Digital tax plan goes quarterly
Morsels of information in the Autumn Statement report indicate that by 2020 individual taxpayers will be expected to report and pay their liabilities every quarter via their new digital tax accounts.
During his Autumn Statement speech the Chancellor promised an injection of £1.3bn to deliver “the most digitally advanced tax administration in the world” by 2020.
The new digital tax accounts (DTAs) will require most businesses, self-employed people and landlords to keep track of their tax affairs digitally and update HMRC "at least" quarterly. “This will give individuals and businesses a more convenient real-time view of their tax affairs, providing them with greater certainty about the tax they owe,” said Osborne in his speech.
But there was also a sting in the paperwork tail. The government stated it will consult on "whether to align payment dates and bring them closer to the point when profits arise, so that taxpayers make a single regular payment that covers all their tax affairs”.
The Chancellor did not offer much tangible detail on the digital tax account, but Xero UK managing director Gary Turner anticipated that a full plan would be announced early in the New Year. “The ambition is to have 10m DTAs live by next year. Which is pretty ambitious given that UK’s working population is just over 30m.”
The investment in HMRC’s digital strategy runs somewhat counter to an 18% cutback in departmental spending and other economies. But the two processes are interlinked, according to Steve Cox, IRIS’s director of product management. “The HMRC closures last week wouldn’t have come as a surprise to those who have been keeping an eye on what’s happening,” he said.
“The digital tax strategy is expensive. It’s a large part of why they’re doing the closures. They need cost savings. They’re looking to save £100m by 2025 with these office closures. It just shows how cost inefficient HMRC been. They’re playing catch up in many respects.”
According to Cox, software companies’ own customer support will increase in importance. While it won’t completely fill the gap left by a HMRC staff cuts, it will alleviate some of the hardship, said Cox. “We won’t give tax advice, of course, but we will be able to help you understand what you need to do to get it into the software when DTA eventually takes effect.”
Ed Molyneux, CEO of FreeAgent, took an optimistic view of the DTA initiative: “An enormous amount of friction can be removed from that process. We’ve been removing it on client side and now there's a mandate to do that on the HMRC side.
“It will take a lot of cost of compliance out of the economy. Very small businesses shoulder the burden of compliance - per employee it’s much more expensive than for large businesses.”
Osborne also said during his speech that capital gains tax on property will have to be paid within 30 days of disposal by 2019 via the online account. Quarterly reporting and accelerated CGT payments mean “the Chancellor wants us all to pay and to pay up faster", according to Chris Sanger, head of tax policy at EY.
“First we have capital gains tax for residential property (effectively buy-to-lets and second homes), who now have to pay almost 21 months earlier and now the government is looking at shortening the window for paying stamp duty from 30 days to 14. Following on from the Summer Budget’s advance of corporation tax, the Chancellor seems to have found a seam of gold that he wants to continue to develop.”