The Chancellor’s autumn statement was like watching a three card trick. Despite talk of further cuts in advance, he seemed to have plenty of money to protect key departments and avoid cuts in police budgets or much of the welfare programme, including tax credits. Like the infamous trick, people were left asking ‘how does he do it’, within the context of a plan to eliminate the deficit before the next election. The answer is, he’s relying on positive growth forecasts for the economy, which to be fair are based on analysis by the Treasury and Office of Budget Responsibility.
His thinking is that growth delivers higher wages and more employment, which delivers bigger tax receipts. At the same time, higher wages should deliver a cut in welfare payments – and that was the foundation of a surprisingly optimistic statement.
With the statement based around a growth in the tax take, the challenge is to ensure the money is collected. HMRC is being encouraged to be more aggressive in the pursuit of tax evasion and avoidance by UK and overseas businesse.
A less publicised part of the statement is a change to the cash flow side of tax collection. The Chancellor wants to see funds collected as soon as practical after when the tax fell due. For some taxes the gap now can be close to two years, but that’s going to change and is linked to taxpayers moving to digital submissions and payment, which will release HMRC resources to pursue those not paying what they should.
HMRC is also moving towards tax first, query afterwards, so settlements can’t be dragged out. Over property taxes, in particular, it will no longer allow taxpayers to offset gains and losses into a single calculation.
This tightening of payment schedules has already begun with PAYE in a system known as RTI or real time information, and under it employers must report payments and deductions soon after they happen, whether that is weekly or monthly. This is designed to help HMRC adjust tax codes more quickly, but it will also be used to get employers to pay tax more quickly and online, ending an era when HMRC helped the cash flow of many businesses that were slow to pay tax and NIC deductions.
It’s in the ‘big’ taxes, however, that the real changes will be seen. The statement referred to a consultation on moves to make all payment dates for tax closer to when profits were earned. That’s likely to be phased in quickly as part of the process of digitising all dealings between taxpayers and HMRC. There will be a consultation on the timetable for these changes.
With house building planned to expand, stamp duty is a nice little earner for the Treasury, despite changes to make things easier for first time buyers offset by a higher rate for buy-to-let and holiday homes. From 2017 the present limit of 30 days to pay stamp duty will be reduced to 14. Capital gains tax is, however, the tax likely to see the biggest tightening of regulations. From 2019 taxpayers will have just 30 days to settle – a big contrast to the present rules, where this can be drawn out to 22 months. This is a big change and will end the freedom to offset capital gains and losses in a single tax year by giving HMRC a net payment.
On the face of it these changes are about modernising the tax collection service, in the way that it is already no longer possible to submit a VAT return other than online. The acceleration of tax collection is a spin-off from that. All employers and the self-employed will have to make sure over the next year or so that their systems are sufficiently robust to meet these tighter payment schedules, which have to work if the Chancellor is to deliver a deficit reduction without much of a cut in spending, which is the ultimate three card trick.