The taxman is presently working on a pilot project to make tax returns digital, and is seeking landlords to take part to test the effectiveness of its systems.
Making Tax Digital is a key part of the government’s plans to make it easier for people and businesses to get their tax right and following a trial phase with VAT-registered businesses, the taxman is now allowing self-employed businesses and landlords to use the software.
Individuals will need to meet certain criteria; the most limiting one being that they cannot have any other sources of income or wish to claim tax relief on other payments.
Currently these individuals declare their taxable income via their self-assessment tax returns, which are due on January 31 following the end of the relevant tax year, and are required to retain their paper records.
Under the pilot scheme, they will keep their income and expenses records digitally (on compatible software which the individual will need to organise) and send details to HMRC every three months.
A final report will need to be submitted after the tax year; the deadline for which will depend on the business’ year end.
For example, if the accounting period end is April 5, 2020, the four updates will be required by August 5, 2019, November 5, 2019, February 5, 2020 and May 5, 2020, with the final report required by January 31, 2021. The deadlines for tax payments remain unchanged.
Alex Foster, tax partner at RSM, said digital tax returns are expected to be introduced for everyone soon, including the requirement for quarterly reporting.
He said there are considerable advantages for advisers to encourage clients to take part in the pilot scheme.
He said: "The taxpayer can familiarise themselves with the system sooner rather than later – making tax digital is going to come in and so they can get ahead of the game.
"HMRC offered greater assistance with those that volunteered for the making tax digital VAT pilot and so the expectation would be that more help would be offered for this one as well.
"The taxpayer will be able to view an estimate of their tax at any time based on the information submitted – currently this is not available until the tax return is submitted.
"If the taxpayer is taxable from April 2019, it could be advisable to get involved with the new system from the start."
HMRC stated on its website: "The majority of customers want to get their tax right but the latest tax gap figures show that too many find this hard, with avoidable mistakes costing the Exchequer over £9bn a year.
"The improved accuracy that digital records provide, along with the help built into many software products and the fact that information is sent directly to HMRC from the digital records, avoiding transposition errors, will reduce the amount of tax lost to these avoidable errors."
david.thorpe@ft.com
What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.
