A new Opportunity - HMRC Digitalisation
Anyone who has studied Charles Darwin will probably recognise the following quote:
It is not the strongest of the species that survives, nor the most intelligent that survive. It is the one that is most adaptable to change!
Change is coming in the way we deal with our tax affairs, and accountants, tax advisers and HMRC’s “customers” will need to adapt to that change – most probably whether they like it or not.
For many people, technological advancements have been common place in their everyday lives, from online paperless banking, to using your mobile phone to pay for your shopping, to downloading music and films whilst you walk to work. The internet and its evolution to become the worlds most important communication forum has revolutionised the way we interact from a personal, business, and financial perspective.
It was therefore inevitable that at some point this march towards the immediate and automatic exchange of information would stride into the world of tax.
Until recently, the most significant changes we had seen over the last 5 – 10 years in terms of tax and the use of digital forums have been the requirement to file self assessment tax returns using an online gateway, the development of what is known as iXBRL tagging to comply with HMRC’s information record keeping systems, and the introduction of real time information for recording payroll data.
Then included in the 2015 Budget (the first one) was a document entitled “Making Tax Easier: The End of the Tax Return”. For those that might want to take a peek, it can still be found on the www.gov.uk website. You don’t even need to read the detail to see what it aims at, with a forward entitled “Tax Returns will become a thing of the past” and “Taxpayers will be able to: link their accounting software to their digital tax account”.
The overall aim is clear; to use technology to simplify tax compliance as far as possible.
Following the release of this document as you would expect there has been much conjecture within both the accountancy and tax professions as to exactly how this will work, taking into account HMRC’s promise of this being operational in early 2016, and what it means for the profession.
In late November 2015, we also saw two further developments:
Firstly, included in the 2015 Autumn Statement was the following:
As part of the drive towards personalised digital accounts, removing the need for annual returns, and real time tax compliance the government today announced it will:
- invest £1.3 billion in HMRC in an attempt to turn it into “one of the most digitally advanced tax administrations in the world, with access to digital tax accounts for all small businesses and individuals by 2016-17”
- by 2020, require most businesses, self-employed people and landlords to keep track of their tax affairs digitally and update HMRC at least quarterly via their digital tax account. HMRC will ensure the availability of free apps and software that link securely to HMRC systems and provide support to those who need help using digital technology. This will not apply to individuals in employment or pensioners, unless they have secondary incomes of more than £10,000 per year from self-employment or property. The government will consult on the details in 2016
- consult on options to simplify the payment of taxes, including whether to align payment dates and bring them closer to the point when profits arise, so that taxpayers make a single regular payment that covers all their tax affairs.
In the same week as the Autumn Statement, an interview with HMRC’s director-general for business tax was documented in one of the tax professions’ leading publications. In that interview the director-general reiterated HMRC’s aims to:
- prepopulate tax information into a digital online account,
- end the tax return,
- ease the reporting burden,
- simplify the tax system and
- meet its target for rolling out the new system in early 2016.
Inevitably the introduction of a new digital method of structuring tax compliance will be met by a combination of scepticism “they’ll never get it right - they can’t even answer a letter”, disbelief “it won’t happen – taxpayers won’t like it”, and fear “what do businesses who have structured themselves to deal with tax compliance do?”
I may be viewed as an idealist for this (or worse a professional pariah!) but I think the correct way to view this is as an opportunity. Let’s assume for the minute that HMRC produce a digital tax system that significantly reduces the amount of time businesses, individuals and their advisers have to spend dealing with tax compliance.
What would be the result of that?
Accountants and tax advisers spend less time dealing with red tape for their clients, and therefore have more time to do what they have always wanted to do – provide proactive, added value, advisory services. Less time filling out forms or entering numbers in software packages, and more time talking to their clients, helping them achieve their aims, personal and/or business.
At Mitchell Charlesworth we already pride ourselves on our ability to provide advisory services to our clients. The future (possible/probable/hopeful – depending on how you look at it) removal of the tax compliance burden will only allow us to spend more time doing this.
The challenge for us is to ensure that we continue to develop our advisory capability and demonstrate to our clients that we are the right advisers to help them achieve their aims. This is a challenge that excites us and an opportunity we will be grasping with both hands.
This article started with a quote, and so it will end with one:
The secret of change is to focus all of your energy not on fighting the old, but building the new
For further information please contact a member of our team below.
Written 2 February 2018.