Digital tax accounts – is this the end… of the tax return?
Following the summer budget, plans have been in development for HMRC to simplify the tax regime for individuals.
The announcement of plans to scrap the annual self-assessment tax return initially left many tax advisors like me quaking in our boots, however, it may not necessarily be all doom and gloom. (If anything, it could be a good thing for those who will be removed from self-assessment).
So what will this mean for our clients?
The end of the tax return does not mean, unfortunately, the end of tax. HMRC are simply aiming to move to an online tax account for individuals, which hopefully will work smoothly and will be relatively user-friendly.
With this in mind, and the government’s plans to have 10 million individuals registered for a digital tax account by early 2016, the recent changes in tax rates, allowances and other changes might actually be part of a grand plan.
With the new savings allowance of £1,000, dividend allowance of £5,000, the cessation of banks deducting tax at source on interest and the removal of the 10% dividend tax credit, there will be many long standing clients registered for self-assessment who will no longer require a tax return.
For self-employed people the transition to a digital tax account may not happen overnight, but the current aim is to have everyone necessary using this system by 2020. The intention will be to have an account that makes it easy for people to record their profits on a timely basis, and also to allow people much more freedom in paying their tax. This could be a welcome bonus from the current dreaded 31 January deadline for clients and agents alike.
Although speculative, it is possible that the online tax accounts will provide HMRC with more information than the current tax return as part of the government’s efforts to reduce fraud and increase the tax revenue.
We may well have an interesting time ahead of us.