Making tax digital

The transformed tax system has 4 foundations


1. Tax simplified


HMRC already holds some of the information of taxpayers, and making tax digital will also enable HMRC to get further information from various sources — for instance, from employers, banks, building societies and other government departments.

Taxpayers will have their own digital tax account with HMRC and will be able to see, check and update the information HMRC holds in the account. The services will be tailored according to taxpayers personal circumstances using the information available in personal tax digital account. In 2016, HMRC will consult on how information from more third parties might reduce the reporting burden on taxpayers.

2. Making tax digital for businesses

Technology has changed the way information used to flow, real-time information is very e asy to get to and HMRC has decided to make full use of it. Business owners will not get to know the tax liability only after finishing the tax year, rather all their information will be up to date on HMRC and they should be able to see the liability as it arises. If you are using cloud-based accounting systems, you would completely understand how real-time information works.

HMRC will collect and process information affecting tax in as close to real-time as possible, to stop tax due or repayments owed from building-up. From April 2018, businesses, including everyone who is self-employed and those letting out property, will update HMRC at least quarterly where it is their main source of income (or a secondary source of income above £10,000 and their main income is from employment or a pension).

3. Tax in one place

Yes, you will have all liabilities and entitlements in one place. Currently most taxpayers can't see that in one place but HMRC is changing that.

Just a few years to go, by 2020, taxpayers will be able to see their complete financial picture in their digital account, just like they do in their online banking. And they will be able to set an over-payment of one tax against the under-payment of another: it will feel like paying a single tax.

4. Making tax digital for taxpayers

Individual taxpayers will interact with HMRC digitally, and at any time to suit them.

By April 2016, every individual and small business will have access to a digital tax account. The digital accounts will present individual taxpayers with a personalised picture of their tax affairs, along with prompts, advice and support through webchat and secure messaging.

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