For decades, business owners have been subjected to paper based tax processes. The flurry of printing off forms to fill in and send off, worrying t at you’ve filled something in the wrong place or simply forgetting to put the forms in the post – the whole process is rife with pitfalls. But over the last few years HMRC have been working on creating digital processes for tax. This has typically involved the digitisation of key forms and processes, but sparingly, to test how it works. But now, the government are pledging to take tax into the digital world. ‘Making Tax Digital’ is a key part of the governments 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 dreaded annual tax return for millions. But what’s involved?
Better Use Of Information
One of the things HMRC is famous for is requesting you to send them information that they already have, from the numerous other times you’ve communicated with them. So one of the big benefits of the new digital tax system will be the fact that HMRC will no longer request information they already have, or can get from elsewhere (for example by asking your employers, banks, building societies or other government departments). Every user will be given a digital tax account, through which they can see what information HMRC holds on them at any time, check if they are correct and change them if not. But it gets even better than that – using all of this consolidated information, HMRC will be able to tailor the service it provides to individuals and businesses to suit their circumstances, instead of using a ‘one size fits all’ approach.
Tax In Real Time
One of the problems a lot of our customers have is the inability to plan for things like tax bills properly because they don’t have any idea what they will be liable to pay. They might be able to work out a rough estimate, but until the annual return is filed they can never be sure. But with digital tax, customers won’t have to wait until the end of the year to find out how much they need to pay. Instead, HMRC intends to collect and process all information affecting tax ‘as close to real time as possible’. This is supposed to prevent errors and stop tax owed building up into one huge chunk, allowing business owners to plan effectively using real time, accurate information.
A Single Financial View
So at time of writing, individuals and business owners can’ see a full, accurate account of their tax affairs. Instead, it is spread over multiple forms and platforms, and if you want a full picture you need to put in some elbow grease. But the government have pledged that by 2020, customers will be able to see a ‘comprehensive financial picture in their digital account, just like they can with online banking’. So when this rolls out, you should be able to log into HMRC with your unique account and see everything you owe, or are owed, your current and past returns – basically everything you could need for tax purposes.
And finally, HMRC communications will be going digital! I don’t know about you, but even we get that brief feeling of dread when the brown envelopes drop through the letterbox. And while some of those letters may still be sent (because they can’t give up mail communication altogether) they will be allowing customers to communicate with them digitally, and vice versa. This will largely be done through your own HMRC account, where you will be able to access webchat and secure messaging functions to talk directly to HMRC, without sitting on the phone on hold for hours. Customers will also be able to exchange information with HMRC directly from your business software, so communication and submission of accounts should be a breeze.
Now of course, this announcement isn’t very recent. The guidelines were first published in December 2015, and the scheme has been under constant work since then. In fact it’s still being worked on now, so we’re sure that by the launch in 2020 there will be a load of new features for us to talk about. But since 2020 is now only 30 months away (!), it’s time to start thinking about how this will affect your business and how you can embrace the digital. For more information, or to find out how we could help you manage your accounts and tax, get in touch with Cove Accountants today.