Digital furture

With the Conservatives taking a majority government in the 2015 election, it appears that they may now have to carry out their promise of ditching the tax return, as we know it, and moving to digital accounts.

This was a surprise announcement in the March Budget with a glossy document published explaining (or not as the case may be) how they intend to digitalise tax returns by 2020 for all.

Some cynics may think that this was a last ditch attempt to curry favour with the voting public by suggesting that tax would all of a sudden become a simple exercise, where HMRC do all of the hard work.  However, in reality, this is very unlikely to be a true picture.

What we know so far

In short, very little!  HMRC are likely to publish further information later in the year but for now we just have the short glossy to peruse.  We have pulled out some of the statements included within that paper and provided our thoughts on what this could mean.

What HMRC have said


Our interpretation

They will bring together each taxpayer’s details in one place, just like an online bank account, without having to complete a tax return again

Ok, so maybe the tax return as we know it will no longer need to be completed but information will still need to be checked, missing information provided and all presumably by a set deadline.


Individuals and small businesses will have the option to ‘pay as you go’ to help manage their cashflow


Surely this is more likely to help HMRC’s cashflow by encouraging taxpayers to spread their payments and hence pay part or all of their tax liabilities sooner.


By 2020, businesses will be able to manage their taxes together as part of their day-to-day running


Could this be an indication that HMRC are moving towards more of a real time information approach as recently adopted for PAYE?  If so, this could actually lead to added complexity and compliance. It would be a welcome move though to have all tax liabilities shown in one place.


HMRC will automatically use the information it holds, along with new data from third parties, to populate the digital accounts

The taxpayer will still need to check the information is correct.  Errors are inevitably going to happen, particularly as information will be gathered from a range of sources including third party information.


They won’t need to provide information that HMRC already holds and they’ll be able to see and understand their tax liability.

“Understand their tax liability”.  Really?  Unless they are also planning a complete overhaul of the tax system, the same complex rules are going to be in place.

Taxpayers can let an agent manage their digital tax account on their behalf.

The digital approach is unlikely to be quite as straightforward as being suggested and even HMRC have recognised that support will need to be provided by tax professionals.



What remains to be seen?

A lot! There are still a number of questions to be answered as to how the new digital accounts will operate in practice and a lot more information is needed.  Some of the key questions we are yet to have answers to include:

·         How frequently will information need to be uploaded/checked/confirmed on the digital accounts?

·         Will there be penalties if taxpayers approve data which HMRC have inputted in error?

·         Will there still be a deadline date?

·         How will HMRC be able to provide confidence that errors on their side will be minimised?


The last point is of particular interest as, unfortunately, it is not only on a rare occasion where HMRC make an error or pick up the wrong bit of information.  Therefore, placing more confidence in the databases HMRC have access to and using this information to calculate an individual’s tax liability may well leave many taxpayers shaking in their boots! 

The upsides

Recent statistics show that 16% of those filing tax returns for 2013/14 had no tax to pay (i.e. filed nil tax returns) with a further 8% owing £50 or less.  This equates to nearly a quarter of the 11 million people now filing tax returns owing very little, or nothing, in tax. 

A shift to digital tax accounts may benefit many of those individuals with simple tax affairs as, rather than form filling, they will just be required to verify HMRC’s data.  We do wonder though, if HMRC have got the information wrong, will the taxpayer be penalised?

Also, having sight of all the different tax liabilities in one place rather than having to login to several different portals should make life a bit easier.

A number of other upsides have been promised but time will only tell as to whether these will be achieved in reality.  In the meantime, we wait with bated breath, albeit as you might have gathered a little bit sceptically, to see more details on how this big change is going to be achieved!

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