HMRC is undertaking a fundamental change in how reporting for tax is managed in the UK. The headline issue for many tax payers will be the requirement for all businesses and landlords to submit information to HMRC on a quarterly basis in a digital format.
Filing tax returns electronically isn’t a new idea; the Making Tax Digital regime has been well underway for a while now with tax payers being able to access their digital account from April 2016. These proposed changes are a further extension of that initiative.
The question is: is making tax digital a good thing for the tax payer?
The world is certainly a different place compared to when Self-Assessment tax returns were first introduced back in 1997. We now use the internet to manage our banking; do our food shopping; communicate with friends and family – even to buy birthday cards! It comes as no surprise then that HMRC are trying to adopt a similar outlook with taxation. Moving to a digital platform is recognition that we as a culture now do far more “admin” with our smartphones, iPads and laptops than we do by filling in forms and putting bits of paper in the post.
Ultimately, having a tax system more synergetic with modern culture must be a step in the right direction. The new digital tax account will pull together a raft of information relating to an individual’s tax position (such as bank interest, P60 figures and Construction Industry Scheme income) into one place. Previously HMRC already held information about individuals (such as salary information, employment benefits, bank interest, etc.) which was then required to be reported to HMRC again on a tax return. By bringing this information together in one place, there will, in theory, be less paperwork to be maintained by tax payers and re-reported to HMRC.
However, the new regime is not likely to be without its downsides. Some of the more significant issues are:
- Historical evidence shows that HMRC are certainly prone to having errors within their systems. Inevitably, with pre-population of elements of a tax payers income there will be errors that will need correction by tax payers or their accountants.
- Security of information is always a concern with online data. Reassurance will be needed to guarantee the safety of the information uploaded to and held by HMRC. The recent Yahoo and Tesco banking breaches shows that even the tech giants and biggest firms are susceptible to hacking.
- Concerns arise with the capability of tax payers being able to submit information digitally – many tax payers currently use manual methods of bookkeeping that will not be compatible with the new system.
- There are practical considerations too; many tax payers may not have reliable internet connections or ready access to online systems.
Although there are benefits, quarterly reporting to HMRC inevitably means additional costs for taxpayers: either in pure financial terms (such as the cost of purchasing new software or hiring bookkeepers for example) or in lost-time spent on quarterly filing that could be better spent actually managing the business. No matter how HMRC try and spin it, the new process means more information being submitted, more regularly by tax payers than previously.
At Moore, we will of course keep clients up to date on how Making Tax Digital will affect you, and help you to manage the changes seamlessly. We are already engaging with HMRC on the new regime and have been actively participating in the consultations so far. We will continue to champion the needs of the tax payer to make sure these problems are highlighted to HMRC so that they can take steps to manage or eradicate them.