The government doesn’t really want to deal with your tax affairs (though it still wants you to pay the tax!). It would far rather you did everything yourself without any HMRC intervention. Put bluntly that is what digital tax accounts are all about. The problem is that the system is so complex that designing a simple digital account is proving very difficult. So simplification is high on the agenda.
One announcement to be welcomed was the decision to put the Office of Tax Simplification onto a permanent footing with additional resources. But other changes are also linked to the digital account. Take dividends. The Chancellor appears to have done something complicated with dividends. He has increased the tax rates but at the same time introduced a £5,000 annual tax-free allowance. Despite the new allowance, the tax yield on dividends is projected to go up by some £2.3bn next year. What is going on here? I think that digital tax accounts are behind this. Think about the admin burden for both taxpayers and HMRC in dealing with taxpayers who have a small share portfolio of a dozen shares producing total dividends of £4,000. The taxpayer, the agent if there is one and HMRC all have to check the return and process the relevant entries. A lot of work for not much tax. So the £5,000 limit is not really about being generous to taxpayers – it is about taking a lot of admin out of the system.
For high earners with more complex affairs digital accounts will inevitably be more complex and probably will look much like existing tax returns. So the additional tax on dividend income will probably not create much extra admin burden – it will simply bring in more money!
We saw the same sort of thing in the March Budget with small amounts of bank interest. We really are beginning to see the start of fundamental change in the way that tax compliance works in the UK.