Just a thought...

If nothing else, the enforced lockdown has provided plenty of time to think about the future of the income tax system. I understand why there is an ever increasing move to doing things digitally, but I am concerned that that matters are moving too fast. I suspect that some tax and accountancy practices may not be well equipped for the future because their clients are not skilled in dealing with the paperless bookkeeping systems which will become the norm under the requirements of making tax digital (MTD). The talents of those clients will lie elsewhere – their priorities are generating income to support themselves and their families; they do not work for HMRC. Yes, it is a bit of a struggle to persuade them to keep good paper records, but they do manage it. Why should they have to change the way that they do things? I think we are at least ten years away from the time when such clients would be ready for a ‘digital only’ way of doing things.

Part-time earnings

There is a pensioner whose annual self-assessment tax return I prepare as a favour for a friend. He carries out garden maintenance on a somewhat irregular basis – earning about £10,000 a year and incurring a few expenses. He will have significant difficulty fitting into MTD if it is imposed on him. He has my assistance, so I expect him to cope, but it does occur to me that such pressures might move others towards just doing a less work and operating purely on a cash basis. On the other hand, SMEs and bigger businesses will not want to reduce their customers, workload and income and will have to comply with MTD. The tax system really needs to still include the facility to report relatively small amounts of self-employed or ‘casual’ income on an annual basis.

Quarterly reporting

Continuing on the subject of MTD, one thing that struck me was that if reports have to be made on a quarterly basis, what is the big deal with annual anything – tax-free allowances, basic rate bands and the like? Further, with the drift towards taxes being due on income from internet-based services which happen in the ether, how do we pin down where that income was generated and prevent people from ‘offshoring’ profits as the tech giants do?

I fear the consequence that we may be moving towards more indirect taxation on transactions because these are easier to identify. But this, in turn, starts to undermine the whole concept of progressive taxation. In his March 2015 Budget speech, the chancellor, George Osborne, said: ‘We will abolish the annual tax return altogether.’ He added that information required by HMRC could be uploaded automatically to new digital tax accounts and there were even questions about the basis of calculating income tax liabilities. But if that were also to move to, say, a quarterly basis, how would it be possible to collect a higher rate of tax from people in 2022 quarter 1 when they had a fat profit, and balance this with their loss in quarter 2 if they are in different tax calculations?

To continue to generate higher taxation revenues from high-earning taxpayers is going to be a challenge. Systems may be developed which accumulate the results from recent quarters to ascertain whether extra tax needs to be collected, but they are not going to be simple and there will always be those who seek to manipulate income and expenditure on the edges of accounting periods (whether quarterly, monthly or annual). It may have to be a choice between fair and simple. Perhaps the answer is to make everyone a basic or flat rate taxpayer, increase indirect taxes and then bring in a wealth tax so richer folk pay more tax either through spending or saving.

Perhaps this could be the basis for another promise in the 2015 Budget speech: ‘A revolutionary simplification of tax collection. Starting next year.’ Might this have received universal acclaim because as Mr Osborne added: ‘Because we believe people should be working for themselves, not working for the tax man.’

Conclusion

We live in interesting and challenging times. I loved my job, and still enjoy the buzz of dealing with clients, but I feel very relieved not to have responsibility for managing the transition of an accountancy practice into MTD or indeed cajoling their clients to do the same. Dealing with the aftermath of all of the various coronavirus job support schemes is going to be hard enough, without also having to get people to think about changing the way they deal with their taxes. I am sad to have to say it, but I am glad to be out of the front line. I suspect I may not be the only one. 

Issue: 4772 / Categories: Forum & Feedback