The UK Government's tax system has been called into question by self-employed individuals who are being required to pay half their tax liability for the next financial year 'on account'. This means that self-employed individuals must pay 50% of their anticipated tax bill by 31 January 2024, whereas salaried workers do not face this requirement.
According to HMRC, the 'on account' payment is an estimate of the tax an individual is likely to pay in the next financial year. However, self-employed individuals have expressed concerns that this system can lead to cash flow issues and increase borrowing costs.
Research by the Federation of Small Businesses (FSB) has shown that 71% of its members struggle to manage their cash flow, with 45% citing the 'on account' payment as a major contributor to these difficulties.
The FSB has called on the Government to review the 'on account' payment system, arguing that it is unfair to require self-employed individuals to pay half their tax in advance when salaried workers do not face the same requirement.
The UK's opposition parties have also weighed in on the issue, with the Labour Party calling for a more 'fair and flexible' system. The Liberal Democrats have expressed similar concerns, arguing that the 'on account' payment can 'hit small businesses hard'.