HMRC have issued some further detail on how they plan to introduce digital tax accounts for most individuals and businesses. In our Autumn 2015 edition of Talking Tax , we highlighted a few unanswered questions as to how the digital tax accounts will work, some of which remain unanswered but we do have a few new nuggets to digest!
Personal tax accounts
As part of the move to digital tax accounts, HMRC has launched ‘personal tax accounts’. The aim of this is to bring all information together in one place, making it easier for individuals to manage their tax affairs and to provide online contact facilities for HMRC.
By April next year all individuals and businesses will have access to their own digital tax account. The accounts are expected to have the look and feel of online banking and should allow for a more streamlined process with the facility to off-set one tax liability against an overpayment on another tax.
HMRC have now confirmed that by 2018 most businesses, self-employed individuals and landlords will be required to update HMRC at least quarterly in respect of their income tax and national insurance obligations. By 2020, this will be extended to VAT and corporation tax.
This move is not entirely unexpected as the government have referred to ‘real time’ reporting and payment of tax on several occasions. The roadmap details that businesses and individuals will be able to provide quarterly updates via their accounting software.
The format to upload, and the data required, on a quarterly basis is not yet clear, however, directly linking to the accounting software of a business is unlikely to be a favourable approach and could raise data security concerns and increased HMRC enquiries.
‘Real time’ tax payments
It also appears that as well as the new reporting requirements, HMRC are looking to bring forward the payment dates for self assessment tax liabilities. Along with the roadmap for digital tax accounts, HMRC has also published a discussion paper on ‘simpler payments’.
At this stage there is little detail on the proposals for simplifying payments, however, the discussion paper does give a strong indication that the government is again looking towards a real time approach with a single regular (perhaps monthly) payment to cover all taxes owed.
The paper also clarifies that employees or pensioners with secondary income (e.g. self-employment or rental income) of less than £10,000 will not be subject to the quarterly reporting requirement.
HMRC confirm in their roadmap that “Of course, taxpayers will still be responsible for ensuring that their tax bills are right and telling HMRC about information that is not reported through other means.” The onus will, therefore, be on the taxpayer to check that the information HMRC has collated is correct and provide any missing information as well as reporting more regularly. Although it might be the end of the tax return as we know it, it appears for many that more work will be required to comply rather than less.
Surprisingly, during the Chancellor’s Autumn Statement speech, he commented that digital tax accounts will help to save £400 million in tax administration costs for businesses by 2019-20. How this figure has been calculated, we do not know and with reporting required three more times per year, it is hard to see how the administration burden for most taxpayers is actually going to reduce!