• Sandra Foreman

Digital Tax accounts – helping micro businesses to manage their taxes

Updated: Jun 26, 2021

With the UK’s government announcement of digital tax accounts in the last budget, it seems 24/7 access to tax accounts and a pay as you go tax system is nearer than we think. As of today’s date in 2016 all small businesses and individuals already have access to their own digital tax account where information on taxes paid and how such taxes paid are spent by the Revenue is available. The intention is that by 2020 the full range of HMRC tax services will be available through digital accounts and most individual tax payers and businesses will be reporting their taxes via quarterly reporting using their digital tax accounts. The advantage of this (to the tax payer – the Revenue says) is that the tax position will be fully updated at all times rather than at the tax year-end and tax will be paid on a more regular basis.

From an accounting point of view this makes sense. Whilst we are still processing accounting data historically, the need for more real time accounting (supported by cloud technology) provides better management information not to mention cash flow management. Helping tax payers manage and plan their taxes is the essence of what I do. Helping tax payers to know their tax liability on a more real time basis and planning how these taxes will be paid can only make for a happier client.

Additionally, bringing all related taxes in one place should reduce the time spent on tax administration. As with all new systems, there always more to it than meets the eye, and the current debate in the accounting community concerns how the new digital system will affect individuals including landlords, as the first tax payers to be affected by quarterly tax reporting. The big question asked to the Revenue “is the requirement to update quarterly the submission of four tax returns?” has seen HMRC giving a resounding “no”. However many fear the quarterly reporting is the precursor to mandatory reporting – so that what started off as an option will become the requirement as part of the tax return processes. Quarterly reporting, if it does become mandatory will be a burden to many micro businesses, and it is hoped that HMRC’s response to this will support the transition in 2018 for most micro businesses will have to start quarterly reporting.

So what does quarterly reporting mean under the new digital tax regime?

HMRC’s Making Tax Digital report gives the changes under four headings

  1. Tax simplified

  2. Tax in one place

  3. Making Tax digital for businesses

  4. Making tax digital for individual tax payers

A look at what the Revenue is doing under all four headings gives all the indication that we are heading in the right direction to make tax more manageable, flexible, up –to-date and accessible. The issue that many accountants have voiced, however, is that for self-assessment tax returns, the real time proposals are a completely new system (compared to the transition that was made from manual to real-time payroll where there was already a system in place); and many micro businesses who currently do not use real time payroll will struggle. That this is a fact is no doubt.

There are many one-person businesses operating without the need for any digital platform, and asking them to switch digital reporting will be tough. The HMRC reports states that the Revenue understands that taxpayers need varying levels of support, and as such all tax payers will receive the data and services relevant to them. This is at least an acknowledgement of the issues with extra support to include face to face help, phone-in assistance and help through the voluntary and community sector.

The move to digital tax returns certainly sound daunting, but if the processes of RTI (real time information) for payroll is anything to go by, it should soon sit in our normal processes once the full extent of what is required is grasped, and appropriate systems are put in place . This is not to say the transition will be easy for many particularly for those who will not find it easy to transfer to a digital platform for one reason or another.

There are of course other issues such as what will happen to those who will not keep up with quarterly update for one reason or another. The big techie questions of security and technology are being asked by the profession to which HMRC will no doubt provide the assurance needed.

However it pans out, for all UK tax payers – digital tax filing is coming, so get ready and make sure you get the business and accounting support you need.

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