With the referendum on the UK’s EU membership now set for 23 June, the Chancellor is coming under increasing pressure not to rock the boat with more tax hikes on Budget day. He has already said that the Budget will contain no major tax increases although regular readers of HM Treasury’s figures will know that tax increases can take many forms.
For example, Treasury figures show that the dividend tax 'allowance' which comes into effect on 6 April 2016 will increase taxes by an estimated £6.7bn between now and 2020/21. Similarly, the 'liberalisation' of the pensions regime, which gave many people access to the value of their pension funds from 6th April 2015, will allow the Treasury to cream an estimated £4bn of extra taxes from pension funds during the life of the current parliament. In the strange world of taxation, things are not all that they seem to be.
From the Chancellor’s point of view, it’s all about cash in hand. Your cash. His hand. So what else might he do to collect more tax?
Collecting existing taxes quicker would be one answer. Heralding 'the death of the tax return' in the March 2015 Budget, the Chancellor ushered in a project which will impose an obligation for individuals to use their personal digital tax accounts to file up-to-date information on their income with the taxman every three months. At present, all the work being done on this by HMRC is directed at the filing part of the exercise. However, it would only be a very small jump to go from in-year filing of tax information to in-year collection of tax payable.
Make no mistake, the tax authorities already have previous in this area. For example, for many years now large companies have been required to pay their corporation tax in instalments during their accounting periods. And, as a result of changes brought in by the current Chancellor, from 6th April 2019 UK taxpayers will be required to pay capital gains tax on disposals (except for sales of their main residences) within 30 days of the sale.
If the Chancellor uses personal digital tax accounts to collect more tax quicker from individuals, who will be affected? With PAYE already working 'real time' for employees, the obvious target would be the self-employed. We all know that the numbers of the self-employed have grown dramatically over the last nine years so it’s instructive to learn from HMRC data published this week that nearly £17bn of income tax is paid by individuals where self-employment is their main source of income.
The current payment-on account-system for the self-employed, with payment dates of 31st January and 31st July, already applies to the two million-odd individuals for whom self-employment income is their main source of income. But on a cautious estimate, by bringing forward payment dates for self-employed income tax to coincide with quarterly returns under the new personal digital tax accounts, the Chancellor could probably accelerate tax collection by anything up to £6bn. That would of course be effectively borrowing from Peter (next year’s tax receipts) to pay Paul (this year’s tax receipts) but the one-off windfall could look extremely attractive to the Chancellor. We must wait and see.
If you would like to discuss any of these points further, please contact George Bull or your usual RSM contact.