The UK tax system is becoming even more digital, with the annual headache of January tax returns to be scrapped in favour of a simple, more streamlined online system.
Originally announced at the 2015 Autumn Budget by former Chancellor of the Exchequer, George Osborne, the changes are designed to streamline the tax system and make it easier for individuals and small businesses to check their tax status.
Each taxpayer will receive a digital tax account which will allow for streamlined record-keeping, and will eventually move completely away from the paper-based system we currently struggle through.
When is this happening?
The first stage of the transfer began in 2016, with five million small businesses and ten million individual taxpayers given access to their own personal digital tax accounts.
By 2020, this will be rolled out nationwide, with everyone and every small business across the country given their own digital tax account, removing the need for SME businesses to file annual tax returns.
What are the pros and cons?
The planned changes mean that small businesses will have to file quarterly returns, meaning the self-employed will have to embrace a new way of declaring their income.
When the new tax returns system was announced, it received a lukewarm reception, with many tax specialists unhappy with the changes which could cost small businesses more in accountancy fees.
However, the system will bring together a range of government services, including National Insurance and pension contributions, as well as incorporating other streams of revenue (such as income from rental properties, stock market shares and so on).
This will simplify income for HMRC, which is expected to reduce tax evasion by making earnings easier to calculate, and by extension allowing HMRC to recoup up to £600m in additional tax revenue.
Taxpayers will also be able to hand access to authorised agents or accountants to manage their tax affairs, which makes the system easier for those uncomfortable with the changes.
HMRC released a ‘myth-buster’ to clear up some of the uncertainties around the new system:
Four tax returns a year
This has been one of the most contentious issues surrounding the Making Tax Digital project, which disguises the end of the annual tax return by breaking it up into more frequent tax reporting.
However, it doesn’t involve as much work. Each quarter, businesses will be able to check (and correct) any information which needs changing – but the idea is that all of the information which HMRC collects should be correct, and therefore just needs one click to submit it.
The government has promised that help will be made available for those unable to afford or use digital technology. If you’re not digital native, don’t panic – there will be processes in place for you to file your tax records, either through a nominated party or accountant, or via telephone.
“No-one wants digital tax”
This one is easy to disprove; according to the government, millions of firms already manage their tax online, with 99% of VAT returns, 98% of Corporation Tax returns and 86% of Self-Assessment Tax returns completed online.
The new system just makes online the preferred channel for the small percentage of people who aren’t currently online; the majority of us are already doing it.
Increased errors and bad record keeping
According to the government, the scope for error in tax returns will be “greatly reduced” as the mew system allows taxpayers to make corrections throughout the year instead of trying to do it all in one mad rush at the start of the year.
Additionally, the government believe that £6.5bn is lost through accounting errors on the part of taxpayers and businesses, which will be reduced by the new system.
If you want to find out more about the Making Tax Digital, this government resource has all the information you need to easily understand the roll-out, and this website has a helpful, estimated timeline of the MTD project towards the bottom of the page.