HMRC have been granted yet more power and resource in George Osborne’s Autumn Statement. Not only is the object to collect more revenue – but to collect it sooner.
The eye-catching measure related to the sale of residential property where, in future, tax due on gains will require payment within days.
The move is just the latest in a string of changes that will lead to a more rapid collection of tax and a “pay now, question later” culture which could see the roles of taxpayers and the taxman reversed.
Today, taxpayers calculate and submit tax due to HMRC – over and above the tax already deducted via wages or pensions – in what is typically the annual process of a return. Where HMRC believes more is owing, it pursues the taxpayer.
In the future, taxpayers could routinely find they are the ones chasing money they are owed by HMRC.
The following are just some of the ways in which HMRC is bringing forward the collection of tax.
Wider ‘digitisation’ of tax declarations with more frequent reporting (and earlier payment)
Buried in Mr Osborne’s Autumn Statement was the requirement for “businesses, self-employed people and landlords” to keep track of their tax affairs digitally and “update HMRC at least quarterly”.
This system would apply from 2020, with HMRC assisting those who “need help using digital technology”.
Employees and pensioners wouldn’t need to file digitally unless they had secondary incomes of £10,000 or more per year.
Although the document made no reference to earlier collection of tax due, most commentators believe that is the primary purpose of the change.
Andrew Hubbard of RSM UK Tax and Accounting, said: “There is to be a consultation on payment dates for tax generally, and you can be sure this will not propose extending the current payment periods.
“HMRC will be looking to bring forward the payment date closer to the point at which the profits are earned.
“It would be wrong to think of these as mere timing differences. A change to tax payment dates generally might help get the Chancellor out of a hole if the rosy picture he painted on the state of the public finances doesn’t turn out as expected.”
Introduced in 2013, and now fully implemented, HMRC’s “RTI” system required employers to submit staff pay information at every payroll interval – whether monthly or weekly.
The result is that HMRC can more quickly adjust tax codes to reflect any changes in income. Coupled with other technologies and more frequent reporting by taxpayers, it will enable tax collection to be “brought significantly forward”, accountants say.
Acceleration of capital gains tax payments on property sales
This was one of two noteworthy measures in Wednesday’s Statement bringing forward the payment of tax.
Mr Osborne declared that from 2019, where a capital gains tax liability arises on a property sale, the tax will be payable within 30 days. Under the current regime such tax bills need not be settled for periods of up to 22 months, this could mean investors over-pay.
An example of a higher-rate taxpayer who has sold a property with gain of £200,000. The top capital gains tax rate is 28pc, so they owe £56,000.
If in fact the taxpayer subsequently crystallises £100,000 losses from other transactions in the same year, the new tax liability is just £28,000 – leaving the individual chasing HMRC for a rebate.
It is unclear how the tax will be calculated and paid, with one suggestion being that solicitors dealing with property sales would estimate a “worst case scenario” and deduct it from sale proceeds.
Most accountants, expects the process to be complex and “burdensome”.
“For many people it will be impossible to work out the correct tax due,” as losses or lower earnings in the rest of the year could have a major effect.”
Again, HMRC will be helped in tracking such transactions by another recent investment in technology – its £80m “Connect” platform.
This brings together databases where property sales and other transactions can can be tracked in real time.
Any mis-match between information supplied on a tax return and information retrieved by Connect could trigger an immediate inquiry.
Faster collection of stamp duty
The second move in the Autumn Statement to draw forward the collection of revenue was aimed at stamp duty.
Not only did will the rate of stamp duty rise dramatically for purchasers of buy-to-let properties and British holiday homes but the duty will need to be paid far sooner.
From April 2017 those buying residential property will have less than half the time to pay stamp duty on the purchase of residential property. Until then buyers get 30 days to pay the duty, and thereafter just 14.
Fron April 2016 and additional 3% stamp duty will apply for all new Buy-To-Let purchases over £40,000 on top of current Stamp duty thresholds ,purchasing a £250,000 BTL property this equates to 8%. (rates differ in Scotland & England).
Will earlier collection of tax make any real difference?
Submitting more information to HMRC and paying resulting tax earlier might flatter the Exchequer’s receipts – but only in the short term.
Tina Riches, a partner at Smith & Williamson and one of Britain’s leading personal tax experts, said: “HMRC needs to haul in more revenues to help the Treasury meet its necessary targets. Measures that drag forward the collection of tax are becoming a common theme, but they are a short-term fix to the problem.”
If the problem is one of needing more revenue, she said, it would not be solved simply by collecting the same amount of tax sooner.