What is the digital tax accounts initiative?

Living in the digital age, the process of buying goods or services is dramatically different to even 20 years ago. Before computers, smartphones and the internet, buying a product or service would have involved visiting a local shop or searching through the yellow pages to find a service you require. Now, we find ourselves instinctively heading online to buy items such as books and DVD’s, book a holiday, hire a local handyman or subscribe to an app.

This online shift is gradually making changes to the way HMRC operate, and will positively affect the way businesses and taxpayers file their annual tax returns. By 2020, the stress that many of us experience when manually entering tax details will be a thing of the past.

What’s happening today?

In the present day, many taxpayers are already starting to manage some of their tax activities digitally, such as filing and paying for their Self Assessment tax returns. HMRC states that more than 2 million small businesses are already using their own digital tax accounts, with the hope that individual taxpayers will all have a digital tax account by 2016.

What is the vision for the future?

‘The vision set out here is about much more than simply adding digital tools to the current system: it is about transforming the UK tax system into something that feels completely different.’  – Making Tax Digital

HMRC hopes that by April 2016, every taxpayer will be able to access their own digital account. For the next 4-5 years, the digital tax accounts initiative will ensure the end of the manual tax return for millions of taxpayers. This new tax system will consist of 4 main foundations:

1) Simplified tax

HMRC is joining up its internal systems to populate digital tax accounts with the information it already holds — instantly removing the burden of manually entering this data. Taxpayers can also easily see the information HMRC holds through their digital account and check whether that information is correct and complete. It also allows HMRC to tailor the service it provides depending on that taxpayer’s individual circumstances.

2) Tax in one place

By 2020, taxpayers will have the ability to see a personalised view of their overall tax position in their digital account. This will make it easier for taxpayers to see the payments they have made to HMRC. In addition, those who need to pay HMRC, will be able to do so through their digital tax account.

3) Making tax digital for businesses

HMRC will start collecting and processing information affecting tax in real time, to eliminate tax due or repayments from building-up. By 2020, businesses, self-employed people and landlords will need to update HMRC at least quarterly via their digital tax account. However, these changes will be introduced for some businesses from April 2018, giving businesses time to adapt and gradually phase in the new changes.

4) Making tax digital for individual taxpayers

By April 2016, every individual taxpayer or business should have access to their own digital tax account. This way, individual taxpayers will be able to interact with HMRC digitally, and at a time that best suits them. The digital accounts they will have access to will give a personalised picture of their tax affairs, along with prompts, and support if they need it.

What are the benefits of the digital tax accounts?

The new online method will see a reduction in the unnecessary form-filling that taxpayers do each year, and will eventually be the end of the manual tax return.

HMRC hopes to cut the usual lengthy process of filing tax returns, as they will use the existing information in their databases to pre-populate fields they already have information for. As taxpayers will have constant access to their digital accounts, they will be able to send that information to HMRC quickly, securely, and on time.

Another benefit for taxpayers is time efficiency of the new digital accounts. This is because the new online tax system will collect and process information affecting tax as closely to real-time as possible, meaning businesses will be able to see a real time view of their tax, and a calculation of their tax due at any time.

This will help to keep businesses and taxpayers in the loop, therefore minimising the risk of missed deadlines, penalties, debts, and errors in the system being carried forward into the next tax year. Businesses will also find it much more straightforward to assess how much tax they owe, giving them a clear picture of their tax position so they can budget accordingly.

 

Please check back here for more developments as they are released.