Digital revolution with its benefits is apparent and widely experienced in every walk of life. From online shopping and booking an appointment or night out, to internet banking and paying for transactions – virtually everyone draws the benefits from the simplicity of using internet. Business and service providers are taking things even a step further by facilitating online interactions with their customers and transforming the way they operate to the benefit of their customers. Not hard to notice that information and services are flowing.
Digital revolution is now on its way to Whitehall. However the tax return has already undergone a lot of changes over the years, there is still more to come. We have watched it move from paper and post (offline return) to paperless (online return) alongside paper return. Eventually tax return in its current form is to be replaced by the modern online tax accounts where data is partially prefilled for the simplicity of the user. All the taxpayers will have an instant access to their accounts and in order to build the correct picture of their finances, they will be put under the obligation of updating at least quarterly their financial information by sending it to HMRC modernised portal . The above will ultimately mean the end of the tax return for millions of taxpayers.
Changes to the existing tax system leading to digitalisation of tax, were announced in the Autumn Statement 2015. The government pledged to invest £1.3 billion by 2020 to transform the service and administration so it is more effective and transparent. The MTD (making tax digital) road map has been set up in 4 areas:
- Tax simplified – where government will use the information already held or that can be provided from elsewhere like employers, banks, building societies, or other government departments to populate personal data. Taxpayers will be able to view the information held and check at any time if their details are complete and correct.
- Tax in one place – at the moment most of the taxpayers cannot see single picture of their liabilities in one place but now HMRC is changing this. By 2020 taxpayers will be able to look at their finances and interact in similar way to online banking.
- Making tax digital for Business – Business will not have to wait until the end of the financial year to find out how much tax they owe. Constant feeds will supply information that will build financial picture of their liabilities or entitlement to repayment. From April 2018 businesses including everyone who is self-employed and letting out property, will be quarterly updating HMRC on their primary source of income (or secondary if more than £10 000 or above their main income that comes from employment)
- Making tax digital for individual tax payers – individuals will be able to access their accounts and interact 24/7 at any time to suit them and there will be a wide range of services and support available to them through web chats and secure messaging.
The above changes will hence require the use of modern technology on which the success of MTD very much hinges. Sophisticated online software and apps for submitting returns and quarterly report income, will represent a long lasting change in the requirements imposed on businesses. In order to comply, business will have to make significant investments and changes in the way they operate. Although draft legislation of MTD is still under public consultation (until 30 January 2017) and more is expected on the bill during the Autumn Statement on 23 of November 2016, the rules for keeping records and calculating tax liability have been set up by the Taxes Management Act 1970. Those rules will stay, coupled with new MTD proposals regarding keeping records in a new digital way. The draft of the new Finance Bill tackling the legal site of MTD is expected to be published on 5 of December 2016. In the meantime HMRC looks in detail into the way transactions are recorded and will be seeking to improve the system even if it means dictating how the businesses should be run. With all the arising expenses that come with digitisation of tax, arise controversial question of finance and many argue that the government should supply free of charge all the required equipment in order to carry out their plans and to facilitate the switch. How the changes are implemented however, will depend if the Financial Bill is treated as money or a supply bill, which are not easily amendable and are subject to less scrutiny by the House of Lords.
Difficult Task of Making Tax Digital – Your Tax Assistant