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Making Tax Digital

The digital revolution is being embraced, whether it is banking, shopping, booking cinema tickets or making a GP’s appointment, millions of individuals and businesses are benefiting from the simplicity of digital services.

The government is ensuring that the tax system is no exception. During this Parliament, HMRC will make changes to the way the tax system works – transforming tax administration so it is easier for taxpayers.

By 2020 businesses and individual tax payers should 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. For the vast majority of people there should be no need to complete an annual tax return.

HMRC will collect and process information in as close to real time as possible, preventing tax due or repayment owed from building up. There will be no need to wait until the end of each tax year to know how much tax is owed, avoiding any surprises and helping to plan financial affairs with more certainty. 

The transformed tax system of 2020 has four foundations.

HMRC have confirmed that it is their intension to implement the following steps:

1 - Tax Simplified:

Taxpayers should not have to give HMRC information that it already has, or can get from elsewhere – for example, from employers, banks, building societies and other government departments.

Taxpayers will be able to see the information that HMRC holds through their digital tax accounts, and be able to check at any time that their details are correct. HMRC will use this information to tailor the service it provides, according to each taxpayer’s individual circumstances.

2 - Tax in one place:

By 2020, taxpayers will be able to see their complete financial picture in their digital account, just like they do in their online banking. And they will be able to set an over-payment of one tax against the under-payment of another: it will feel like paying a single tax.

3 - Making tax digital for businesses

By 2020, most businesses, self-employed people and landlords will be required to keep track of their tax affairs digitally and update HMRC at least quarterly via their digital tax account. These changes will be introduced for some businesses from April 2018, and will be phased-in by 2020, allowing businesses time to adapt.

Businesses will be required to use digital tools, such as software or apps, to keep records of their income and expenditure.

Once the software has compiled the relevant data, businesses or their agents will feed it directly into HMRC systems via their computers or smartphones. Updating HMRC directly in this way will be far less burdensome than the tax returns of today.

Please click here to read about our Xero accounting software.

4 - Making tax digital for individual taxpayers:

The future tax system for individual taxpayers will be similar to those of businesses – a digital tax system operating in as close to real time as possible.

By 2020 HMRC will be interacting digitally with all taxpayers. HMRC will automatically target prompts and advice through secure messaging, tailored to taxpayers’ specific needs and circumstances – such as when someone has a baby, or approaches retirement.

Individual taxpayers will interact with HMRC digitally, and at any time to suit them via a digital account which will present individual taxpayers with a personalised picture of their tax affairs, along with prompts, advice and support through webchat and secure messaging.