Making Tax Digital, What Does it Mean?
Over the last few decades, the Internet has revolutionised the ways in which we go about our day-to-day activities. Be it chatting with friends, ordering groceries or even looking at too many pictures of cats, we are living in age of unprecedented access and control of our lifestyles, all contained in devices big enough to sit in our pockets.
In line with this, HMRC is taking significant steps towards making our tax responsibilities digital too. Many people already complete their tax return online but these ambitious changes are set to establish an even more efficient service. As the (then) Chancellor George Osborne announced in March 2015,what the Government intends to implement is in effect the ‘end of the tax return’.
What Changes Will I See?
The new system will be centralised. A place where you can view and update your information, giving you a more personally tailored service, whether you pay tax as an individual or as part of a business. Your digital tax account will not only mean you can view your up-to-date statement from any device but you will also be able to make changes, request reminders via secure messaging, and even get support through online chat with industry experts.
For businesses, a key advantage is that they will no longer need to wait until the end of the tax year to know what they owe. It is hoped this will lead to lower balances due to tax accruing.
How Will This Impact Me?
Ultimately, it is planned that HMRC will collect data from several sources, such as employers and bank accounts so that the onus will not be on the individual to report this information. Your digital tax account will also collate all the information HMRC holds on to, meaning users will have no need to send them duplicate information.
If you own a business, it should also be easier to plan, as you will have a more complete picture of what you owe at your fingertips. You will however now need to update HMRC quarterly instead of annually.
For individuals, it should mean the end of self-assessment tax returns and the online billing system will allow you to pay any expenses that aren’t able to be collected through PAYE.
When Is This Happening?
The process has already started and in 2015, more than two million people used their digital tax accounts. During 2016 several changes have been made, with more to follow. These include the implementation of the online chat option; access to how your NI contributions are affecting your state pension; and bank and building society interest will be included in tax codes, initially for pensioners and employees.
During 2017 the new online billing system comes into effect and it will now be possible to report additional sources of income through the online system. Automatic tax code adjustments will be in place which should prevent over and under payments of PAYE.
At some point in 2018, it will become a requirement for the self-employed, businesses and landlords to update HMRC quarterly for NI and tax obligations and in 2019 you will also need to report your VAT obligations in this way.
In 2019, those who owe Capital Gains tax on the sale of residential property will see a requirement come into force for this to be paid within 30 days of the sale.
By 2020, when HMRC states the implementation of the system is due to be complete, Corporation Tax obligations will also need to be reported quarterly and the full range of services available through your digital tax account should now be available.
Should I Be Concerned?
Some businesses are concerned about the implications of having to complete a tax return quarterly, instead of the annual requirement that is placed on them now. However, HMRC has stated that the new quarterly requirement will be a much more straightforward process than the tax return of old. Thanks to the new system, all that should be required is to check into the system and make sure that the details are correct before submitting the return. As yet it is too early to tell whether this is how it will play out.
What’s also true is the Government has placed a very ambitious timeframe on these changes. Resultantly, some sectors of business are calling on the Government to make the changes voluntary for a longer period, until all the teething problems with such a large scale system are worked through. The issue of bringing the new system’s users up to speed will also have to be considered until everyone understands completely the obligations being placed on them.
Whether the Government issued timeline is adhered to remains to be seen, and there could still be further changes made along the way. However, if this does all come into effect as outlined it should ultimately make understanding your tax responsibilities and paying what’s due a much easier and more accessible process.
For more information regarding the changes, either contact us at Tuchbands, or take a look at this Government document which should answer any outstanding questions you may have left: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/413975/making-tax-easier.pdf