More details are being released about the changes to tax administration, which are intended to ‘make tax digital’. Quarterly updating of HMRC’s digital records will be required for many self-employed and property investors, whilst simple tax account cases will be pre-populated and assessed without taxpayer input.
There are certainly attractions to these plans. We as advisers regularly have to phone HMRC to ask for a client’s earned income details, in order to enter them on a tax return, to then report them back to HMRC; which is undeniably absurd. If the technology works (and that in itself is a big ‘if’) it may make tax compliance much easier.
There are, however, concerns. The new system’s requirement for quarterly updating comes with accelerated tax payments. It requires a level of computer literacy from taxpayers, and also a comprehension of how tax works, to ensure that where a taxpayer updates entries for expenses, for instance, he/she only enters tax deductible expenses.
The need to make returns on a minimum quarterly basis is promoted as increasing control and reducing mistakes. However, one cannot help suspecting it will also multiply the time and money spent on compliance, so it may not be an improvement for small businesses at all.
How would it work?
HMRC has issued examples showing the benefits of the new system. They envisage a person with rental income and a sole trader, both of whom keep disorganised and delayed records, but immediately become well organised when given an App. We may or may not love Apps, but we are not convinced they will change human nature.
There is also an example of an elderly taxpayer who, fortunately, seems largely computer literate and equipped. Would that all taxpayers could say the same, but some will need support whilst others simply will not be able to comply, either due to lack of knowledge or lack of suitable equipment.
The examples advocate taxpayer use of a new HMRC 24 hour virtual assistant (Ask Ruth). We only hope this assistant will be available more reliably that HMRCs phone services are.
HMRC also promotes the closer connection between the time a taxable event occurs and the payment date as an advantage, yet in our experience, people rarely say 'I wish I could pay my tax earlier.'
Power to the people
We can only applaud the overall stated aim of these changes, to empower taxpayers and allow them more control of their tax position. However, tax is complex and it will be difficult to produce software which can allow people to know all of their options and rights, whilst still being easy to understand, and calculate their tax correctly.
The Government will be issuing consultation papers regarding these changes and it will be interesting to see what they ask, so we can get a clearer idea of the structuring and practical details of the system..