Digital Tax Accounts
Paper tax returns are being consigned to history
HM Revenue & Customs (HMRC) has stated that by 2020, its aim is to have an ‘almost exclusively digital’ relationship with taxpayers. The biggest change that most of us will experience as we approach this threshold is the different way in which self-assessment returns are made. And the arrival of Digital Tax Accounts heralds a completely new way in which your tax is to be calculated and paid.
The information initially published by HMRC about the new Digital Tax Accounts has been somewhat sketchy in places, but more details are becoming clearer as time passes, and Burton Sweet is committed to keeping abreast of the new regulations to ensure not only that our clients are fully compliant but also that our own teams are able to advise in the best possible manner so as to minimise our clients’ tax liabilities.
In the same way that most of us now access our bank accounts online, a Digital Tax Account will be accessible at any time by a taxpayer from a computer, smartphone or tablet. Just as with the existing paper tax return, details of income and expenditure will need to be added to the Account in order for someone’s tax to be calculated. However, there are two key differences:
• First, the occasions on which one might need to add information to one’s Digital Tax Account is likely to be more frequent (some needing to do so quarterly rather than annually – including small businesses, landlords and the self-employed); and
• Second, it is likely that a greater proportion of the information required will be provided automatically by employers, pension providers, insurance companies and other bodies – potentially including the profits one might make on eBay, taxes due on dividends and income from buy-to-let properties.
Closer to a ‘real-time’ tax system
The new Digital Tax Accounts will bring the UK’s tax system closer to ‘real time’ rather than working on a historic basis as has been the way in the past. With more regular submissions or information and with bank accounts being linked to one’s Digital Tax Account to enable payment of taxes via direct debit or instalments, the prospect of receiving a large tax demand often months after the end of a year will cease to be an issue.
Where taxpayers receive irregular or one-off lumps of taxable income, they will also be able to report this to HMRC online and pay any tax that arises immediately.
The switch-over Timeline
In 2016, 5 million small businesses and 10 million individuals will switch over to their own digital tax account. By May 2017, businesses will be able to register a new company and sign up for taxes in a streamlined process created jointly by HMRC and Companies House. The Treasury expects the switch away from paper returns to be completed by 2020, when “the vast majority” of Britons will have no need to fill in an annual tax return at all.
Click this image to see the proposed timeline in full:
HMRC has stated that with Digital Tax Accounts, taxpayers will be able to:
• View and manage their information online in one secure place – Taxpayers will get a real-time view of their tax affairs and see how their tax is calculated. They’ll also be able to check how much tax they owe or need to be repaid and see their options for paying securely.
• Pay the tax they owe without having to give HMRC information it already holds – HMRC will automatically use the information it holds, along with new data from third parties, to populate the digital accounts. Those who pay their tax through PAYE will have their income tax, National Insurance contributions and pension position shown in their digital tax accounts, including any interest from banks and building societies. For businesses, HMRC and Companies House will be streamlining the process to register a new company and sign up for a range of taxes by May 2017. This will remove the need for companies to provide the same information more than once.
• Link their business accounting software to their digital tax account – By 2020, businesses will be able to manage their taxes together as part of their day-to-day running, rather than something to be done separately. Their accounting software will be able to feed data straight into their digital tax account, so most businesses will simply log in to check their details with no need to send an annual return.
• Deal with their tax affairs quickly and easily – The digital tax account will show PAYE taxpayers how much tax they will pay via their employer. Even those with complex tax affairs will be able to tell HMRC about additional income online and have it reflected in their digital tax account. Individuals and small businesses will have the option to ‘pay as you go’ to help manage their cash flow, so they won’t be faced with a one-off bill many months down the line. Instead of making a number of payments across different taxes, they will be able to make just one. It will feel like paying a single tax.
• Benefit from simple, clear and personalised support – The new digital tax accounts will offer access to help and support for individuals and small businesses, increasingly tailored to their specific needs and circumstances – such as when someone approaches retirement, or when a business deals with VAT for the first time or takes on a new employee. HMRC will automatically target the right support to help taxpayers understand their overall tax position.
• Give authorised agents access to their digital tax account – Taxpayers will be able to let agents manage their digital account on their behalf if they wish. Agents will have new and different opportunities to support the small business community, and those who authorise an agent to deal with their tax affairs will see the same picture of their tax affairs online as their agent does.
• Access a wider range of government services – Over time, digital tax accounts will offer access to a range of other government services. To begin with, individuals will be able to see how their National Insurance contributions affect their state pension, while small businesses will be able to access increasingly tailored support from across government to help their business grow, via a Single Business Service.
We’re here to help and advise
The Treasury has said that the switch to digital would make lives easier for the taxpayers and companies who currently fill in an annual tax return. However, the automation of the tax system will certainly not be a substitute for the advice and assistance Burton Sweet can provide to clients.
We are committed to ensuring Burton Sweet is ahead of the changes to the self-assessment system. We will be revising many of the practices undertaken on behalf of our clients in connection with tax returns, and will be developing a whole new suite of services designed to ensure not only that their migration to digital tax accounts is as streamlined as possible, but also that their ongoing tax affairs are managed and dealt with in the most tax-efficient and cost-effective manner.