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In a move that many are calling revolutionary and more significant than the move to Self-Assessment Tax Returns back in 1997, HMRC is rolling out plans for businesses and individuals to keep their tax and accounting records in a digital format and submit online tax and accounting information quarterly from April 2018. This means that by 2020 the digital age will have finally taken over.
The death of the tax return
HMRC’s reform initiative, Making Tax Digital, has a number of ambitious aims. The plan is for the Self-Assessment Tax Return to be phased out by 2020, and for each taxpayer to have instead one online tax account that encompasses all the different types of tax they pay. From April 2018, businesses and landlords in receipt of gross business and or rental income of £10,000 or more will be required to maintain their records digitally and to file their information in this way.
HMRC has been quick to highlight the benefits as they see them. Instead of laborious form-filling, and inclusion of the same basic information each time a return is filed, from 2018 tax-payers will only have to collect together new information each quarter and update their digital file.
Additionally, HMRC will aim to collect and process information affecting tax in as close to real time as possible, stopping tax due or repayments owed from building up. Individuals and business taxpayers will no longer have to wait until the end of the tax year before they know what their tax position is, enabling them to plan their finances with greater accuracy.
The timeline for digital
This year, 5 million small businesses and 10 million individuals will switch over to their own digital tax account. By May 2017, businesses will be able to register a new company and sign up for taxes in a streamlined process jointly created by HMRC and Companies House. From 2018 most businesses, the self-employed and landlords will start updating HMRC quarterly for income tax and National Insurance purposes. VAT reporting and Capital Gains Tax on the disposal of residential properties will be added to digital accounts in 2019.
More innovations promised by 2020
By 2020, it’s envisaged that information that HMRC can gather directly from other sources, for example employers, banks, building societies, pension providers and government departments, will be automatically uploaded to the individual’s tax account, and available for them to view simply by logging on any time of the day or night, thus finally ending the era of the tax return as we know it.
If this works in the way HMRC envisages, the admin-heavy process of gathering together mounds of paperwork needed to complete a return at the tax year-end will be consigned to history.
Unanswered questions remain
At present, there are various areas that require more clarification. The government has embarked on a consultation process, giving the opportunity for concerns and queries to be raised and noted by HMRC. Clearly, with the deadline of 2018 not so very far away, firm details and proposals are eagerly awaited. We will be issuing further updates from time to time.
Finally, for those who find the thought of carrying out this task for themselves a daunting prospect and fear their digital skills may not be up to the task, the good news is that HMRC has confirmed that you can nominate your accountant to file the information on your behalf.
T 020 7388 7000