I understand that HMRC is to introduce a new quarterly reporting requirement for personal income tax assessment. I receive a small state pension of about £1,500 a year and rent of around £13,000 a year (before expenses) from letting a flat. Will I be obliged to adopt the new system? How will it work? I am computer illiterate and will not be able to use the software which will apparently be supplied by HMRC. An accountant currently compiles my return each year; will I now have to pay him to send a return online every three months?
It is difficult to offer you much solace, says Gordon Andrews, tax and planning expert at Old Mutual Wealth. Based on the current proposals, you will indeed have to file quarterly digital updates, rather than complete a self-assessment form.
As well as cutting down on manual processing and administration, HM Revenue & Customs also hopes to reduce errors and improve the accuracy of record keeping by compelling businesses and some individuals to provide more regular updates. Under the current system a tax return must be filed annually. But HMRC believes that filing on a frequency of at least one every quarter will encourage improved accuracy.
Having digital records will also boost the tax-collector’s ability to identify trends and changes, enhancing their ability to tackle underpayment and evasion more effectively.
It will also make it easier for them to request evidence from businesses and individuals where documentation is required to validate or scrutinise figures included in a submission.
The exercise is all about reducing the administrative burden of collecting tax, moving closer to real-time taxation and boosting revenues.
For businesses and those with more complicated affairs there may be advantages to the revised system. A digital tax account should decrease the paperwork and form filling required, increase automation and make it easier to interact with HMRC.
However, this won’t be a welcome change for a lot of individuals. In a case like yours, where rent and pensions produce a modest income, filing one tax return at the end of the year would have been relatively straightforward, provided decent records had been kept through the year.
Most pensioners and working individuals will not be required to file a quarterly update, but the rules state that quarterly returns are required if someone has secondary incomes of more than £10,000 per year from self-employment or property. This means that landlords, particularly in London, are quite likely to be affected.
The government has pledged to give support to those that struggle with computers but it isn’t clear at the moment what form that will take.
Acting as an agent, your accountant will be able to login to your digital tax account on your behalf. But it seems inevitable that because of the additional workload, they will charge more for the service.
HMRC’s aim is to create a digital tax system for individual taxpayers, operating in as close to real time as possible, says George Bull, senior tax partner at RSM. Since April 2016, every individual taxpayer has had access to their own digital tax account with HMRC. By 2020, HMRC aims to be interacting digitally with all taxpayers.
As a first step in this direction, HMRC has already started using real-time PAYE data to reduce end-of-year overpayments and underpayments, by changing tax codes in-year. You will probably have recently received the PAYE coding notice of your pension which uses information already available to HMRC. In future, you will be able to see what reliefs and personal allowances are set against which sources of income, and choose how those are allocated.
Clearly, the “making tax digital” project will revolutionise the way HMRC deals with people’s tax affairs. This year, the Treasury select committee recommended that HMRC should slow the pace of implementation and conduct more trials, to make sure that the system works as intended when it is rolled out nationally. It is not yet clear, therefore, whether HMRC’s plans will be changed, or whether implementation will be delayed.
If HMRC adheres to its initial plan, then between July and December this year you will be able to see an overview of all your tax liabilities in one place. Between July and December 2018, you will have to start updating HMRC quarterly in respect of your rental business. It is also worth mentioning that, from 2019, any capital gains tax due on the disposal of residential properties will have to be paid within 30 days.
How all of this will work in practice is not yet entirely clear. There is a considerable debate about who will be providing what software, and how much it will cost.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent