HMRC has embarked on a scheme to introduce digital tax accounts for individuals and businesses over the 2015-2016 calendar year with implementation dates in 2017. This scheme is not without its controversy largely around HMRC’s consultation (or lack thereof) and the way it’s been implemented.
Digital tax accounts are not unique as a number of other jurisdictions have already introduced them. The digital tax accounts are broad in their implication as they include pre-populating self-assessment returns, quarterly tax reporting by businesses and individuals, tax on-line as well as an anti-money laundering service.
Pre-populating the SA return with information known to HMRC will by itself be useful if, and it’s a big if, one can trust HMRC to enter the correct information. If HMRC’s past performance is any guide this may become a problematic area as changing what are known as incorrect figures has yet to be configured. Furthermore, unlike some other jurisdictions, banks and listed companies appear to have no obligations to accurately report in a standard format interest that has been paid in the year or dividends. Especially banks are poor in their reporting with some advising you in a letter, some say nothing and the tax payer has to trawl through bank statements to add up the interest or one gets a summary on the April statement.
One disadvantage of pre-populating income data is that not all income originates from within the UK/EU so that taxpayers may still be required to amend figures with income from sources not under UK jurisdiction.
A very controversial initiative by HMRC is the digital tax account which ONLY the taxpayer can access. Tax agents may not access it and if they do using the taxpayer’s login there will be repercussions for the taxpayer and their agents. This would not be an issue if tax agents could access the data from their login but this, for reasons not understood, has been denied. We now have a situation where tax agents cannot help taxpayers with their tax affairs as they have no access. HMRC appears to ignore the concerns expressed by the profession. The impression left is that HMRC is trying to cut out agents much to the detriment of taxpayers.
For taxpayers to access their new digital tax accounts they will have to go through a laborious process to get themselves registered to enable them to access their digital tax account at HMRC. This includes having their identity verified by an approved third party. Reports by tax agents (who registered themselves in order to test the system), thought that it is complicated, time consuming and requires lots of information to be given. They expect only 10% of their clients to register which begs the question how is this going to improve tax compliance and the correct tax being paid (not under or overpaid) when agents are excluded from the information when taxpayers instruct them to handle their tax affairs.
HMRC is still in consultation although the Brexit referendum has forced this to come on-hold due to the purdah period. Beta testing was due to start in July 2016 with quarterly tax updates by December 2016. A result of this delay and attempting to meet previous deadlines set is that a further 5 consultations will be issued in one go with simultaneous deadlines to maintain HMRC’s deadline of public testing by April 2017.
We will keep you updated as the delivery methods and timelines become clearer. Here’s hoping HMRC will take on board more customer feedback and make improvements in advance of final delivery.
To find out more you can email finance@hcbusinessadvisors.co.uk or call us on 0333 444 8522.