Making Tax Digital
What Exactly is Making Tax Digital?
The government have set four foundation blocks it believes Making Tax Digital will be built on:-
Better use of information held
Under its new digital overhaul, customers and tax payers will not be required to provide previously held information to HMRC. This is the data already submitted and available to HMRC is sourced from payroll schemes, building societies, banks and other governmental departments. We have known for a long while that HMRC know how much bank interest a taxpayer earns or how much state pension a retired taxpayer receives. So this is a progressive step forward.
Tax in real time
HMRC believe that tax payers have the right to see information in real time to check that their data is complete and correct. HMRC also insist that taxpayers should not have to wait until the end of the year or longer to know how much tax they should pay.
HMRC have stated that they:-
“Will collect and process information affecting tax as close to real time as possible, to help prevent errors and stop tax due or repayments owed building up.”
A single financial account
By 2020, HMRC want customers to be able to see a comprehensive financial picture of their digital account, just like they can with online banking.
Interacting digitally with clients
HMRC want taxpayers (and their agents) to be able to interact with HMRC digitally and at a time convenient to them.
Customers/agents already have access to a digital account which will present them with an increasingly personalised picture of their tax affairs, along with prompts, advice and support through webchat and secure messaging.
HMRC also want digital record keeping software to be linked directly to HMRC systems, allowing customers to send and receive information directly from their software.
So in short, HMRC want a fluid data system that allows the taxpayer to see a snapshot of all of their tax data in one place that can be updated in real-time using software to report to them on a regular basis. They have also announced that:-
“Over the next five years, the changes outlined will bring about the end of the tax return for millions of taxpayers”
Does this signal the death of the UK tax return? Will this mean that businesses will have to discontinue annual reporting to HMRC? If this is the case, then “how often”? The simple answer: “every 3 months”.
This has proved to be the biggest question mark regarding the changes. Can the taxpayer cope with this new arrangement, and more importantly does HMRC have the infrastructure to implement it?