Making UK Tax Digital – Part 1
In the March 2015 Budget the government announced its vision for modernising the tax system and set out how this bold change for modernising the UK Tax system would be live by 2018. Following feedback that the pace of change could be too great, this ambitious date has now been changed to 2020 for some businesses, though many UK taxpayers will still need to be ready for 2018.In anticipation of this change, I want to share my insights from a tech firm’s perspective.
What is Making Tax Digital?
Making Tax Digital (MTD) is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs – meaning the end of the annual tax return for millions.
Every individual and business now has access to their own personalised online tax account and these are being regularly updated and improved. HMRC want all tax submissions to be completed online by 2020 and are offering the compelling ‘carrot’ of more efficient tools and services to help make this a reality. If we consider that over 10 million self-assessment returns are now filed each year, there is a massive opportunity to save UK business a tremendous amount of time. Just think what we could achieve with all that saved time, whilst also being on top of our finances through the year?
The HMRC vision is to deliver a comprehensive, connected, digital experience using modern technological approaches and services. As a technology enthusiast, I see the change as an extension of the ‘eco-system’ that is already available when you use a cloud accounting system. Cloud accounting systems can already link up accounting systems to banks and 3rd party apps, so why not to HMRC as well? This is the most effective way to use the data in our digital age.
What are the Benefits?
- Making Tax Digital presents significant benefits. It will mean that you will not have to give HMRC information that it already has, or that it is able to get from elsewhere – for instance from employers, banks, building societies and other government departments. Having a digital tax account will mean that UK tax payers can see the information that HMRC holds and can check at any time that their details are complete and correct. HMRC will use this information to tailor the service it provides, according to each of our customers’ individual circumstances. For me it’s a relief to know we can soon move away from the crazy situation where individuals need to re-enter data on a tax return that HMRC already has in its systems. I have just completed my 2015/16 tax return (at 10:30pm on 31st Jan… thank you!) and found myself copying P60 data on to my return, yet I know HMRC have this data already, so why not integrate? You should not have to wait until the end of the year or longer to know how much tax you should pay. HMRC will collect and process information affecting tax much closer to real time. This will help prevent inaccurate tax calculations by highlighting any errors much sooner and will allow all tax payers to better plan for that inevitable tax bill.
- An important change with MTD is the concept of quarterly (or more frequently) filing of financial information to HMRC. With the right tools, I believe that this can be done efficiently and the change will ensure that many people and their businesses reduce the risk of there being an unpleasant ‘tax surprise’ at the end of the year. The change may well help many with such cash flow concerns, as it should be easier to plan tax liabilities sooner, given calculations will be updated at least 4 times each year.
- At the moment most taxpayers cannot see a single picture of their liabilities and entitlements in one place – HMRC are changing that. By 2020, customers will be able to see a comprehensive financial picture in their digital account, just like they can with online banking.
- You’ll be able to interact with HMRC digitally and at a time to suit you. You already have access to a digital account which will present you with an increasingly personalised picture of your tax affairs, along with prompts, advice and support through webchat and secure messaging. And digital record keeping software will be linked directly to HMRC systems, allowing customers to send and receive information directly from their software.
It is worth noting at this point that businesses will be able to continue to use spreadsheets to record their financial information, which I know will be a relief to many reading this. However, HMRC do explicitly state that such a spreadsheet will still need to be combined with software. My assumption is that the software will be needed to connect to the new HMRC API to validate and send data in the standard format required. The requirement for such a tool may make cloud accounting more appealing in any case, so definitely worth considering a change sooner rather than later.
The simplification of rules combined with better use of technology should be seen as an opportunity for accountants. The opportunity to move away from data checking for tax purposes and moving on to the more valued and valuable work relating to analysis, interpretation and advice for their clients benefitting both accountants and small businesses alike.
Article by Jon Martingale
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