How the new digital tax account could affect you?
No more hours full of frustration filling in your annual tax return! No more avoiding the dreaded deadline! No more worrying that you might get a hefty fine because of a genuine mistake!
Considering that 11 million people usually endure this annual torture, it’s quite surprising that spontaneous street parties didn’t break out after George Osborne’s announcement during the Budget speech! Imagine…bunting made from old tax returns, The Beatles’ ‘Taxman’ blaring through speakers, lists of procrastinating tasks ceremoniously burned…..Could be quite a party!
Some taxpayers found online tax return submission an easier option, but the language, regulations and sheer amount of time required to fill in the paperwork remained a daunting prospect. There are millions of people without business or financial backgrounds who have to participate in the process.
The tax office considers them to have a ‘simple tax position’, including freelancers, people claiming child benefit and those of us earning an income from investments. But without expert knowledge, most people do not find their tax situation “simple” to document.
The rules allowing HMRC to dish out large fines for making honest errors multiplies the genuine stress of the annual tax return task.
We should escape from all of this with the implementation of the new digital tax accounts system.
Digital tax account timescales
The current plan is that by 2017 everyone who is deemed to have ‘simple tax affairs’ will not have to fill in a tax return. This will be closely followed by the advent of digital tax accounts, which will give the taxpayer more control over their tax affairs using their device of choice. The new system will incorporate small businesses by 2020, enabling them to view what tax they owe and choose when to pay the bill.
Is the digital tax account all good news?
The death of the annual tax return is also the end of one yearly tax bill. It is the intention of the Treasury that people “pay the right tax at the right time” in a “timely” fashion. This is broadly interpreted to mean that the new digital tax system will involve paying tax on a monthly basis.
Currently, most small businesses and the self-employed save towards their tax bill throughout the year by putting away monthly instalments. This ‘money-for-the-tax-bill’ can then earn these taxpayers interest until the tax deadline.
So, changing to monthly tax payments may well impact negatively on some self-employed and small businesses that need this interest payment within their budget. Obviously, it also means that the government benefits from any interest earned through monthly payments, rather than the taxpayer themselves.
On the other hand, people who pay tax through the PAYE system may see this as a correction of unfairness. They pay their tax monthly, so why shouldn’t everyone else?
