All change for tax returns

Peter Young

Peter Young

Tax Partner

In March 2015 George Osborne announced “the death of the annual tax return” to whoops of joy from his backbenchers. But does this mean the end of sleepless nights for individuals (and their tax advisers!) rushing to beat the 31 January UK self-assessment tax return filing deadline?

Unfortunately the answer is a resounding no. Taxpayers will still have to keep records for possible future examination by HMRC, and some may even pay tax sooner than at present. Businesses and buy-to-let landlords could also have to report their income and expenses quarterly to HMRC rather than annually as at present. 

The transformation of the whole tax system through “Making Tax Digital” represents the most fundamental change to income reporting in a generation.  Digital taxation will impact all of us, and here at Johnston Carmichael we are starting to prepare for an entirely new way of working with and for our clients.

Making Tax Digital is an ambitious project aimed at joining up HMRC’s internal systems. It will affect individuals, businesses, trusts and companies, with small businesses likely to be affected earlier than large corporates. 

In August 2016 HMRC issued six lengthy consultation documents setting out what they intend to do in order to achieve full digital taxation by April 2020. We expect more detail in the Autumn Statement on 23 November 2016, followed by draft legislation to be introduced in the 2017 Finance Bill.

The headline proposals are as follows:

1. Digital tax accounts

Every individual should have their own digital tax account by December 2016. This will eventually be a one-stop shop for all personal tax matters. HMRC will prepopulate digital accounts with details of employment, pension and interest income.

2. Quarterly reporting

Businesses and property landlords will have to report their income and expenses quarterly to HMRC, with only the smallest enterprises exempted. Year-end updates will also be required. All reporting will be electronic.

3. Voluntary tax payment

HMRC are going to offer taxpayers the option to pay their tax sooner under a new ‘pay as you go’ arrangement. HMRC believe this is ‘a positive step forward, giving businesses the opportunity to budget towards their tax bills’, something taxpayers may dispute.

Change is clearly coming. Johnston Carmichael will be keeping a close eye on digital taxation developments, and will provide regular updates on HMRC’s digital agenda.