Keeping your records and making HMRC returns digitally is nothing new and for some time now HMRC has actively encouraged this.  Every individual and business now has access to their own personalised digital tax account and the stated ambition of HMRC is to become one of the most digitally advanced tax administrations in the world. There are four reasons for this which, according to HMRC, will benefit you – the ‘customer’. Yes, even though we have no choice but to comply with taxation requirements, HMRC sees itself as the supplier of a service and is, therefore, looking at customer satisfaction just the same as any other business. It’s an interesting concept!

The four advantages are:

  • Better use of the information you supply
    You won’t have to go to the trouble of supplying information more than once, or of providing information that HMRC can get elsewhere e.g. from banks and employers. You’ll also be able to see the information held by HMRC and check that this is complete and correct.

    In addition HMRC will be able to use the information to tailor the service provided to your individual circumstances.

  • Tax in real time
    You won’t need to wait until after the end of the tax year to know how much tax you should pay, so this will help with your cashflow planning. HMRC 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.

  • Single financial account
    By 2020, you’ll be able to use your digital account to see a comprehensive financial picture of your liabilities and entitlements all in one place

  • Digital interaction with customers
    You’ll be able to interact digitally with HMRC at a time to suit you which should result in a speedier and more convenient mode of two-way communication. This will include prompts, and advice and support through webchat and secure messaging. The digital record keeping software will be linked directly to HMRC systems, allowing you to send and receive information directly

I’m guessing that you may be thinking that digitalisation will benefit HMRC at least as much as it will you – you’re not wrong, but don’t overlook the advantages the new system will bring, provided you are a well-organised business!

The original plan was that the roll-out of the Making Tax Digital Scheme should go live from Apil 2018. However a number of concerns have been expressed by parliamentary bodies, businesses, the accounting profession and software companies, about the pace and timescale. As a result, HMRC has announced changes to the roll-out programme which will allow more time for both businesses and individuals to adapt to and incorporate the necessary changes.  

In principle, the roll-out will begin with digitalisation of VAT recording becoming mandatory, in April 2019.

  • Only businesses with a turnover above the VAT threshold will have to keep digital records and only for VAT purposes. They will only need to do so from April 2019.
  • Businesses will not be asked to keep digital records or update HMRC quarterly for other taxes until at least 2020, instead of 2018 as originally proposed.
  • Small businesses will be able to file digitally on a voluntary basis for other taxes.

For individuals, the option of registering with HMRC for an online Personal Tax Account already exists, but you are still required to submit a Self Assessment return (whether digitally or in paper form) unless you only have PAYE income.  This includes information that is already held by HMRC and so HMRC is joining up these internal systems to automatically include information it holds about a customer’s circumstances or income in their digital account.

The expectation is that both individuals and businesses will take advantage of the option to use digital recording and tax accounting, even where this is not mandatory. Self Assessment will still exist, in the form of the obligation to inform HMRC of a change in a taxpayer’s affairs and I expect the onus will still be on the taxpayer (or their adviser!) to check the completeness and accuracy of the information held by HMRC.

However the implementation of digitalisation should result in a more efficient and timely assessment and collection of tax, avoiding the penalties and interest charges that may arise as the result of errors.  As an accountant, I support the HMRC programme for Making Tax Digital, provided that sufficient time is allowed to adapt to the new methods and that the introduction of the new rules improves efficiency for the taxpayer and not just the convenience of HMRC!

Finally, looking at the wider picture, the current system, according to recent government statistics, shows a tax gap of around £9 billion as a result of avoidable taxpayer errors, mainly arising from poor record-keeping practices by SMEs. Apart from the consequent penalties to the SME where an error is discovered (as it usually will be!), such a large gap is detrimental to the national economy as a whole and therefore adversely affects all of us.

Nearly all of my own SME clients are already using a digital software accounting programme, but if you’d like to know more about our recommendations, do please get in touch.

In spite of the recent amendments to the HMRC roll-out, digitalisation is the way forward, so please do share with me your experiences and plans for implementing this in the future.