Paper back
3 Nov 08
Donald Drysdale reports on a concession for paper tax returns, the timing of tax rises, and ICAS’s views on fiscal devolution for Scotland
by Donald Drysdale
Did you manage to meet the 31 October tax filing deadline?
Personal, trust and partnership returns for 2007/08 had to be lodged by the end of last month if submitted on paper. But there is still time to deliver such returns electronically – the e-filing deadline is 31 January 2009.
Some taxpayers and agents are concerned about the new pressure to file online. Other practitioners are e-filing virtually all their clients’ returns and swear by the advantages of doing so – but nonetheless recognise that some returns just won’t work online.
Helped by ICAS and other professional bodies, HM Revenue & Customs has published comprehensive guidance on what to do if you try to file a tax return online and you discover that it cannot be done. In most cases it will be appropriate to submit a paper return instead, by 31 January, together with a “reasonable excuse” claim to avoid a late filing penalty.
If a reasonable excuse claim is received well in advance of the 31 January deadline, and HMRC agrees the claim, it will suppress the automated issue of a penalty notice.
The reasonable excuse claim may be notified in several different ways, but HMRC recommends that you use the newly designed claim form and lodge this with the tax return.
The form can be found at www.hmrc.gov.uk/carter/sa-reasonableexcuse.pdf and further advice from HMRC is offered at www.hmrc.gov.uk/ carter/sa-agentupdate1.htm
Tax increases expected, but not yet...
Citizens are feeling the squeeze, with fuel and food prices rising sharply and most incomes failing to keep pace with inflation.
Many have borrowed excessively, including the Chancellor. Even before his massive commitment to recapitalise ailing banks, HM Treasury figures showed Government borrowing was higher than forecast because of weakening tax revenues and high public sector spending.
The UK is not alone in finding tax receipts down as the public sector comes under extra strain. Many voters feel that businesses should contribute more tax, but the stark reality is that taxable profits are falling as recession looms and international competitiveness demands lower corporate taxes.
It seems inevitable that individual taxpayers will be left to pick up the tab. However, downward pressure on consumer spending could tip the country into an even deeper recession, so the Government is likely to postpone the day of reckoning – until 2010, conveniently after the next general election.
As governments worldwide battle to make ends meet, they may seek new forms of tax. We can look forward to a greater emphasis on tax increases justified on environmental grounds. Furthermore, indirect taxes such as VAT or goods and services tax are expected to be increasingly prominent.
Thoughts on fiscal devolution
Appearing before the Calman Commission on Scottish Devolution in September alongside ICAS Chief Executive Anton Colella and executive director David Wood, tax director Derek Allen gave evidence on various technical tax issues.
He warned that tax changes can cause confusion and cost. UK tax is changing at an unprecedented rate, and further reforms are being explored by the Mirrlees Review. Too much change may be counter-productive.
HM Revenue & Customs administers UK income tax at a cost of around 0.9p for every pound collected. Allen said the Scottish variable rate could impose substantial extra costs – estimated as a proportion of tax raised at 3 to 6 per cent for employers the same for the tax authority, and one-off implementation costs of perhaps up to 10 per cent.
Although differences in tax base or tax rates between Scotland and England could impose extra administrative costs, the practical impact on business and personal taxpayers might be marginal, he said. However, there would be a point at which a differential could become significant enough to influence behaviour.
In the current climate, Scotland was unlikely to emulate the success of Ireland, attracting massive inward investment by reducing corporation tax, Allen said.
Other countries compete on rate, creating a race to the bottom. Advantage might be gained by a holistic approach to tax, ensuring a balanced regime seen as fair to everyone.