NEWS & VIEWS
Life is getting tougher for taxpayers trading assets and, in the short term at least, things are about to get worse when it comes to tax reporting.
HMRC has said it’s too late to adjust the format of the 2024/25 tax return to accommodate the changes made to capital gains tax rates in the 2024 Autumn Budget. This means investors will have to take extra steps to accurately report gains made on assets on or after 30 October 2024.
There have been murmurings about a calculator from HMRC, which will be introduced to support taxpayers. There’s a brief sentence too on the HMRC website to say that gains made between 6 April and 29 October 2024 will need to be calculated in line with the new rules. Besides that, investors need to figure things out for themselves.
At the time of writing, there are just 74 days left until the end of the tax year. Which begs the question, if HMRC can’t get its houses in order, is it fair to expect everybody else to be on top of the new rules? The decision to introduce changes to the tax regime mid-year impacts us all.
Time-consuming tax returns
Advisers know only too well that tax returns are, at best, a time-consuming exercise depending on the complexity of the individual case. As life admin goes, they’re most likely to top the list of jobs for the procrastination pile.
With straightforward investments to report, and by keeping on top of planning throughout the year, the task can take a few hours. But for those with more complex tax situations – returns incorporating things like rental income, capital gains or international investments – the process can be challenging, and the hours can slide into double figures. And that’s before splitting out reporting into pre- and post-budget tax regimes.
With many investors up against it, advisers can really show their value here by splitting out any tax reporting and the sales or disposal of any assets pre- and post-budget. This will help ensure clients are clearer on their gains and liabilities and can see their totals separately. It will help simplify a potentially mammoth task and ensure investors report correctly.
Penalties for inaccurate reporting are steep with HMRC tightening the screws when it comes to reporting mistakes, non-disclosure and tax returns filed late. Chancellor Rachel Reeves has committed to funding more investigations in a blitz on missing tax receipts, aiming to pull in an additional £5.1bn a year by 2029.
The need for comprehensive support
Immediately after the budget, and in the time since, we’ve seen a spike in requests for support from our own clients – and it’s worth remembering that each of these will represent tens of thousands of investors needing help and clarification. Our own expertise has enabled us to prepare for the changes and keep ahead of the game. This in turn enables our platform clients and others to support theirs with accurate and timely data.
As well as causing headaches for investors – and HMRC, it seems – changing the tax regime mid-year presents minimal benefit to anybody. There can only be political gain because, economically, any additional revenue raised by making the change mid-year will be marginal and could well be less than if the change were made from 6 April. It is to the government’s benefit as well as investors’ if rules are introduced with advance warning.
By introducing so many anti-forestalling provisions, changes that take effect from when the Chancellor stands up in the House of Commons, while also reducing the number of hours of telephone assistance available, it gives the impression that changes are only made to catch taxpayers out.
As well as marginal returns from introducing the changes immediately after the budget, HMRC is no doubt facing its own administrative and costly nightmare. On top of the usual checks, tax returns will need to be checked to see whether gains took place pre- or post-budget. That’s not to mention the calculators and new processes that need to be built and rolled out.
In the current climate, with the government eager to create an environment that stimulates growth and gets people investing, the decision to introduce a change to the tax regime mid-year seems counterintuitive. Not only does it create more work for the industry, tax advisers and investors, it creates more cost. Regulatory costs keep mounting for tech firms and providers alike as they remain reluctant to pass this burden onto customers.
“Accurate tax reporting is a complex business”
Accurate tax reporting is a complex business and when the government announces changes the industry immediately jumps to comply – the costs of not doing so are too high. But given the impact on business and investors, I wonder what level of due diligence is conducted before making these decisions. Instead, the government needs to listen and work with the industry to effect change that boosts the treasury coffers in the most effective way, while also being manageable for businesses and investors.
In the meantime, all good advisers will be on hand to make reporting easier for their clients.
Written by Michael Edwards, Managing Director of Financial Software Ltd.
This article first appeared in Money Marketing.