HMRC is planning to scrap the annual tax return and replace it with online reporting tools
Tax returns could be a thing of the past by 2020 under HMRC's plans to move recording and paying tax online
HMRC has announced plans to overhaul the current tax system by 2020, scrapping the annual tax return and replacing it with a digital document which taxpayers can update on a quarterly basis.
It means that most businesses, landlords and the self-employed will record and pay all their taxes online.
The taxman said it was part of the government’s commitment to make the annual tax return "a thing of the past" for millions of people and businesses.
Under the government's proposals, the project will save the taxman £8 billion a year, it said, because taxpayers will be getting their tax bills right first time.
Businesses, landlords and the self-employed will be able to keep track of their tax affairs digitally, updating the online document on a quarterly basis, while charities and some small businesses will be exempt from the new system.
In a document published yesterday, HMRC said that free software will be available to the majority of the smallest businesses, but those that cannot go digital will not be required to do so.
Charities, too, will not be required to keep their records digitally or make quarterly updates, the taxman said.
HMRC stated it will pilot digital systems with hundreds of thousands of businesses before rolling them out across the board, to ensure the software is user friendly, and to give businesses and landlords time to prepare and adapt.
How do I know if I need to submit a tax return?
Most UK taxpayers have the money deducted from their pay packet – that is called PAYE. But around 10 million people need to complete a self-assessment tax return and send it to the tax office, or do it online.
People with the following status are obliged to complete the forms.
- You are self-employed, a business partner, or director of a limited company
- You’re an employee or pensioner with an annual income of £100,000 or more
- You have a pre-tax investment income of £10,000 or more
- You are a minister of religion
- You’re a trustee or representative of someone who has died
- You’re a name at the “Lloyd’s”of London insurance market
It added that taxpayers would have 12 months to get used to the new system before any late submission fines would be applied.
Jim Harra of HMRC said: "We know that the majority of businesses want to get their tax right first time, but the latest tax gap figures show that too many find this hard, with more than £8 billion a year lost in tax as a result of avoidable taxpayer error by small businesses.
"Making Tax Digital will help businesses to get their tax right first time; it will help reduce the likelihood of errors, lower the chance of unwelcome compliance checks and give them greater certainty that they are getting things right.
"The appetite for digital services is growing and traditional paper-based processes make no sense in the 21st century where the vast majority use digital services."
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