Tax Blog

Is the sun rising on HMRC’s digital tax accounts?

News of HMRC’s proposals to introduce digital tax accounts for small businesses, the self-employed and other tax payers, was generally met with relief by those parties, but by an element of scepticism among accountants.

HMRC says that it is hoping to eliminate the annual tax return process for the UK’s five million small businesses and ten million tax payers by early 2016. It is hoped that its replacement, the real time digital tax account, will be not only secure but highly personalised. All tax information will be held in the same place and individuals will be able to choose to view their outstanding tax on a “pay as you go” basis, rather than being faced with a bill at the end of the financial year.

Taxpayers, it says, 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”. In addition, individuals who are eligible to pay more than one tax will be able to see all of their tax liabilities in one place.

Instead of relying on tax payers to provide the necessary information from which to calculate tax returns, HMRC will instead collate this information from a combination of its own files and other third parties such as banks. It will, however, fall to the tax payer to ensure that information held is correct.

Essentially then, self-assessment and other taxes may be dealt with on a day by day basis, rather than yearly – a move which will undoubtedly assist with the average SME cashflow.

For some taxpayers however, there may remain the necessity to supply additional information to HMRC, particularly those whose tax affairs are more complex and private limited companies which may still need to enter dividends manually. It is still advised in these instances, that the professional services of an accountant be used, in order to check that the information held by HMRC is correct, to report any unrecorded, relevant information and advise on how to minimise tax payable.

Accountants still have many questions about the new digital tax accounts, which remain unanswered. There remains an uncertainty about deadline dates, confidentiality and timetables. The feeling within the industry is that the government may be over-promising and at risk of under-delivering.

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