Budget 2015: Death of annual tax return
Chancellor George Osborne has announced the death of the annual tax return, saying this has proved ‘complex and costly’ for 12m people in small businesses.
In the Budget, Osborne said the government will abolish the annual tax return altogether, saying the information required would be automatically received and loaded via the digital tax account.
The Chancellor’s decision to scrap the traditional, end-of-year tax return in favour of an online system of ‘digital tax accounts’ by 2020 will be an opportunity for taxpayers to have more control over their tax affairs, according to Clement Keys.
The ability to review a ‘tax account’ using a computer, tablet or smartphone will bring the tax system up to date.
Using the online system, individuals and small businesses will be able to login to personalised accounts and update their tax information regularly. This should mean tax liabilities are more accurately reflected at any point in time and also provide an opportunity for tax payments to be spread over the year.
Further benefits are also expected, for example the ability to see how tax is being calculated and automatic updates for information held HM Revenue & Customs (HMRC), such as employment income, bank interest or pension information.
The use of digital tax accounts will also mean a business can link its existing accounting software to the tax account. This should reduce administration, helping small businesses to meet tax deadlines and avoid penalties.
Adam Longmore, director of corporate tax services at Clement Keys, said that small businesses can encounter difficulty in producing tax returns on time and in the format required by HMRC.
"In addition, they don’t always know how much tax is due on the profits being earned at any point in time.
"Moving to digital tax accounts is a positive step and many small and medium-sized businesses will embrace the ability to integrate their accounting systems. Having accurate, real-time data about business performance at their finger-tips means businesses will be able to manage cash flow more effectively."
Osborne said, however, that "those with complicated tax affairs are still likely to have to complete more detailed information".
It is understood that the new digital tax account will compute annual tax liabilities and will only take around 12 minutes to complete as opposed to an average 40 minutes under the current self assessment system.
However, it is likely to take up to five years before the system is fully operational say Harris & Co chartered accountants Northampton