…well, not exactly. The Tax Return is to be replaced by the Digital Tax Account.
So what does that actually mean for individuals and businesses that have to file an Annual Tax Return?
For a start all of the tax information will be stored securely in a single place, but for those that complete their tax return online already this is in essence already the case to a large extent. The Digital Tax Account will contain information that HMRC already hold, this makes sense. Taking a P60 as an example, all of this data is submitted by a business to HMRC and the individual is then given a P60 that they have to then input the same data on their return to HMRC, clearly a duplication of effort. There are lots of examples and the theory is great, however, the systems to deliver such efficiency are yet to be seen.
The other big advantage is that SMEs will be able to link their accounting software to their Digital Account. The technical issues and coordination with software providers will be substantial hurdles to negotiate to be able to deliver this. This implies that at the end of the year your accounts will automatically be imported in to your Tax Return, will businesses want their accounts software linking up with HMRC?
The good news is that you will still be able to give your tax Return Agent, ie your accountant, access to your Digital Tax Account. So the reality is that for many SMEs their accountant will manage their Digital Tax Account the same as they prepare and submit their Tax Returns today.
It seems likely that HMRC will end up with more data, they will almost certainly be receiving data quicker. So, could that mean more HMRC enquiries? SMEs really are key targets for HMRC, it’s not just the multi-national headline grabbers where they focus on at all, in our experience at Taxwise over the last few years we have seen a huge increase in the volume of enquiries in to SMEs.
It is essential that you obtain professional representation in the event of an HMRC enquiry so the queries can be dealt with quickly, professionally and matters are not made worse; HMRC have been known to ask some very leading questions! Such representation does of course incur fees, on average around £2,000 for a typical HMRC enquiry. Businesses and individuals can obtain insured protection from these costs just like you would take out contents insurance or car insurance. Your accountant should have offered you this cover, if not, ask them.
Ben Chaplin is managing director of Taxwise.
If we can help you, your business or your accountant please call our Taxwise team on 0844 89 22 473.