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Moving on to digital tax accounts

A radical step in the modernisation of the UK tax system is the announcement that digital tax accounts will be introduced with the intention that these will displace tax return filing obligations. 

HMRC plan to make the new digitalised portal initially available to five million small businesses and ten million individuals by early 2016, with every individual and small business encompassed by the end of the next Parliament. The simple and secure personalised real-time account will be available on the taxpayer’s digital device of choice, much like online banking. It will facilitate a joined up service with links to third party data so that information is automatically populated and available for the taxpayer to simply check and monitor without the need to repeat information within a tax return.

For individuals within PAYE, they will be able to see their Income Tax, National Insurance Contributions and pension position in one place.  Businesses will be able to view their Corporation Tax, VAT and PAYE positions and make pay-as-you-go instalments towards one liability comprising of all the various taxes. Whilst on the face of it this is likely to have the effect of accelerating tax payments, it could be a useful feature for those who prefer tighter cash flow by making staged payments to HMRC (much like PAYE). 

By May 2017, new company registration will be possible in a single process and by 2020 businesses will be able to link to their accounting software and feed data directly to their digital tax account, without having to file a tax return.

HMRC are promoting digital tax accounts as the new way to streamline the tax reporting system, giving taxpayers control over their affairs whilst providing online help and support.  Whilst this is welcome progress, there is a view that it could provide HMRC with too much information or lead to errors due to the way information is interpreted. Details of how more complicated cases can be handled remain to be seen, but HMRC say that taxpayers with more complex tax affairs will have the facility to use the account to declare income (and presumably gains) and, importantly, agents will be able to access the same information and deal with matters on a client’s behalf. 

The scope of the digital tax account will be extended to other services as time progresses. 

Further details of the policy and its administration will be published later this year and the Government will consult on the new payment process. The cost of implementing the new system does not appear to have been quantified and there has been no mention of the impact on disclosure penalties and late payment fines, which will need to be addressed. 

In the meantime, HMRC have announced an extension to the penalty regime in the form of a tax-geared penalty for liabilities arising out of the relatively new General Anti-Abuse Rule (GAAR) and a new disclosure facility involving 30% penalties coupled with early withdrawal of the existing Liechtenstein Disclosure Facility (LDF) from 5 April 2016, to the end of 2015.



Date: 19th March, 2015
Author: Nick Igloo


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