How will it work?The idea is that you will be able to submit accounts throughout the year via a computer, tablet or smartphone.?? You will be able to pay your tax at any point throughout the year rather than submitting an end-of-year return and paying an annual tax bill in one go. The account can be updated in real time and will calculate how much tax you owe without the hassle of completing a tax return. Information from employment, pensions and savings will already be there and you will be able to enter details of self-employment and other income. The switch is expected to start with five million small businesses and the first ten million individuals in early 2016. By 2020, your business should be able to link in its accounting software and bank accounts directly to your digital tax account.
Is this really going to benefit me?The option to “pay as you go” will provide more certainty about what you need to pay and when, so you can manage your cash flow. If tax information is submitted regularly, your tax bills are going to be more closely related to your current performance. If things are going well, your tax account will reflect this and you can make payments whilst you can easily manage these. Higher-income families will, in particular, be among those to benefit. Since last year, families where one parent earns more than ?50,000 have had to fill in a tax return, since child benefit payments are reduced above this threshold. Under the new system, these payments should be calculated automatically.
What should I be concerned about?Whilst a direct link from your business? software to your HMRC record without the need to complete a tax return sounds great in theory, it is likely that there will be many practical issues which affect the accuracy of the data. If you are currently used to only an annual check by your accountant to ensure that your books are reconciled and your accounts are correct, then you may need more regular assistance throughout the year to ensure the accounting information being fed into HMRC is correct. Given?s HMRC?s often poor reputation for accurateness, there will still need to be proper reviews of the information being compiled in the central record to ensure that the ongoing tax calculations are correct. There is a risk that the new system could actually leave tax payers worse off. At present, it has been reported that over 25 per cent of tax codes are incorrect. Without a mechanism for taxpayers to report their actual income and gains and to claim reliefs due, many taxpayers could end up paying more in tax than is due if only the digital accounts are relied upon without additional information. It is also yet to be confirmed what happens if a tax payer approves their tax account and HMRC have got it wrong. Will the taxpayer still be penalised??Under the new regime, it is rumoured that tax payers may receive fines of up to ?2,000 for failing to keep on top of their tax, a big difference to the current ?100 fine.
What do the professionals think?Whilst many advisers see the move as a natural progression for a system needing to follow the general trend of cloud-based computing, actually designing, testing and producing a flawless system within five years is very ambitious, particularly with HMRC?s poor track record of implementing new digital services. Many think that the new system won?t help anyone other than those with the most straightforward tax affairs and businesses and individuals with complicated tax returns may still need to submit additional information.
So what do I need to do?Firstly, and most importantly, don?t sack your accountant!? Whilst of course you would expect me to say this, it would be foolish to think that professional advice is not required. Your accountant will be able to have full view of your digital account and will still be best placed to advise on the accuracy of the data and to ensure that you are claiming all available reliefs. Secondly, if you are used to only delving into the detail of your books once a year, then it may be worth working with your accountant on a more regular basis now, perhaps completing monthly or quarterly management figures so that you start to establish a pattern of having up to date information at your fingertips. Finally, don?t panic. HMRC rightly want to keep up with the progression of the online world but they are also sensitive to those of you that might not be digitally savvy and are keeping the current paper system, certainly in the interim, for those that prefer. If you are actually quite accustomed to the January rush and the comfort of an annual tax return, then nothing to stop you from sitting back during your well-deserved annual leave in February and seeing how it all unfolds.
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