Budget 2015 In-Depth: Digital Tax Accounts

139 people online!
March 28th 2024
Tax Week 52
try our free mobile apps!
tax region

Budget 2015 In-Depth: Digital Tax Accounts

One of the biggest announcements in this year's Budget was the death of the annual tax return. We look a little further into the budget documents to get some insight.

Budget 2015 In-Depth: Digital Tax Accounts

George Osborne revealed an ambitious plan to replace the current annual tax return system for a shiny new online 'Digital Tax Account', phasing it in over the next parliament. So, we assume this is to be implemented by whoever wins the General Election this May?

Let's take a look at what we know about the new system:

  1. It removes the need for individuals and small businesses from needing to submit annual tax returns.
  2. By early 2016, five million small businesses and ten million individuals are to be using it.
  3. All the taxpayer's details will be held within the system, just like online banking, with individuals and businesses able to register for new services or make updates through it.
  4. HMRC will include data provided by the taxpayer along with information it gains from 'third-parties' - more on this below.
  5. Businesses will be able to link their accounting software to the 'Digital Tax Account' and pay their taxes on a much more frequent basis, effectively paying it as it becomes due on monthly basis - Businesses and Individuals currently paying tax via Self Assessment have nine months from the end of the tax year to pay the amount due. It has become the norm for tax payments to be kept in a savings account until due, in order to earn interest, before payment. Some businesses may find a cashflow issue if their payment need is more immediate.
  6. By 2020 everyone in the UK will be using it - individuals and taxpayers.
  7. Tax agents appointed by individuals and businesses will be able to access the account.

We thought the point above on 'third-parties' was interesting. HMRC note that people using the online tax account will find that information such as income tax, national insurance contributions and pension will automatically be populated for them. But they go on to state information like interest from banks and building societies will also be automatically populated. How will that be possible unless they are planning on integrating the HMRC system with the taxpayer's bank accounts?

We don't currently have any information on how the 'Digital Tax Account' is to work as even the Government don't. They have mentioned it as a headline in the Budget, but the paperwork shows that only toward the end of this year will a roadmap be published and that will just set out the 'policy and administrative changes' required to implement the system - not actually implement it. With that in mind, will the system be ready for use for millions of people months later?

The Government had a consultation last year on 'Data sharing and open data in banking'. Essentially they wanted stakeholders to comment on how to create an API 'Application Programming Interface' to be able to work with all banks as a standard. The interface would need to be secure and allow third-parties to gain access to a bank customer's data as long as permission is granted by the customer.

The interface is set to be designed by the end of 2015 - Is it possible this will be used by HMRC?

It's an interesting time ahead, and good to see modernisation at the Taxman - but it will be shaky ground if individual bank accounts need to be linked to HMRC, considering their past performance.

Advertisement
Advertisement

Help - find relevant tax tools and calculators - go back to top

Answer a few questions below and we will list relevant tax calculators and tools that can help you organise, budget and ultimately save you money!
are you an employee?