George Osborne will use his Budget to announce the end of the annual tax return within the next five years.
HM Revenue and Customs will automatically collate the tax affairs of millions of Britons from employers, banks and investment firms into a single “digital” tax account which can be checked at any time online.
The Chancellor will pledge that the move will reduce the time it takes to deal with HMRC from an average of 40 minutes a year to 10 minutes.
Tax returns have long been considered an unnecessary burden for millions of people. The changes will mean that those with straightforward tax affairs will have no need to collect receipts and other documents. Only those who do not want to manage their affairs online will still have to complete a self-assessment return.
The pledge will form one of the key announcements in Wednesday’s Budget, which will effectively fire the starting gun on the general election campaign .
Mr Osborne will tell voters to “choose the future” and make a “critical choice” by sticking with the Conservatives. He will also announce a £6 billion boost to the nation’s coffers which will be used to fund a series of Tory manifesto pledges, such as an increase in the inheritance tax threshold.
Other measures to be announced in the Budget include:
• A reduction in the lifetime pensions allowance from £1.25 million to £1 million
• Giving five million pensioners with annuities the right to cash them in from April next year
• Raising the personal allowance to £11,000, giving 27 million people a £200 tax cut
• A £40 million fund to repair church and cathedral roofs
• A review of the business rates scheme, which will report back in early 2016, and could lead to high-street prices falling
• An increase from £5,000 to £8,000 a year in the amount in small cash donations on which charities can claim a gift aid top-up
• Loans of up to £25,000 for PhD students in an attempt to convince people to take up postgraduate research
• Measures to ensure that widows and widowers of police or firemen killed in the line of duty will not lose their survivors’ pension if they remarry
Mr Osborne will use his Commons address to warn the country against voting for Ed Miliband. He will say: “The critical choice facing the country now is this: do we return to the chaos of the past, or do we say to the British people, let’s work through the plan that is delivering for you? Today we make that critical choice: we choose the future.”
Mr Osborne will add: “We have a plan that is working — and this is a Budget that works for you .”
The Institute for Fiscal Studies, the independent economic forecaster, said that while Britain’s borrowing bill was still high, a vote for Labour would be a “choice to live with more debt and deficit”.
Paul Johnson, the director of the IFS, said: “If Labour gets in, it looks like they have made a choice to live with more debt and deficit, which obviously involves some additional risk, though this is hard to quantify.”
The Chancellor’s tax return reform would affect 11 million people, of which 4 million run their own businesses, and 1.8 million companies. The burden of self-assessment forms has been exacerbated by the amount of people who have become self-employed since the start of the recession.
Thousands of people are fined every year for failing to meet the self-assessment deadline. There is an automatic penalty of £100 for filing a late return, even if no tax is owed. After three months, a £10 daily charge kicks in up to a maximum charge kicks in up to a maximum of £900, followed by further penalties at six months and 12 months. This means a taxpayer could owe up to £1,600 in penalties regardless of how much they need to pay.
Self-assessment taxpayers have to give information about themselves that HMRC already has, such as their earnings or pension income. The new digital accounts will bring together such details in one place, allowing them to view their tax affairs at any time. They will automatically update HMRC on any changes of circumstance and will allow people to pay their taxes when it suits them. It will allow them to link to their bank account so they can pay in instalments or by direct debit.
Mr Osborne will say that he wants 55 million people to have digital tax accounts by 2020.
The Conservatives are expected to use their election manifesto to announce plans for a cut in inheritance tax for middle-class households. It was claimed that Nick Clegg had vetoed Mr Osborne’s attempt to get the measure into the Budget.
A leaked Treasury briefing paper on Monday set out plans to allow parents to leave homes worth up £1 million to their children without paying inheritance tax, at a cost to the Exchequer of almost £1 billion a year.
The document showed that the inheritance tax bill on properties worth up to £2 million would be cut by £140,000 under the scheme and noted that the policy would “most likely benefit high income and wealthier households”.
It estimated that by 2019-20, around 20,000 fewer estates a year would be liable for any inheritance tax.
However, David Cameron dismissed suggestions that the inheritance tax plans had ever been considered for the Budget. He said: “That’s not the case. This isn’t a Budget leak. It’s not something in the Budget and you’ll see the Budget.”
George Osborne’s last five years: austerity, boos and a new haircut
7-11 May 2010: George Osborne joins top Tories negotiating a possible Coalition with the Lib Dems
12 May 2010: Tory-Lib Dem coalition announced and Osborne confirmed as Chancellor
24 May 2010: Osborne outlines £6.2bn cuts: “We simply cannot afford to increase public debt at the rate of £3bn each week”
22 June 2010: Osborne uses “emergency Budget” to raise VAT to 20 per cent and announce welfare cuts
February 2011: Osborne announces ‘Project Merlin’, encouraging banks to lend £190bn a year to businesses
November 2011: Osborne sells Northern Rock to Richard Branson’s Virgin Money for between £747m to £1bn
21 March 2012: Osborne’s budget gets dubbed the ‘omnishambles’ over measures against pasties and caravans. Tories plummet in the polls from fallout
24 April 2012: Britain found to have entered its first double-dip recession since 1975 in major blow for Osborne’s chancellorship
September 2012: Osborne met with a chorus of boos at Olympic Stadium as he hands out medals at the Paralympics
February 2013: Britain loses its AAA credit rating for the first time since 1978 – under Osborne’s watch
June 2013: New figures reveal UK economy did not in fact experience double-dip recession at beginning of 2012
October 2013: ‘Osborne reshuffle’ sees promotions for Chancellor’s former chief of staff Matt Hancock and ex-ministerial aides Gregg Hands and Sajid Javid
September 2013: Osborne unveils hair cut – dubbed “half-mod, half-Caesar” by his biographer – makes headlines
November 2014: Wage growth finally outstrips inflation – undermining Labour’s ‘cost of living crisis’
March 2015: Osborne promises “no giveaways, no gimmicks” in his final Budget before the election