The Government has budgeted £1.3bn to transform the HMRC’s approach to tax collection. Online tax accounts and individual online portals are proposed to enable self-service taxation, thus avoiding the need to telephone or write to HMRC. The proposals exclude all unincorporated businesses and landlords with annual incomes below £10,000.
Objective for Making Tax Digital
By 2020, HMRC is planning to move into the full digital tax system. The government has committed to reducing the burden for taxpayers and bridge a brilliant and handy tax system fit for the digital age. HMRC will collect all information and process them on a real-time basis- their aim is to bring to an end tax due or repayments owed from businesses and individuals. The taxpayers will no longer have to wait until the end of the tax year to calculate how much tax is due for the year. This will help the taxpayers to avoid paying any interest and surcharges, and will also help them to plan their finances in an efficient way.
How it works
HMRC wants taxpayers to provide their tax information quarterly. HMRC also proposes to integrate Apps and software that will provide data directly to their system. For instance, HMRC should already have information, or get information from elsewhere relating to emloyment income, bank interests and government benefits. The taxpayer will see the information that HMRC holds through their digital tax accounts.
The timeline
The relevant dates are:
- Income tax and national insurance: April 2018
- VAT obligations: April 2019
- Corporation tax liability: April 2020
The verdict
Although the proposal sounds fantastic, aiming to reduce the administrative burden on businesses and individuals, in reality it may well mean just the opposite. Businesses will need to prepare accounts and submit tax returns on a quarterly basis. Not only will this increase the cost base for small businesses, it means that running the business will become impossible given the time and effort required to continually be reporting to HMRC.
However, most individuals and businesses are already submitting their accounts and tax information digitally to HMRC, including self-assessment tax returns, PAYE, VAT and Corporation tax returns. Also, the digital tax accounts will give instant access to income and tax liabilities information.
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By Moinul Islam