Wave goodbye to that tax-return headacheby
’Tis the season to be grumpy but, instead of joining in with the usual busy-season laments, Philip Fisher has a practical long-term solution.
It seems fair to assume that you are sick of reading the annual article lambasting those who torture themselves every January, as the tax-return deadline inexorably approaches. I’m certainly sick of writing them.
So here is the one-minute version ahead of something more interesting. Basically, grounded, efficient accountants find January perfectly manageable. The problem for others results from a combination of lazy clients, lazy staff and lazy partners or, to put it a little more politely, inertia.
Every year, accountants threaten clients who fail to send in tax return information by a sensible deadline but then kowtow to those who are dilatory, pulling their hair out to complete returns delivered during the last week of January, rather than disappointing clients who should have been sacked long ago.
The obvious answer is either to charge a premium rate or file late and let troublemakers pay penalties. However, when it comes to the crunch, most of us are too weak to fulfil these threats.
Sometimes it is worth stopping to wonder why we all put up with this nightmare every year. It is only necessary because all self-assessment tax returns have a deadline of 31 January. But why?
In the age of technology, you would think that it is perfectly feasible to roll tax deadlines around the year, perhaps based on someone’s surname initial or maybe the last couple of digits of his or her unique taxpayer reference.
If there were 12 separate monthly filing deadlines, this would make our lives far more comfortable. Staffing would be much easier, with fewer quiet periods and no need to recruit expensive temps in the months leading up to the end of January.
You might also imagine that HMRC could operate more efficiently, if its officers no longer had to deal with receiving the bulk of tax returns in a one-to-two-month period.
HMRC and the Exchequer could also benefit considerably in other ways, which become more obvious if you benchmark our process against the system in the United States.
Broadly, there are three primary triggers.
- The tax year.
- The filing deadline.
- The date(s) for paying taxes.
Even though it is somewhat random, to keep life simple let’s stick with 5 April for the end of the tax year.
US seal of approval
In the States, they operate on a calendar year but have a tax filing deadline of 15 April, although this can be extended. Like the UK, their headline payment deadline coincides with the filing date but ignores any extension.
This means that most Americans are obliged to pay their taxes 3½ months after the end of the tax year, while we Brits get 10 months give or take the rounding.
In both cases, there will be accelerations, for example where tax is collected at source through PAYE (in the UK) or in instalments.
Even so, given that government debt is currently running at almost 100% of GDP, you might have thought some bright spark at the Treasury would have worked out that by accelerating the tax collection deadline to the equivalent of the US, let us say the end of July, it will be possible to get a desperately needed six-month cashflow advantage on many billions of pounds.
It seems unlikely that anything much is going to happen on the tax administration front in 2024, given that the election will take up most of the energy of government ministers, whether campaigning, looking for future employment or trying to enact critical legislation that was promised long ago.
However, come 2025 perhaps Jeremy Hunt/Rachel Reeves might have some breathing space and consider a plan that could include:
- a relatively swift transition to 12-monthly tax return deadlines on one of the bases suggested above
- a standard tax payment period of four months
- interest charges and perhaps even heftier penalties for those who fail to meet their obligations.
This would make life easier for the profession and those at the Revenue, at the same time as contributing towards easing the national debt burden.
It could even be a prime example of “Making Tax Digital” in a manner that actually works and gets implemented in a reasonable timeframe.