UK Government introduces digital tax accounts

End-of-year paper tax returns are to be be scrapped in favour of “digital tax accounts”, giving individuals and small businesses the ability to submit information via computer, tablet or smartphone.

People will be able to pay their tax at any point throughout the year or spread the cost by paying in instalments. Taxpayers will be given a login and password so they can submit tax information regularly, making tax bills more closely related to current their current status.

The online accounts will show how tax is calculated, as HM Revenue & Customs will also update information available to it from employers, pension providers and banks.

Businesses and individuals will be able to link their own accounting software and their bank account to the digital tax account, removing the need to submit an end-of-year return and paying an annual tax bill in one go.

In addition, they will be able to sign up to other government services such as tax relief or state pension forecasts and update their contact information.

The switch is expected to start with five million small businesses and the first 10 million individuals in early 2016. By 2020, businesses should be able to link their accounting software to their digital tax account, so they can feed in information directly.

People who wish to continue filing a paper return will be able to do so.

The Treasury has billed the move as “the end of the annual tax return as we know it”. It claims that automation will leave taxpayers spending an average of just 10 minutes a year on their self-assessment.

The plans have been developed as part of HM Revenue and Custom’s flagship digital strategy, which is expected to cut costs and improve services by moving interactions with taxpayers online.

The digital strategy has been welcomed by advisers, though there are concerns about the pace of the changes.

Patrick Stevens, head of tax policy at the Chartered Institute of Taxation, told The Financial Times: “We are genuinely very much in favour of it. Our big hang-up is that it seems to be taking a huge amount of time.”

The Government said that by 2017, the first taxpayers with simple tax affairs would no longer have to do an annual tax return. By 2020, businesses would be able to link their accounting software to their digital tax account.

This would mean they would no longer face a big end-of-year tax bill based on the previous year’s tax information. Instead, the digital tax accounts would provide businesses with information on the tax they needed to pay, removing the need for an annual return.

In January, HMRC announced its intention to start automatically pulling in limited details to individuals’ tax returns from late summer 2015.

It said it would begin with the information included in a P60, the end-of-tax-year summary of an employed taxpayer’s income. Over time, information from the Department of Work and Pensions and pension providers will also be supplied.

HMRC said it would continue to provide extra support for those who have difficulty going online or who need extra help.