SELF assessed tax payers, small businesses and sole traders risk being caught out unless they adapt to the digital age, a Tunbridge Wells accountant has warned.
Kevin Bannister of Wells Associates said Government plans to abolish the tax return ‘entirely’ by 2020 will mean the days of chucking a mass of paper receipts, bank statements and bills at an accountant once a year will soon be over.
“Sitting on your books for a year and a half before doing something about it at the last minute will no longer be an option,” said Mr Bannister, adding: “Last year, the Government announced it would invest £1.3 billion to transform HMRC into one of the most digitally advanced tax administrations in the world.
“Part of this efficiency drive will require all individuals and small businesses to have access to secure and personalised digital tax accounts.
“The revenue are saying this will be the death of the tax return, but effectively what this will lead to is four quarterly returns.”
Mr Bannister said ‘cloud accounting’ is the best way to ensure those affected are ready for the changes.
This will require the purchase of specialist software that allows people to update their accounts ‘in real time’, for instance taking pictures of bills and receipts on their phones which then feed directly into their accounts. It can also keep up-to-date records of bank transactions.
Cloud accounting also allows a business or individual to interact with their advisor on a real time basis as they can both see the data at the same time, before sending the information directly to their Personal Tax Account at HMRC – a service which became available at the end of last year.
“For accountants it will become more about reviewing what information is being submitted to make sure it is being done properly than prepping it all at the end of the year,” Mr Bannister said.
People and businesses who fail to adapt could end up falling foul of a new ‘points-based’ penalty system the HMRC is planning on introducing, with each mistake adding to the total financial sanction imposed.
However, to begin with at least, this will happen only after several failures and one-off errors will be treated more leniently.
Unlike in the past, the revenue service have decided not create their own software this time round.
Instead it is relying on accountancy software companies such as Xero, Sage and Quickbooks to provide the tools for people to use cloud accounting and is currently consulting them on how best it should be implemented.
There is potential the coming changes in the way tax is handled could prove disruptive to the accounting industry as a whole, with those firms failing adapt at risk of being bought out for a fraction of their current value.
“Some firms could possibly see this as a threat. But ultimately we don’t have a choice but to go down this digital route, we cannot just say we will not do it as then there will become a point when we will be out of date.
“If the partners in a firm are looking to sell out in five years’ time and have not adapted they will be gobbled up for nothing by a company which has. The buying is not going to pay much if then they have to then go about transforming the business themselves.
“The general advice at the moment is if you are looking of getting out soon, get out now before the changes become compulsory.”
Going digital, the changes
2015: HMRC’s Personal Tax Account goes live in December, allowing every individual and small business access to their own secure digital tax account, like an online bank account, that enables them to interact with HMRC digitally.
2016: Over 3.5 million people and businesses were using the Personal Tax Account by August
2017: Additional services to be added to personal accounts, including; allowing tax payers to declare additional sources of income; automatic tax code adjustments to prevent PAYE under and overpayments; the automatic recording of interest payments from banks and building societies.
2018: Introduction of quarterly update to HMRC, initially on matters of income tax and National Insurance obligations through their accounting software.
2019: Capital Gains Tax on the disposal of residential properties needs to be paid within 30 days, while most businesses, self-employed and landlords will start updating HMRC quarterly for VAT obligations through their accounting software.
2020: Most businesses, self-employed and landlords to start updating HMRC quarterly for Corporation Tax obligations through their accounting software. Plans for end-of-year paper tax returns to be scrapped.
