New document on department’s digitisation plans forecasts five year timescale for widespread move to real time information
HM Revenue & Customs is aiming to bring about the end of the tax return for millions of taxpayers within five years, according to a document outlining its plans for digitising its operations.
Making tax digital says that an increasing use of real time information and digital tools will make it unnecessary for many individuals and businesses to file returns. But they will be ab le to check their tax is in order through digital accounts.
The document was launched at HMRC’s stakeholder conference yesterday by Financial Secretary to the Treasury David Gauke (pictured), who said it sets out the government’s vision for setting up digital accounts, with the aim collecting an additional £1 billion of tax revenue by 2020-21.
He said that businesses will be expected to keep digital records and update HMRC quarterly, but this will be done through software or apps and integrated into businesses’ digital record keeping.
One of the aims set out in the HMRC document is to support businesses, self-employed people and landlords through making a range of apps and digital tools freely available, while ensuring they still have a choice of commercial software packages.
“I want to stress that this is the end of the tax return – this is not going to feel like doing four tax returns a year,” Gauke said. “Indeed, we expect these reforms to ease the admin burdens on businesses and to help them plan their cash flow more easily, by providing greater certainty about what they will owe.
“Updating HMRC directly in this way will be secure, light touch and far less burdensome than the tax returns of today.
“In a real time economy we should match tax more closely with the related transactions – many taxpayers have told HMRC that they want more certainty over their tax bill, and don’t want to hold on until the end of the year or even longer to find out how much they have to pay.
“Many businesses already use tools like these, but sometimes we need a catalyst to energise change. The requirement to use software or apps is this catalyst; it gives business certainty in terms of direction and allows full benefit from their use to be realised.”
The document says that one of HMRC’s key targets is to use real time data to check on income, benefits in kind and personal allowances each month by 2017. This would make it possible to quickly adjust tax codes and sharply reduce the volume of over-and underpayments.
It also forecasts that from next year most taxpayers filing a return will find most of their basic information, notably earnings from a regular employer, already on the form when they sign in. This should also apply to information from other government departments, such as the state retirement pension.
Check any time
“Taxpayers will see the information that HMRC holds through their digital tax accounts, and be able to check at any time that their details are complete and correct,” Gauke said.
“Better data means fewer mistakes, fewer delays, and a better outcome for all parties. This is an important development both for individuals and businesses.
“HMRC will use this data to tailor the service it provides, according to each taxpayer’s individual circumstances. In 2016, HMRC will consult on how information from more third parties might reduce the reporting burden on taxpayers.”
He also highlighted the four underlying principles outlined in the docurment:
- Simplifying tax, so that taxpayers do not have to give HMRC information it already has or should be able to get from elsewhere.
- Providing a single picture of their liabilities and entitlements in one place.
- Making tax digital for businesses, so they do not have to wait until the end of the year to know how much they have to pay.
- Making tax digital for individuals, which underpins their access to a digital tax account from next year.
“In the next five years, all taxpayers will be able to use their digital accounts to see a single, up-to-date and easy-to-follow overview of their tax affairs, just like they do in their online banking,” Gauke said. “Together, all these elements will ensure that, by 2020, HMRC will have moved to a fully digital tax system.”
Picture from GOV.UK, Open Government Licence v3.0