Budget 2016 – Tax Administration

Making Tax Digital

The digital revolution is being brought to the tax world!  By 2020 HMRC will have moved to a fully digital tax system.

The system will enable information that HMRC already hold to be automatically uploaded into the taxpayer’s digital account.

The idea is that the tax system operates much more closely to real time and there will be less risk of errors in the system.

Every individual and small business will have access to their own secure digital tax account that will enable them to interact with HMRC digitally and they will be able to see their complete financial and tax picture.

From April 2018, businesses, including everyone who is self-employed, and those letting out property, will start to update HMRC at least quarterly where it is their main source of income (or a secondary source of income above £10,000 and their main income is from employment or a pension).  This will enable them to adopt pay-as-you-go tax payments. This will allow them to choose payment patterns that suit them and better manage their cash flow. The government will also explore options to simplify the tax rules for these groups. The government will consult on these measures in 2016.

By 2020, businesses and individual taxpayers will be able to register, file, pay and update their information at any time of the day or night, and at any point in the year, to suit them.

HMRC has already started using real-time PAYE data to reduce end of year under and overpayments, by changing tax codes in-year.  From 2017, HMRC will further develop its use of real-time data – checking income, benefits-in-kind and personal allowances each month to make tax code adjustments that will help avoid under and overpayments altogether. This will be of particular benefit to taxpayers with more than one job or those with low or fluctuating income, many of whom contact HMRC regularly to change how their personal allowances are shared between jobs and pensions to prevent overpayments of tax. In the future, they will be able to see these adjustments clearly through their digital tax account and choose how their personal allowances are allocated.

Whilst a number of taxpayers will no longer need to fill in an actual annual tax return, businesses and individuals will still need assistance with completing their accounts so that the information can be relayed to HMRC, so it may be the end of the tax return as we know it, but it is certainly not the end of business advice and tax planning.

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