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Graham Doubtfire, Tax Partner, examines the latest report from the OTS (Office of Tax Simplification) on the pros and cons of using data from a range of third parties in order to rationalise and simplify the tax reporting process.
The use of third-party data to pre-populate Tax Returns and simplify the Tax Return filing experience will almost certainly happen before the end of my working lifetime (we are already seeing this with the acceleration of the Making Tax Digital process) but whether that will provide a better taxpayer experience is questionable.
For example: The OTS has said that one benefit that might arise from more third party data reporting is that in future taxpayers who currently file a Tax Return to report data relating to income, gains or reliefs might not need to file Self Assessment Tax Returns at all. In theory this sounds like great news for thousands of people, but the reality is that things are ever more complex, and as long as the current labyrinthine tax regime continues, then Tax Returns will remain an area where professional help is often required.
Many people see the need to file a Tax Return on an annual basis as a necessary evil, but it need not be. When it is part of a process of personalised support built around getting to know an individual, their family and their business it can be used to help them to optimise their tax situation. Working with a client can help them to understand how doing something differently can assist with simplifying and clarifying their tax obligations, and in some cases this can conclude by us as their tax advisers securing a reduction in their tax liabilities.
It’s well known that the UK tax system is evolving to become more and not less complicated: multiple tax allowances and reliefs are often designed to be removed where income or assets exceed certain thresholds, and the Tax Return is the final part of the annual tax reporting process. The real value in using a professional tax adviser is added through their specialist knowledge of claims that can be made and changes that can be implemented to achieve the optimisation of tax liabilities.
Many taxpayers are unaware that even with very modest incomes and assets they may have access to a number of allowances that stretch into double figures. In a (hypothetical) system where a Tax Return is pre-populated, or prepared by a non-tax specialist, it’s quite likely that not all the allowances and reliefs that the legislation allows them to apply for will be claimed, either through a lack of knowledge or understanding.
Part of my role as a tax adviser is assisting people with the filing of their Tax Return each year, but the benefit of this annual process is that it allows me to invest time getting to know them, their family and business. The result of this is that I can add value where there are changes to the current tax legislation, or their own circumstances, which means there is an opportunity to do something different to save tax. And ultimately this allows them to enjoy more income to have a better lifestyle or invest in their family or business. Which is the best result all round.
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