When the Chancellor announced the 'end of the annual tax return' in his Budget speech, many accountants who do tax compliance work may have been thinking 'this is the end of the world as we know it'. Most Budgets do not fundamentally change the nature of the work of a tax accountant - the last such occasion was probably the arrival of self assessment.
On Budget day, HMRC published a glossy nine page booklet here with the heading 'Making tax easier: the end of the tax return'. The replacement will be the 'digital tax account'. Details of the proposals are somewhat sketchy: the booklet contains quite a lot of pictures and not much text. Does the digital tax account mean the end of tax compliance work for the accountant? Lessons, perhaps, can be learnt from self assessment.
I have gone back to the Budget speech which heralded the introduction of self assessment, the Chancellor at that time (answers to which Budget and who was the Chancellor are at the end of this blog post) and he stated:
'As the House is aware, the Government have embarked on a major drive to reduce the burden of regulation on industry. I will therefore start with three significant measures of deregulation, which should be of particular benefit to the self-employed and to small businesses generally.' The first was self assessment and the second was the current year basis (CYB) of assessment for the self-employed and the abolition of the preceding year basis (PYB). A lot of you may not have experienced the delights of the PYB. For many accountants, trying to master PYB for their professional exams led them to stick to auditing.
The interesting quote from the then Chancellor was: 'But for self-assessment to work, the system has to be simple enough for taxpayers themselves to be able to fill in their own returns.' Did we see the self employed 'doing it for themselves'? No.
If we consider the potential impact of digital tax accounts for your tax clients, we may find there is a similar parallel to self assessment. More details are to be published about the use of digital tax accounts but, in order for the system to work, tax data needs to populate the taxable income fields in the digital tax account. So for the individual who is employed, HMRC can fill in employment data and savings income from UK bank accounts. But your clients are not these people. They are clients for whom details of business profits from unincorporated businesses, rental income from property businesses and dividends for director-shareholders, will have to be supplied. There is no new initiative to simplify the measurement of taxable profits.
There will, of course, be time limits for supplying this data, penalties for those who miss the time limit and penalties for 'careless' mistakes in the data.
So self assessment will still be with us. And who will be doing the work? (Answer below).
Final question for the diligent reader of this post. The Chancellor I quoted stated 'I will therefore start with three significant measures of deregulation'. So what was the third measure?
PS - Answers:
- Budget speech introducing self assessment - 1993
- Chancellor in 1993 - Norman Lamont
- Who will be doing the work - accountants
- The third deregulation measure - the issue of a consultative document setting out options for removal of the audit requirement for small incorporated businesses
This topic and other Budget 2015 announcements are covered in our Budget 2015 webinar.