One rule of thumb generally applies with tax returns: There are few simple ones, particularly where a business is concerned.
This makes the Government rush to give five million enterprises and 10 million taxpayers individual online accounts with Her Majesty’s Revenue & Customs (HMRC) by 2020 as likely to create burdens as remove them.
HMRC intends that by 2020 most businesses, including the self-employed and landlords, will be required to keep track of their tax affairs digitally and update them at least quarterly in their digital tax account.
Few would criticise the aim to create a focused, simpler, personalised tax service, or would wish to turn back the digital tide. The concerns are to do with timing and inherent complexity. Experience suggests that many businesses are simply not going to be equipped to prepare the information required digitally themselves, let alone quarterly, even if they have the necessary broadband speeds to do so (by no means certain) by the target date.
A recent Tax Faculty survey showed that just a quarter of businesses currently manage their accounts electronically using accounting software. Mandatory electronic record keeping will therefore need a significant change of uptake in online accounting packages.
The Government and HMRC also appear to underestimate the contribution already made by accountants and tax preparers to ensuring that accurate returns are submitted. A planned delay in giving professional advisers access to their clients’ accounts online is telling. Oversight? Perhaps. But it might be a sign that marginal importance is being attached to the role of tax advisers.
Unfortunately, a good idea can often come undone on a reality. In this case, the reality is that tax is a highly complex issue these days, with many regulations and exemptions, not to mention a Finance Bill every year moving the goalposts. For example, the ‘wear and tear’ allowance for buy-to-let has just been replaced, and the rules on pension contributions are constantly changing.
Few untrained people can keep up with the changes, let alone have the expertise to fill in a return accurately. It is hard not to agree with Andrew Tyrie MP, chair of the House of Commons Treasury Select Committee, when he suggested that digitisation will cause compliance costs to actually rise, not fall as Government ministers have suggested. It is not hard to see why. Many people will still need help from their accountants, but in future it will be four times a year rather than the just once. The alternative may be to place total trust in HMRC’s calculations on your behalf. That’s a big leap of faith.
There is also a question of what happens thereafter. It seems a small step to take from quarterly reporting to quarterly payments. This might, of course, be attractive to businesses and Government. But it would still represent a significant change and potentially extra effort/cost.
Clearly, digitisation of tax accounts is the way forward. But we should question the speed with which it is being rolled out, and the optimistic assumptions being made about how well taxpayers will adapt and what it will save.
A recent National Audit Office stated that for every pound saved by HMRC in reducing the cost of administering personal tax, the average increase in cost to taxpayers was £4.
The Government also needs to make sure the technology works properly, particularly given unhappy experiences with other state initiatives to roll out software reforms across vast sectors of the public economy. Recent departures from HMRC’ s digital team don’t inspire confidence. It would be a disaster if errors undermined public confidence in something as fundamental to our economy and to the wellbeing of individuals as their finances.
Accountants and tax planners must be encouraged to participate in how the detail is finalised, not just on behalf of their clients, but because of the knowledge they can bring to what will surely be an evolving, probably bumpy, introduction. The Government must also be prepared to allow its ambitious timetable to slip. A good start would be
For more information about Kreston Reeves’ tax planning or online accounting services, contact Bryan Elkins on 01403 253282
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