The Digital Tax System: Pros and Cons
By 2020, HMRC will have transitioned to a completely digital tax system. This is a historic progression that will lead to the end of the tax return as we know it.Between the scaremongering from the accounting industry and the untrustworthy optimism of the HMRC, there are real issues and considerations to take into account. Digital tax accounts (DTAs) are the first step in implementing the quarterly reporting we have been all been hearing about. Though digital tax accounts make life easier for sole-traders, the jump from DTA’s to quarterly reporting is a big and scary one for those who are used to worrying about tax only a couple of months of every year. It would be stressful for even the most conscientious and organised person to address tax issues every 3 months. More than ever, this will require a close relationship with organised and knowledgeable accounting professionals. There is a real fear in the accounting profession that HMRC has underestimated the financial knowledge and organisation of many sole-traders. Even in an ideal world where everyone filed perfect tax returns and kept perfect records, the transition to a completely digital system would be more of a challenge than the HMRC are acknowledging. Additionally, many people know what they have to do to file a paper tax return, but this does not translate to a financial or technological understanding when Making Tax Digital is put into effect. HMRC will essentially alienate anyone who doesn’t possess this particular set of skills. From the information released by HMRC so far, the system will place a greater emphasis on the automation of processes. The truth is that even with a completely digital tax system a significant amount of information will have to come from the clients directly. If we are being optimistic, this system will create a smoother, faster system; in reality this is not likely to be the case. Accountants will have to educate clients on how best to establish the practice of regularly recording data in the right way.
Rid the system of excessive form filling.
Avoid unnecessary time delays associated with the paper-based system.
Facilitate more ordered and regular submission of tax requirements.
HMRC believes it will reduce chance of deadlines being missed.
Prevent penalties being incurred.
Burden of having to think about tax far more often.
Additional admin tasks requiring the use of compatible apps and software.
Technophobes may struggle to adhere to legislation.
Increased fines for those failing to perform tasks correctly (a new penalty point system will be introduced as part of digital tax submissions)
Instead of paying after the tax year has finished the government will require that your tax requirements are updated in ‘real time.’
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