Imagine that your customers paid you twice a year, in January and July. Let’s say that your accounts year is 31 March, and for the year ending 31 March 2018 you received 50% of your monies owed for this year in January 2018 and 50% July 2018 BUT based on the sales for the previous year to 31 March 2017.
You won’t need a calculator to see that you are offering an awful lot of credit to your customers.
And there are additional complications. What if your sales to a customer are increasing year on year? If you received your invoiced sales for 2017-18 based on the previous year’s results the cash, you will have received by July 2018 will leave considerable balances owing.
Readers familiar with self-assessment will spot the none to subtle analogy. Surely the Treasury has crunched the numbers and come up with compelling reasons to have self-assessment tax payers cough up their dues in real time, not months in arrears. A sure-fire way to top up Revenue coffers in these difficult times.
And of course, they have the perfect vehicle to do this, Making Tax Digital (MTD).
In the early days, HMRC mooted the notion that once business customers were uploading data on a quarterly basis, that they might like to make voluntary payments on account of the real time (albeit estimated) liabilities – Pay As You Go (PAYG) was born.
It is a short step from this proposed voluntary arrangement to legislation that makes the quarterly payments – based on real data – mandatory.