PLEASE NOTE: The charity TaxAid advises only those people on low incomes whose problems cannot be resolved with HMRC.

Digital Tax Accounts and Making Tax Digital

Information

Tax is changing! The Government has decided to make tax administration digital. The aim is  for HMRC to be interacting digitally with all taxpayers by 2020.

The Making Tax Digital roadmap sets out the approach. Here are some highlights:

“By 2020, businesses and individual taxpayers will be able to register, file, pay and update their information at any time of the day or night, and at any point in the year, to suit them. For the vast majority, there will be no need to fill in an annual tax return.”

“By 2020, taxpayers will be able to see their complete financial picture in their digital account, just like they do in their online banking. And they will be able to set an over-payment of one tax against the under-payment of another: it will feel like paying a single tax.”

You can read more about the changes here.

Digital Tax Accounts

One feature of the new system is digital tax accounts. There are Personal Tax Accounts and Business Tax Accounts. If you have income taxed under PAYE and are also self-employed or have rental income, and the total of your self-employment and rental income is under £10,000 then you will no-longer need to complete a tax return.

Instead, you will update your digital tax account. HMRC intends that usually any tax due will be collected through your tax code. Digital Tax Accounts will be generally available from April 2016.

There is a short HMRC video about personal tax accounts here.

Timescale of going digital

There is a detailed timeline in the Making Tax Digital roadmap. Key events are:

  • On the current schedule, the self-employed and those with rental income as their main source of income (or,where it is a secondary source, it is £10,000 or more), will be expected to update HMRC with business information for tax purposes at least quarterly from April 2018, with SME companies following by 2020
  • Paying tax and reporting information is to be brought closer to real-time

These are very significant changes and there are many details yet to be decided. Consultation on these issues is on-going. HMRC will be using an Agile approach to development. This means that changes can be introduced, as the result of feedback from users, on an ongoing basis during the development phase.

Verify

Before you can use your digital tax account, HMRC needs to check your identity. You can find out more about this here. You will need documents like a UK driving licence of UK passport to prove your identity. The process has not been trouble-free, so you should allow time to overcome any possible obstacles.