On 18 March 2015 HM Revenue & Customs (HMRC) published a policy paper titled ‘Making tax easier: The end of the tax return’ which set out, in broad terms, the plans being put in place to modernise the tax system. In the intervening year very few announcements have been made, but we will bring together here what is known and set out how Ward Goodman is looking to help its clients through the transition.
In short there is a lot of tax at stake which, under the current governments austerity push, requires collection in a more efficient manner than is perceived as being possible within the current system.
HMRC collected close to £515 billion in total tax receipts for the 2014/15 fiscal year, using around 58,000 staff operating out of 170 local offices to do so. Of the total tax receipts £280 billion came from Income Tax, Capital Gains Tax and National Insurance Contributions. Whilst most pay these ‘personal’ taxes directly to HMRC out of their monthly salary, those who do not have a monthly salary taxed under PAYE (such as the self employed) or have other income to declare (landlords, for example) must file an annual tax return under Self Assessment.
The introduction of Self Assessment some 20 years ago was the last big change to the tax system. It was introduced in the mid-nineties with the intention of making the calculation and collection of tax simpler for the tax payer. It also shifted the burden and cost of this from the then Inland Revenue to the tax payer. The most recent figures from HMRC show that for the 2014/15 tax year a total of 11.26 million Tax Returns were due to be filed of which 10.39 million were received on time. Of the filed Tax Returns 89% (9.24 million) were filed online with half of these (4.45 million) being received in January.
The proposed changes
HMRC has committed to saving £717 million every year through to the end of the current parliament. In order to deliver this HMRC have announced their intention to close the local offices and replace these with 13 regional centres, reduce the size of their workforce and invest £1.3 billion into making tax digital, which will include the ‘digital tax account’.
On 14 December 2015 HMRC published ‘Making tax digital’ setting out its roadmap for moving tax onto a digital platform. It is intended that by 2020 most businesses and individuals will have a personalised, digital tax account that should help reduce the burden of tax collection and calculation for the taxpayer by:-
Real time tax. Quarterly reporting will create more of a ‘real time’ basis for the calculation and payment of tax by individuals and business rather than the current annual filing and payment arrangement.
The creation of the digital tax account is already underway with basic versions due to become available for access to every individual taxpayer by April 2016.
The potential issues
Whilst there is support from many professionals for HMRC’s plan to modernise the tax system, there is also a wariness based on a history of poorly implemented changes and the lack of detail provided to date. It is understood that HMRC will be consulting more widely on the proposals during 2016, but until more detail is made available there are a number of concerns about making tax digital, including:-
Ward Goodman can help
Ward Goodman recognises the need to modernise the tax system and welcomes the drive to simplify the process for taxpayers. However, the next five years will be challenging for all involved whilst digital tax accounts are implemented and during this time Ward Goodman can help by:-
Consultations between HMRC, professional accountancy and tax bodies and other stakeholders get underway this year. The outcome of these consultations will begin answering some of the questions surrounding making tax digital, but may well raise more. During this period of uncertainty Ward Goodman can help you manage your business and tax affairs in the best way possible.