Tax: A digital challenge or a simplifying opportunity?

In the midst of talk about a sugar tax on soft drinks, cuts in corporation tax, and the new ‘lifetime’ Isa, one thing that may have flown under the radar in the Budget is further details on plans for digital tax accounts.

Last year HM Revenue and Customs announced its intention to make tax returns a thing of the past. Plans to replace them with digital tax accounts for individuals and businesses were revealed, with the intention being for HMRC to embrace the digital age and for tax accounts to be simple, secure, and personalised to the taxpayer.

In Wednesday’s Budget Chancellor George Osborne outlined further details to make progress in the plan, announcing that:

1. From 2018, businesses, self-employed people and landlords who are early adopters and are keeping their records digitally and providing regular digital updates to HMRC will be able to adopt pay-as-you-go tax payments if they wish.

2. In line with the Office of Tax Simplification (OTS) recent recommendations the government will be exploring options to simplify the tax rules for businesses, landlords, and the self-employed, to reduce administrative burdens and ensure that regular digital updates work smoothly.

3. The government will consult on these measures in 2016, alongside publishing detailed proposals for other elements of the Making Tax Digital programme that have been announced previously.

A simplifying opportunity

In the original announcement about digital tax accounts, benefits cited included the ability to view and manage tax information online in one place, such as checking how much tax is owed and how it has been calculated.

Other benefits announced during this latest Budget are the ability to adopt pay-as-you-go tax payments, which will allow tax payers to choose payment patterns that suit them. This could help businesses to better manage their cash flow and decide when they want to make their returns, rather than having to stick to a pre-decided timetable.

George Osborne also announced that £71m in extra funding is to be made available to improve the service HMRC provides. The money will be used to help fund a seven days a week service by 2017 that will allow extended hours and Sunday opening on online services and tax telephone numbers. This means that businesses will have more access to help and be able to reach HMRC at a time that is convenient for them.

A digital challenge

Many small businesses reacted to news of the introduction of digital tax accounts with dismay, fearing that they will lead to an increased workload and possibly even having to fill in tax returns four times a year. Over 110,000 people signed a petition to scrap the plans.

Accountants and other business advisors also outlined fears, including that clients will need to pay their accountants four times a year to make sure their returns information is correct, rather than just once a year as it is at the moment.

Another reason the system has not been welcomed fully is because the digital tax system will obviously require an internet connection. With recent stories about areas where internet connectivity speeds are slower than those on Mount Everest, businesses in certain areas are worried that their poor connections may lead to them not being able to access and submit their digital accounts.

Rolling out the system

The Government’s intention is for five million small businesses and the first ten million individuals to have access to their digital tax account this year, and then for more than 50 million individuals and small businesses to have one by 2020. In their own words, “This is a bold vision for a new modern tax system which will make it easier for all taxpayers – whether they are individuals or businesses – to manage their tax affairs…”

The changes announced do seem as if they will have their benefits, and anything that makes life easier for small businesses and eases the tax burden on them is to be welcomed. However, AAT would be against any move to mandate the move to digital until UK broadband coverage is fully robust and fit-for-purpose.  We will have to wait and see how the system works when it is fully rolled out and if it will be eventually welcomed by those who seem reluctant at the moment.

Brian Palmer , former tax policy adviser for AAT..