The headlines following the Budget indicated that “end of year tax returns will be scrapped” and “tax returns will become a thing of the past.”
So what is being proposed instead?
Individuals and business will have a digital tax account.
All the information for a taxpayer will be held in one place. A business will be able to take a single view of liabilities such as income tax, national insurance, VAT and PAYE.
HMRC will automatically populate the digital tax account with information it automatically receives, such as salary and benefits in kind information submitted by employers.
Individuals and businesses will be able to link their bank accounts and accounting software direct to their digital tax account.
Individuals with more complex tax affairs will go online and tell HMRC about additional details such as rental income, foreign income and capital gains.
Taxpayers will be given a login and password so that information can be submitted regularly, making tax bills more closely related to current performance.
Individuals will be able to pay their tax at any point throughout the year.
When will it happen?
At present approximately 11 million tax returns are issued.
By early 2016 HMRC expect 5 million small businesses and 10 million individuals will have a digital tax account.
By 2020 HMRC expect 50 million individuals and small businesses to have a digital tax account.
Taxpayers will still be responsible for ensuring their tax bills are right and need to inform HMRC about information that is not reported by other means. Taxpayers will need to regularly check their digital account to ensure full information is disclosed to HMRC. Taxpayers cannot just assume HMRC will be automatically notified of all of their income.
There will be significantly more individuals and businesses with digital tax accounts than the number of tax returns issued each tax year.
How will this impact on our services?
Taxpayers will be able to let agents manage their digital account on their behalf. At present we submit tax returns electronically and we have access to a HMRC online account which provides details of their tax liability, what tax payments have been paid and what payments are outstanding. The new digital tax account appears to offer access to the same information that we can currently access.
It does appear that we are moving away from the annual submission of a tax return, where all relevant information is included in one form and submitted to HMRC electronically, to a system where information is submitted regularly to HMRC when that information is available.
Taxpayers will wish to ensure they are paying the correct amount of tax and this is what we currently do on behalf of our clients. At present tax is due on 31st January following the end of a tax year. In effect this is a deferment of almost 10 months after the end of the tax year before tax is paid. One of the proposals is for tax bills to be more closely related to current performance. This may be interpreted as taxpayers having to pay their tax in “real time” as opposed to having a deferment of perhaps up to 10 months in paying a tax liability for a tax year. Taxpayers will need us to advise them on their tax liabilities, when they have to be paid and the impact this will have on their cashflow.
Part of our service is carrying out a tax planning review and identify ways that an individual or business can save tax. This service will continue to be relied upon by both individuals and businesses.
Whilst there may be significant changes to the process and timing of the supply of information to HMRC under the new reporting regime we believe we have all of the skills to continue to assist clients and businesses.
To find out more about how these changes will affect you, your family and your business, please contact Brian King on 02476 221046