HMRC Launches Digital Tax Accounts

For a while now, HMRC has been talking about replacing the annual tax return with a quarterly digital tax account for all business and individual taxpayers.

Blessing in Disguise?

On the one hand – this move presents a significant (short term) admin burden and change of mindset to meet the new reporting requirements; on the other – many businesses and individuals find the current annual tax system just too much. The additional stress of annual tax returns and meeting annual tax demands could be substantially reduced if we all submitted our returns and paid our taxes on a more real-time basis.

HMRC are aiming to make the digital tax account as clear and transparent as possible, they say it will be as easy as logging onto your online bank account.

By April 2016, every individual taxpayer will have access to their own digital account — simple, personalised and secure, offering an increasing range of services. By 2020, HMRC aims to be interacting digitally with all taxpayers.

By 2020, HMRC aims to be interacting digitally with all taxpayers.

HMRC claims it is joining up its internal systems, and will populate digital tax accounts with the information it holds. From next year, most taxpayers completing their return online will apparently find their payroll earnings and bank interest receipts information already filled in.

HMRC will make it easier to pay as well. A new system of online billing will mean that anyone who owes tax will be able to see a calculation and pay what they owe, without the need to complete a Self Assessment tax return as they do now.

The end of payments on account?

For sole traders and partnerships – we hope this will do away with the antiquated system of paying next years tax in advance. We shall have to wait and see.

What do we know?

The new system will allow people to see their tax details and make payments at any time during the year.

HMRC plans that by 2020, most taxpayers including individuals, businesses and landlords will track and submit information to HMRC digitally every quarter.

Uncertainty over quarterly system

The Low Incomes Tax Reform Group (LITRG) has expressed concern that non-digital literate businesses may face charges from HMRC due to the introduction of the new quarterly system. These people could become accidentally non-compliant and face penalties.

Older taxpayers, people with disabilities and those living in remote areas are most at risk from failing to comply with the new system.

Anthony Thomas, LITRG chairman, said:

“It is very harsh that small businesses with the lowest profit margins may be required to undertake significant investment and training in computer technology simply in order to comply with HMRC’s reporting requirements, and for no other purpose.”

Accessing digital accounts

Taxpayers can access their digital accounts at any time during the year. Once you have logged in online you can do the following:

  • view and update your personal details
  • calculate your PAYE income tax and estimate how much tax you owe
  • see tax effects on changes in estimated pay
  • inform HMRC of any changes and benefits
  • access forms such as national insurance, pensions and benefits
  • find out about marriage allowance entitlement and making claims online.

We are watching…

We are watching this move with great interest. HMRC do not have a great track record with systems development – we have noticed over recent months many systems issues and delays in call answering where HMRC are changing their systems in the background; often leaving their own staff unable to access the data we are calling about. Hopefully, this is a short-term blip in what we believe will be a significant improvement in the tax system.

We will keep you informed of changes in the move to digital tax accounts.

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