The end of Income Tax self-assessment as we know it?

Earlier this year, the previous government announced that the annual self-assessment tax return will be replaced with individual digital accounts. With the Conservatives taking a majority government in the 2015 election, the plans will now have to be put into practice.

The move could take effect as early as next year and the government claim it will cut the time required to produce an income tax return from 40 minutes to 10 minutes.

How will it work?

HMRC will digitally combine the tax data for millions of people through one programme, which can be checked by users online at their leisure. At the centre of this will be the option to link a tax account to an individual’s bank account, eliminating the need for end of year turmoil.

It is intended that HMRC will automatically use the information it holds, along with data from third parties, to populate the digital accounts, with the aim that taxpayers simply log-in and check the details are correct. Business accounts are also expected to be engulfed by 2020.

The service will work via a website. Taxpayers will be able to sort their affairs at any point during the year online, avoiding the dreaded last-minute rush. However, it will also be reassuring to many that agents will still be able to manage their affairs through the digital account to ensure that the information is correct.

What if I still want to send paper returns?

For now, there are no plans to scrap paper returns completely. If taxpayers still wish to file their self-assessment in this way, then they will be able to, but the earlier deadline will still apply.

What is yet to be announced

HMRC are expected to issue further information later this year. The questions that are yet to be answered are:

  • How frequently will information need to be uploaded/checked/confirmed on the digital accounts?
  • Will there be penalties if taxpayers approve data which HMRC have inputted in error?
  • Will there still be a deadline date?
  • How will HMRC be able to provide confidence that errors will be minimised?

At this stage, the finer details are still unknown, but the move to digitisation is clearly an incoming tide that cannot be held back.