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Digital tax accounts compulsory by end 2016 for all taxpayers

The government is to accelerate plans to introduce digital tax accounts with the abolition of self assessment tax returns and a deadline of end 2016 to roll out the new system for all taxpayers in the UK.

The government plans a dramatic digitisation effort to make it simpler to report and pay tax as part of its ‘Making Tax Digital’ programme with a £1.8bn project that will ensure digital tax accounts for taxpayers – corporate and individual – together with a simple payment mechanism for all central government services.

HMRC has set out plans to move to a purely online payment system for tax, which will operate virtually in real time, as part of its Making Tax Digital strategy. The major plank of the reform will see the abolition of the tax return and will remove all paper transactions with HMRC.

By the end of 2016, every individual and small business will have access to their own digital tax account, and by 2020, businesses and individual taxpayers will be able to register, file, pay and update their information at any time.

HMRC says the digital tax accounts will offer a ‘clear and joined-up view’ of the tax individuals pay and benefits they are entitled to; enable people to update their tax details as they occur in real time, removing the need to resubmit information; and the tax authories claim that it will 'make it easier and more efficient to contact HMRC officials through services like web chat and virtual assistant'. However, telephone helplines will begin to be phased out.

As part of HMRC’s ‘Making Tax Digital’ strategy, two million businesses are already using their digital accounts and every business will have access to one by April 2016.

The HMRC document, Making Tax Digital, states: ‘For the vast majority, there will be no need to fill in an annual tax return.

‘Business will be able to see, through their digital accounts, a real-time view of their tax and a calculation of the tax due. By reporting information closer to real time, businesses will find it easier to understand how much tax they owe, giving them far more certainty over their tax position and helping them to budget accordingly.’

However, this will mean changes to the current payment systems for business and individual taxpayers.

At the moment, the digital tax accounts are fairly basic, but HMRC plans between now and May 2016 to add new features, including improvements to the ‘Check your tax estimate service’ so taxpayers can look a year ahead and back on their current, future and previous tax position, and  allowing non-self assessment customers to choose to stop receiving paper correspondence.

In addition, HMRC plans a new online payment and repayment service, and says it will integrate the tax credits online service with the digital tax account in time for the renewals of tax credits. It will introduce a service covering change of change of circumstances for the Marriage Allowance, and is trialling a service providing  information about national insurance and state pension entitlement.

HMRC says it will consult on the issue of payment, with the aim of simplifying the payment of taxes, align payment arrangements and bring payment dates closer to the time of the activity or transactions generating the tax liability, so that businesses make a single regular payment that covers all of the tax they owe. 

Individuals and the self employed would also be required to make smaller, more regular payments rather than the current approach of payment on account.

Details of these measures will be released for consultation in spring 2016, including on whether they should apply to charities, sports clubs and their trading subsidiaries.

The government has already announced, however, that these measures will not apply to individuals in employment or pensioners, unless they have secondary incomes of more than £10,000 per year from self-employment or property.

In preparation, HMRC has released a discussion document outlining some of the key issues and will be running a series of consultation events in January and February with stakeholders to discuss proposals to simplify payments.

The planned consultations will not consider corporation tax (CT) arrangements for the largest companies (broadly those who have more than £20m profits in a 12 month accounting period) since the government has already announced reforms to Quarterly Instalment Payment (QIPs) for this group.

However, there will be payment changes to the remainder of the corporation tax paying population, covering income tax self assessment (ITSA), VAT, Class 4 national insurance contributions (NICs) and other taxes collected through the self assessment process.

HMRC says the changes will align payment arrangements across different taxes and where individuals need to pay more than one liability, they will be able to make a single payment — off-setting any tax owed on one liability against an overpayment on another.

There will be changes to the tax code governing when money can be reallocated between different liabilities.

In spring 2016 HMRC will also consult on where it might obtain information directly from third parties, removing the need for taxpayers to report it.


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