The Chancellor recently announced the abolishment of yearly self-assessment tax returns. George Osborne stated that people will have ‘real time’ accounts by the year 2020, so that the annual last-minute rush will be avoided by businesses and individuals.
How will digital accounts work?
Every individual and business – around 50 million in total by 2020 – will have an online account so that they can submit information as it arises. Accounts will be submitted using a smartphone, tablet or computer through the year. The account will display income and the tax that is due to be paid, in addition to tax that has been paid to date. It will be possible to pay tax in regular instalments, based on the income information that has been supplied. Taxpayers will be able to log into their account, just as they currently log into the HMRC website, to complete a self-assessment tax return. As information will be supplied as it occurs, the tax owed will be based on current performance.
HMRC will post employer information to your digital account, like your P60 details showing income from employment or pensions. Information from banks will also be provided, so that you always have an accurate picture of income and expenditure.
How will the changes affect you?
Payment of tax will take place continuously, putting an end to the struggle to find the total amount owing at the year’s close. However, for those companies that maximised the benefits of paying the tax owed the year after it was earned, the move won’t be as beneficial. As a number of businesses will earn interest on the money saved to pay the tax bill, the digital accounts could result in a loss of income for some.
For straightforward tax affairs, the changes will be simpler than the annual completion process. However, for some companies that pay various types of tax, like Capital Gains or tax on foreign income, the new rules may be more complex. The onus will be placed on the taxpayer for checking that information held on the account is correct.
The self-employed and those who receive certain types of income, like foreign income, will have to enter the data themselves, as the details of the income will be unknown to HMRC. There are many situations that could become complex and may call for the assistance of an accounting service. For more information, please contact us today.