The Chancellor, in his final budget statement before the Parliament is dissolved, revealed the phasing out of the annual self-assessment tax return within the next 5 years.
Instead annual tax returns will be replaced by ‘digital tax accounts’ which are designed to bring together each taxpayer’s details in one place, just like an online bank account.
The finer details on how the new system work will be released later in 2015. However, it’s confirmed that by early 2016, 5million small businesses and the first 10million individuals will switch to the new system. It will be universally available to more than 50million individuals and small businesses by 2020.
So what does it mean for individuals and businesses?
To begin with, this will be the biggest ever change to the way you manage and pay your taxes.
Since the new system is going to be rolled out gradually, and not everyone will be able to use digital services, people who still wish to continue filing an annual paper return will be able to do so.
We agree with HMRC that this is a bold vision for a new and modern tax system which will make it easier for all taxpayers to manage their tax affairs. However, the transition to the new system is full of challenges.
- How will this tie in with the new penalty system?
- How will it interact with the Universal credit, tax-free childcare and HMRC’s £45m “Connect” system which pulls data from taxpayer records, third parties and the internet?
- What about interaction with the simpler software packages that are typically used by smaller businesses?
HMRC will publish consultations and roadmaps on how it will deliver the changes needed for the new tax system to function. If you are one of the individuals or businesses that gets chosen to switch to the new system by early 2016, it is advised that you plan for your tax liabilities, improve your accounting systems, and get in touch with your tax agents as they should be able to help you with this.