Tax is going digital – but what does this mean?

Recently HM Revenue & Customs (HMRC) released their roadmap on taking tax digital, so bringing the administration of the UK tax system into the 21st century. The roadmap is not fixed and there will be consultation, however the direction of travel and the destination are fixed. So what can we expect from this?

There are four main goals underpinning the roadmap. Individual taxpayers will not need to provide the taxman with information HMRC already receive such as employment income or bank interest, with other areas potentially to be included. In 2016 individual taxpayers will have an online personal tax account and by 2020 they will be able to mange all of their tax affairs through this. Businesses will also be able to manage all of their tax affairs though a single account by 2020 and will be able to offset overpayments against underpayments. The fourth goal is to make the tax system more “real time” with businesses, self-employed and landlords being required to provide information at least quarterly to HMRC rather than annually. This information is likely to include detailed accounts information and tax related data in addition to the normal VAT and payroll information already provided.

The above aims are laudable in their own right. After all, who can argue against the greater provision of information for taxpayers or the ability to manage tax affairs online and who of us loves being required to give HMRC information they already have? It will also mean the end of the tax return as we know it for individuals. The requirement to provide more detailed information at least quarterly to HMRC will create a more “real time” tax system and should create greater certainty over a business’ tax position; however it will create greater administration costs for the business.

Also this “real time” tax system is likely to signal a further acceleration of the payment of tax liabilities by businesses. After all very large businesses will be paying Corporation Tax quarterly in the year earned from 2017, whilst large companies already pay half their tax liability in the year and the balance within 4 months. For individuals from April 2019 Capital Gains Tax on the sale of residential property will be due within 30 days of the completion of the sale compared with between 10 and 22 months now. This real time information will undoubtedly lead to earlier payment of all tax liabilities and HMRC is already consulting on this. Although the acceleration of tax payments is only a “timing” matter, it does create a significant one-off boost for the Treasury, as tax is collected earlier and there is no reversal of this timing matter.

Bringing the administration of the tax system into the 21^st century should be supported, provide business with greater certainty over some aspects of their tax affairs and the ability to offset under and overpayments. However, the sting in the tail is that going digital will mean faster tax payments and higher administration costs.

Trevor Shaw , Corporate Tax Director