City law and accountancy firms face cash flow crunch in HMRC shake-up
City partnerships could be forced to take on expensive debt to fund their own partners’ tax bills after the government confirmed a major shake-up of HMRC’s self-assessment regime. As part of the Budget, Chancellor John Healey confirmed the government announced plans to introduce more timely payments for income tax self assessment (ITSA) from April 2029. [...]
The UK government has announced a significant overhaul of the HMRC's self-assessment regime, which could put city law and accountancy partnerships under financial strain. Chancellor John Healey revealed plans to introduce more frequent tax payments for those who file income tax via self-assessment, starting in April 2029. This shift aims to make tax collection more efficient, reduce late payments, and prevent taxpayers from falling into debt.
Currently, around 12 million self-assessment filers contribute £48 billion in income tax revenue to the UK economy annually. However, this move presents challenges for professional service firms, especially LLPs in law, accountancy, and consulting sectors. Nimesh Shah, CEO of Blick Rothenberg, warns that the government's objective of real-time tax collection could negatively impact business investment and profit distribution for these firms.
David Portman, a partner at Lubbock Fine, highlights that the cash flow crunch may worsen for professional service firms already grappling with rising operational costs. The Law Society opposes the proposed changes, arguing that they do not justify the potential impact on professional partnerships' financial management.
Tax experts argue that the shift from bi-annual to more regular payments could force firms to release reserves sooner, affecting capital, working capital, and partner remuneration. With the average lock-up period (the time it takes to convert billable work into cash) already a concern for British law firms at 134 days, the new tax regime will require firms to focus on faster invoice raising and collection.
The uncertainty surrounding the exact details of the 'regular' payment and future HMRC guidance has raised concerns that firms might face a "double-hit" cash squeeze, potentially resorting to credit facilities, overdrafts, or working capital loans to meet their obligations. While the government emphasizes that no one will owe more tax, the looming changes have prompted calls for a delay to allow firms to prepare adequately.
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