Ambitious plans for faster UK tax payments
The government may be over-ambitious in some of its plans to speed up collection of tax revenues, writes Donald Drysdale.
The Chancellor’s agenda
Recent days have provided time to ruminate on the contents of last week’s Autumn Statement and the plethora of ways the government is looking for help in balancing its books by getting taxes paid sooner. Swifter collection of taxes must be in the collective public interest, but many taxpayers and practitioners will have justifiable concerns.
From April 2017, quarterly instalments of corporation tax will be brought forward four months for the largest companies and groups – those with annual taxable profits of £20m or more. They’ll face more rigorous forecasting requirements, adverse cash flow impacts, and run greater risk of incurring interest and penalties.
Companies with taxable profits of £1.5m or less will still pay corporation tax nine months after the year end, while those with taxable profits between £1.5m and £20m will stay with the existing rules for quarterly instalments. Three different sets of rules will bring unwelcome complexity.
Non-resident capital gains tax (NRCGT)
Since April 2015, non-resident capital gains tax (NRCGT) has been charged on gains on disposal of UK residential property by non-UK residents, including closely held companies. The taxpayer must normally pay the tax (or a withholding tax) within 30 days after completion of the transaction.
Residential property disposals
On any taxable disposal of residential property from April 2019, a payment on account of capital gains tax (CGT) will be required within 30 days of completion. The government says this will align CGT more closely with other taxes, and reduce instances where a taxpayer forgets to pay or no longer has enough of the proceeds to cover the tax charge.
The proposed 30-day window seems unreasonably short to allow a gain to be computed with appropriate care, particularly where time may be needed to ascertain the original cost (perhaps many years previously) and intervening enhancement expenditure. Some CGT calculations also rely on valuations, which may take time to obtain.
There’s no indication how capital losses from other transactions (before or after the residential disposal) might be taken into account. In any event the tight payment deadline is likely to place unfair burdens on taxpayers, some of whom may be vulnerable individuals.
What about other CGT?
It’s unclear what would prevent the government from seeking to apply the same 30-day payment timescale to other gains such as those on stock exchange transactions, where detailed audit trails of transactions are often available from stockbrokers or investment managers. Similar issues would arise, about how gains could be computed in the tight time allowed, and how capital losses might be taken into account.
Stamp duty land tax (SDLT)
The government will consult in 2016 on changes to the SDLT compliance process, including reducing the payment deadline from 30 days to 14 days from 2017/18 onwards. Since this tax is usually based on the purchase price and accounted for by solicitors acting for the buyer, the tighter deadline is unlikely to cause many difficulties. However, there will be cases where valuations are required and the tighter deadline might prove problematic.
By 2020 most businesses, self-employed people and landlords will be required to keep track of their tax affairs online and update HMRC at least quarterly via their digital tax accounts. The government suggests that small businesses will be able to manage their tax through a digital account linked to business software. There is no current obligation to maintain business records electronically, and to introduce such a requirement would impose heavy burdens and costs on many small businesses.
An assurance from HMRC that free apps and software will be available to link securely to their systems should be taken with a pinch of salt, given their disappointing track record in implementing the massive iXBRL and RTI projects (for corporation tax online filing and payroll processing respectively) without adequate design and testing. There should also be concerns about the inability of many taxpayers (and even some tax agents) to maintain acceptable levels of online security.
Aligning tax payment dates
The government will consult on options to simplify the payment of taxes, including whether to align payment dates and bring them closer to the point when profits arise. Any move to align payment dates would inevitably involve moving to an earliest justifiable date so could be bad news for taxpayers. The suggestion that taxpayers might have to make regular tax payments could mean granting direct debits in favour of HMRC – which cautious taxpayers might be reluctant to do.
From 2016/17 the government plans to enable a new, simpler process for self-assessment taxpayers to pay their tax. Taxpayers will be sent a calculation which will be a legally enforceable demand for payment. It is unclear whether this will involve any acceleration of tax payment dates.
Accelerated payment notices
There has been much publicity recently about HMRC’s powers to issue follower notices and accelerated payment notices, the purpose of which is to secure early payment of tax from users of certain tax avoidance schemes. The principle behind these seems sound, but it is still early days to assess whether HMRC are using their new powers appropriately in every case.
'A modern and fairer tax system'
We are told that digital tax accounts will be simple and secure, removing the need for annual tax returns and giving taxpayers a more convenient real-time view of their tax affairs, and providing them with greater certainty about the tax they owe. If these come with an obligation on individuals to update HMRC at least quarterly, they seem to be replacing annual returns with (in effect) quarterly online returns.
It’s hard to avoid the conclusion that the government’s underlying agenda is to accelerate the collection of taxes, with insufficient regard to the added burdens that will be placed on taxpayers. While these changes are taking place, the ICAS tax team continues to represent members’ interests with HMRC and is meeting regularly with them to discuss the progress of moving towards digital tax accounts, as set out in 'Making Tax Easier' published in March 2015.
Article supplied by Taxing Words Ltd