Insights

George Osborne announced his vision to create a fully digital HMRC by 2020 before the end of the last parliament and developments are now progressing quickly. The government’s stated aim for the whole initiative, according to HMRC’s chief digital and information officer Mark Dearnley, is to “enable businesses, agents and individuals to do all of their tax transactions online, either through one of our digital accounts or by using a third-party software product of their choice.”

A huge undertaking, the project needs to sustain a delicate balance between avoiding unnecessary expense as HMRC continues to rationalise expenditure and maintaining customer service levels whilst implementing the roll out. It is clear why digital record keeping is such a compelling goal for George Osborne to achieve. Once implemented, it will provide the opportunity to do a lot more with fewer resources, minimising instances of tax avoidance whilst at the same time, costing far less to administer.

Already, a small number of personal tax accounts are being trialed and in the first instances, pre-populated P60 forms will be issued. The target, by 2020, is to enable fully digital self assessment return filing using entirely pre-populated data already captured by HMRC. In theory, this means there will be no more filling in of fields required, because HMRC will already know exactly what you have earned and how much tax you owe them. Thanks to earlier initiatives like RTI (Real Time Information), HMRC is already gathering real time data from employers every time they pay their employees and this, together with other data sources, can be used to automatically pre-populate taxpayer P60s.

In addition to PAYE income, HMRC will be able to directly source data relating to other income sources by working with software and app developers. API standards for developers to apply in order to allow ongoing information sharing have already been released. RJP already offers this to clients using our app, who can automatically track their mileage and submit expenses electronically to our bookkeeping teams.

For the future, this means that property investors using an app to manage their property portfolio will have data pertaining to rental income and expenses available directly for HMRC to update their personal tax accounts. Sellers using e-marketplaces such as eBay will be automatically reporting sales revenues and investors using a share portfolio app will be submitting investment gains for calculating their capital gains tax liabilities. With HMRC primarily currently reliant upon taxpayers to self report income levels with HMRC then verifying this with benchmarking data, systems such as these will inevitably reduce the tax gap and any opportunities to under declare taxable income.

Digital business tax accounts continue to develop and there are now over three million users across the UK. HMRC says that full availability of these will come much faster than personal tax accounts and this will significantly simplify tax compliance. According to its own research, satisfaction levels for the business tax account are currently running at 75%, which isn’t bad for a system in pilot phase. It’s easy to see why businesses would welcome digitization; through a single business tax account, all company and business related tax and financial compliance – VAT, PAYE, corporation tax, ATED (annual tax on enveloped dwellings), benefits in kind (P11D) records and company accounts, can be submitted and managed from the same place. Direct communication between businesses and HMRC will also become more frequent, with alerts and reminders issued on an ongoing basis with a full audit trail of earlier correspondence. Dealing with HMRC will be rather like an online banking system, with features like online chat and secure messaging to make contact more immediate.

Critics of the entire digitisation programme are questioning HMRC’s ability to get things right, especially given the level of errors they are known for making. Most people have either direct or anecdotal experience of receiving at least one demand for tax in the past that was incorrect. Accuracy is clearly going to be the major challenge to overcome but in the long run, any system that makes record keeping easier for taxpayers and communication between tax advisors, taxpayers and HMRC more seamless, has to be a good thing.

If you would like advice about business or personal tax compliance please contact Lesley Stalker by emailing las@rjp.co.uk. If you are interested in using the RJP app to automate mileage tracking and expenses claims, download a copy and contact Simon Paterson sp@rjp.co.uk for help setting up the feeds.