really the key issue. The bigger message is the direction of travel. Businesses are increasingly being expected to manage their finances in real time, rather than waiting until year-end.
That means understanding your cash flow, knowing roughly what tax you owe, keeping your accounts up to date and having access to accurate management information throughout the year. None of these is new ideas. They’re simply becoming more important.
Incidentally, if you are paying PAYE or VAT, you will need to pay these via direct debit at the same time as paying your self-assessment tax monthly. Another blow to those businesses using delaying tactics to fund working capital and cash flow.
What Should You Do Now?
There’s certainly no need to panic.
The proposals are still some way off, and there is likely to be further consultation and refinement before anything becomes reality. But there is a good opportunity to use this as a prompt.
Ask yourself:
- Do I have a good handle on my cash flow?
- Do I know what my tax bill is likely to be this year?
- How quickly can I get accurate figures for my business?
- Could my business cope if I needed to pay tax earlier?
If those questions make you slightly uncomfortable, you’re probably not alone. And perhaps that’s exactly why now is the right time to start thinking about them. Talk to your normal manager at Myers Clark to help you manage both your tax affairs and cash flow a little better.
Final Thoughts
Some Budget announcements create immediate winners and losers. Others quietly change the way businesses operate over time. This feels like one of those changes, although it’s not the first time we heard this idea.
The headlines may focus on tax rates, but many business owners may ultimately find that timing matters as much as the amount of tax they pay. Whether these proposals survive in their current form remains to be seen.
But one thing is becoming increasingly clear: the future will likely involve more frequent reporting, more frequent interaction with HMRC, and a greater need to understand your business finances throughout the year.
We are bookkeeping experts who help clients manage cash flow and work alongside you to ensure you and your business are thriving. Use us to help you. Call or email your normal manager today.
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