The end of the tax return – making tax easier

This is the name of the document published by the Government to give more information about the Budget announcement on the “death of the Tax Return”.  If I’m honest, on first hearing about the loss of the Tax Return, I felt a little bit sad.  The humble tax return has been with me through all of my 27 year working life, both in HM Revenue & Customs, and whilst working in practice.

There is very little in terms of hard facts in the Government document.  It sets out broad aims to engage the UK public digitally with their tax affairs and sets out how it could reduce administration for millions of taxpayers.

So what does it mean? Firstly, there seems to be two assumptions in the document even before moving on from the title.

• That the tax return is dead; and
• The new system will make tax easier

On the first point, the real message as I see it is that the annual Tax Return may be dead.  For many people whose tax affairs are straightforward, say a job and some taxed interest, it may mean that HMRC can use the information it has already received from employers and banks to calculate their tax liability.  For these individuals no Tax Return will be needed.

But even in simple cases, the calculation needs to be checked.  I’m sure we’re all aware of times when HMRC don’t get their sums right even when they have the right information.  This also assumes the employer, bank or other third party gives the right information to HMRC.

What about more complicated situations?  What if you have untaxed income, such as rents, self-employment, or you are a higher rate taxpayer and need to pay extra tax to HMRC on this income?  What about capital gain on the sale of assets?  These details will still need to be sent to the Revenue and I’m sure there will be a deadline for doing so.

There will still need to be some way of notifying HMRC digitally of these additional sources of income or gains.  Whether it is called a Tax Return or given a new name, we will still have to send something to HMRC.

What about the second point that all our lives will be simpler?  Unfortunately, I’m not sure that this will be the case.  The beauty of the tax return is that you can compile details of all your income, gains and claim tax relief you are entitled to and send it in one go.  How will you provide the details to HMRC if not on one form?  Will it be a series of separate notifications?  Will there be different deadlines for different notifications?

Far from making tax easier, it could make it far more complicated.

This is all without considering than many people in the UK don’t deal with HMRC or anyone else digitally.  The document claims that 85% percent of Tax Returns are already filed online.  What hides behind this statistic is the fact that many of those are actually filed by accountants and other agents because the taxpayers are unwilling or unable to file themselves.

Detailed proposals are to be put to consultation later this year and hopefully a sensible framework will emerge that addresses the reality of how most people deal with HMRC.  In the meantime, as Mark Twain said on reading his obituary in the New York Times, “reports of my death are greatly exaggerated”.