More timely tax demands could cause challenges for professional partnerships, warns BDO
More timely tax demands could cause challenges for professional partnerships, warns BDO
HMRC’s proposals to demand more timely payments from Self-Assessment taxpayers could create particular challenges for partnerships, BDO’s professional services and partnership tax team has warned.
BDO supports the objective of helping taxpayers manage liabilities and reduce the build-up of tax debt. However, BDO believes further consultation is needed to ensure any new system works fairly across different types of taxpayers and business structure.
Currently, most Self-Assessment taxpayers are required to make two payments on account every year on 31 January and 31 July.
HMRC’s consultation on more timely payments in Income Tax Self Assessment, which closes today (4 August 2026), examines options for reform which could involve more frequent payment cycles – potentially monthly or quarterly.
BDO has highlighted a number of potential challenges for professional partnerships, notably that tax may fall due before cash is received due to lock-up cycles – and indeed, before a firm has distributed profits to individual partners.
Similarly, for carried interest holders, such as private equity or venture capital executives, tax may fall due prior to the carry proceeds being distributed to the individual.
In its response to the consultation, BDO has also highlighted potential problems with relying on prior year data to determine in-year payments, as well as there being only limited clarity over how a reformed system would operate in the first year of any new system being introduced.
Debbie Knowles, Tax Partner in Professional Services at BDO said:
“A large population of individuals affected by a reform of direct payments on account will be partners in partnerships. Many partners will often have ‘lock-up’ – income that is generated long before it is billed and payment received from clients.
“Our research suggests that lock-up in large law firms in the UK is approximately 120 days meaning that monthly payment demands would result in tax being due long before profits were realised and distributed.
“Any change to the rules is also likely to lead to a significant increase in the compliance burden for professional partnership businesses.
“Given these proposals are not due to be introduced until April 2029, we believe a longer consultation period than the six weeks given would have helped. This is an important change with significant implications for the professional services sector.
“We would urge the Government to consult further with the industry to ensure these proposals are workable and won't impose undue cashflow pressures and compliance burdens on both professional partnerships and individuals.”
ENDS
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