The end of the tax system
The recent budget announcement that the annual tax return would be phased out by 2020 is potentially the biggest ever change in the tax system.
My opinion is that is all about reducing the National Debt and if implemented well this could:
- Reduce the cost of collecting tax
- Advance tax payments
- Reduce unpaid tax
I actually think paying tax monthly could also end up be better for businesses. It would be less stressful than struggling to pay once or twice a year and could encourage a culture of everyone paying their invoices quicker.
Unfortunately, there is no detail to support the announcement but, I cannot see how this will work without a radical change in the tax law.
Without a change you will need to prepare monthly management accounts, so the tax office can calculate your tax. This would end up being far more expensive to run a business and make the UK less competitive and entrepreneurial. However, I have a theory that the government will simply tax for small businesses.
It could be that the introduction of optional cash accounting in 2014 would be made compulsory. If this happened you would pay tax on “cash” profits rather than “accounting” profits.
Your accounting software would send the money in/out data automatically to the tax office who would calculate your tax monthly, similar to how it works for PAYE now.
There would probably be a transitional calculation to prevent double taxation and hassle implementing the change. But, overall Sackmans welcomes the announcement because it means we will have time to help clients more valuable work.
Our focus is moving more towards helping you achieve financial freedom and you don’t need to wait for the tax system to change before we start working on this with you. Call for access to the E-Life Planner and start to work out what your business needs to give you for you to live the life you want.