Say goodbye to busy season: New approaches to tax
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John Stokdyk sadly passed away in June 2023. He had been with the site since 1999, rising from news editor to editor in chief, global editor and head of insight. As a roving editor, he investigated the profession's use of technology around the world. He devoted his spare time to technology history and an oddball collection of stringed...
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Can you imagine
Accountants with 200-300 clients doing quarterly accounts. It's just not practical and I cannot see how it can work. This is another GO ................... The quicker he goes the better.
spread the workload....
yes there will effectively be 3 'januarys' per year...and one 'mop up' January which is worse than the others....
I await the magic software that will appropriately allocate expense/income work out what is capital or not, and use the new 'intel' chip called 'crystal ball' to populate the records with any cash payments or receipts and appropriate private use/use of home etc.
Why not adopt the US model?
In the USA a tax payer files his/her annual tax return, and at the same time estimates the tax due for the next year which is paid quarterly. This estimate is based upon the expected tax payable for the coming year and not the last year's bill (as is the case in the UK). If the estimated amount is lower than what should be paid, subject to some exceptions, there is a penalty plus interest charged on the amount under paid.
Adopting the US methodology would mean that we stick with one tax return (it is daft to try and do more) but the exchequer gets its tax earlier.
@ccaspell
We already have that facility. Although the figures are based on the previous year profit we have the facility to alter that figure. When you pay your tax is up to you as long as it's paid by the 31st Jan. It would appear that HMRC are replacing that flexibility with compliantly fixed payments.
@JohnJenkins
I think the UK system is fundamentally different as here it is based upon what happened last year as opposed to what is going to happen next year. The PoA system allows for a reduction to the tax payable (via a claim to reduce) but I have never heard it being used to increase the tax payable.
It seems to me that HMRC are looking to get the tax paid closer to the date the income/profit is earned (in a similar way to PAYE) which is understandable for a cash strapped exchequer. Using something similar to the system used in the US would mean the amount of tax paid in January should be smaller as four payments of estimated tax, with an allowed margin of error (such as 90% of the tax needs to be paid to mitigate the possibility of penalties, as they have in the US) would bring the tax into HMRC's coffers much quicker.
I am not saying this is necessarily the way we want to go, but it is surely better than requiring a business to 'file' four tax returns in the year which, I think, would be quite unmanageable for many small businesses.
Although I also have
never heard of a taxpayer paying more, the facility to do so is there. So is the facility to pay quarterly or monthly.
I cannot see how quarterly accounts can form the basis of a tax payment. Why should a taxpayer have to pay tax when saving for an Asset? The whole thing just doesn't make sense.
What are the legislators trying to achieve?
I think that ascertaining what the point of this suggested quarterly tax return is going to be is key to this question.
I can't imagine that HMRC really want all this information early without, in the future, them also wanting to receive the tax earlier. It makes no sense to roll out this additional level of reporting without gaining a benefit from having the information. HMRC don't have the resources to deal with the information that they have at their disposal already, let alone adding to it.
If bringing tax receipts forward is the reasoning behind implementing quarterly returns then I feel the same result might be achieved through a change to the PoA system and it wouldn't involve the expense and complexity of huge updates to the HMRC IT system.