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? – 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
Key points of Budget 2015: At-a-glance
George Osborne has delivered his sixth Budget as chancellor United Kingdom, and the last of the current Parliament. Here is a summary of the key announcements in his statement.
The state of the economy UK grew 2.6% in 2014, faster than any other advanced economy but lower than 3% predicted in December 2.5% growth forecast in 2015, up from 2.4% predicted in December, followed by 2.3%, 2.3%, 2.3% and 2.4% in the next four years Record employment in the UK, with jobless rate to fall to 5.3% this year Trade deficit figures "the best for 15 years" Living standards "higher" than in May 2010, according to OBR data, with households better off by an average of £900 in last five years Inflation projected to fall to 0.2% in 2015 Public borrowing/deficit/spending. Deficit halved since 2010 as a share of national income Borrowing set to fall from £97.5bn in 2013-14 to £90.2bn in 2014-15, £75.3bn in 2015-6, £39.4bn in 2016-7, £12.8bn in 2017-8 before reaching a £5.2bn surplus in 2018-9 Debt as a share of GDP to fall from 80.4% in 2014 to 80.2% in 2015-16 before falling in every year, reaching 71.6% in 2019-20 Additional £30bn savings needed in next Parliament Public spending squeeze to end a year earlier than planned in 2019-2020, with spending from then to grow in line with total economic growth.
Welfare bills set to be an average of £3bn lower each year than predicted in December, and interest charges on government gilts £35bn lower Sale of £13bn Northern Rock and Bradford & Bingley mortgage assets Pensions The lifetime allowance for pension savings that can be accumulated free of tax will be cut from £1.25m to £1m from April 2016, saving £600m annually Pensioners will be able to trade in their annuities for cash pots, with the 55% tax charge abolished and tax applied at the marginal rate Widows of police officers and firefighters who choose to marry again will have their existing pensions protected Alcohol, tobacco and gambling and fuel Beer duty cut by 1p a pint and cider by 2p. 2% cut in excise duty on scotch whisky and other spirits while wine duty frozen No changes to tobacco and gambling taxes, with tobacco duties set to rise by 2% above inflation, equivalent to 16p on a packet of 20 cigarettes. New "horse racing betting right" to replace the 50-year old horserace betting levy on British bookmakers Petrol duty frozen - September's planned increase cancelled Personal taxation The tax-free personal allowance to rise from £10,600 in 2015-6 to £10,800 in 2016-7 and £11,000 in 2017-8 The threshold at which people start paying 40p income tax to rise by above inflation from £42,385 in 2014-5 to £43,300 in 2017-8 Annual paper tax returns to be abolished, replaced by digital accounts. Transferable tax allowance for married couples to rise to £1,100 Class two national insurance contributions for self-employed to be abolished in next Parliament Review of inheritance tax avoidance through "deeds of variation" Savings New personal savings allowance - first £1,000 interest on savings income to be tax-free for basic rate taxpayers and £500 allowance for 40p tax ratepayers.
Annual savings limit for ISAs increased to £15,240 "Fully flexible" ISA will allow savers to withdraw money and put it back later in the year without losing any of their tax-free allowance New "Help to Buy" ISA for first-time buyers will allow government to top up by £50 every £200 saved for a deposit Armed forces A further £75m from Libor fines to go to charities for regiments which fought in Afghanistan and government to contribute towards permanent memorial to those who died in Afghanistan and Iraq and help renovate Battle of Britain memorials £25m to support army veterans, including nuclear test veterans Business Tax on "diverted profits" to come into effect next month, aimed at multinational firms moving profits "artificially offshore" Annual bank levy to rise to 0.21%, raising an extra £900m. Banks to be barred from deducting compensation for mis-selling from corporation tax Supplementary charge on North Sea oil producers to be cut from 30% to 20%while petroleum revenue tax to fall from 50% to 35%. New tax allowance to encourage investment in North Sea
Review of business rates Automatic gift aid limit for charities to be extended to £8,000 Farmers allowed to average incomes for tax purposes over five years New tax credit for orchestras and consultation on tax relief for local newspapers Health and education Consultation on proposal to offer loans of up to £25,000 for UK students studying for PhDs and research-based master's degrees. Mental health services to get £1.25bn in extra funding Housing/infrastructure/transport/regions £15m church repair roof fund to be trebled Up to £600m to clear new spectrum bands for auction to improve mobile networks: commitment to deliver ultra-fast broadband to all homes New powers for Mayor of London over skills and planning
End-of-year paper tax returns will be scrapped in favour of "real-time" online accounts by 2020, Chancellor George Osborne announced. The Budget confirmed plans to switch to "digital tax accounts" by 2020, ending the annual rush to file a tax return. Instead, individuals and small businesses will submit accounts throughout the year via computer, tablet or smartphone. Mr Osborne called it "a revolutionary simplification of tax collection". People will be able to pay their tax at any point throughout the year. Jump media player Media player help Out of media player. Press enter to return or tab to continue. Media captionThe chancellor announces the end of the "complex, costly and time consuming" annual tax return. They will also be able to spread the cost by paying in instalments.
Taxpayers will be given a login and password so they can submit tax information regularly, making tax bills more closely related to current performance. The online accounts will show how your tax is calculated, as HM Revenue & Customs also updates information available to it - for example, from employers, pension providers and banks. Businesses and individuals will be able to link their own accounting software and their bank accounts to the digital tax account, removing the need to submit an end-of-year return and paying an annual tax bill in one go. The switch is expected to start with five million small businesses and the first 10 million individuals in early 2016. By 2020, businesses should be able to link their accounting software to their digital tax account, so they can feed in information directly. People who wish to continue filing an annual paper return will be able to do so.