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Most taxpayers are familiar with the Self-Assessment system which HM Revenue and Customs (HMRC) uses to collect Income Tax from individual taxpayers. This system has been in place for many years in order for the Government to collect taxes from those individuals which do not receive income via a Pay as You Earn Scheme, or have income not fully taxed at source. This particularly affects those who are self-employed, those with rental properties, or individuals receiving significant dividends. Tax is also automatically deducted at source from certain sources of pensions and savings income, although in even in these cases there are often reasons for individuals to submit an annual self-assessment tax return. It is necessary to file your tax return online by the 31st January. You will need to calculate your tax liability when submitting your return. It is also important to make sure that you settle your Self-Assessment liabilities by 31 January (or 31 December if you want HMRC to collect tax automatically from your wages or pension with the relevant elections made via your tax code). Note that payment on account may also be due on 31st January and 31st July. In today’s modern digital world, a large number of taxpayers use a range of digital services to manage their tax affairs with more than 85 per cent of these returns completed online. With a world moving towards a more digital era (and greater ease of information sharing arrangements), it has become apparent that the previous self-assessment system needs to undergo some change to bring it into the 21st Century. This has resulted in the government deciding to modernise the way taxpayers’ information is collected from financial institutions and employers and shared with HMRC. As part of the Government’s vision to do that, tax returns will be replaced by digital tax accounts for millions of individuals and businesses. Making Tax Digital is the name HMRC has given to its four-year plan to transform the tax collection system into a more modern and more efficient system. The government has committed £1.3bn to this project, which will be spent on creating online tax accounts for individual and business taxpayers. The quarterly reporting proposals are the most radical change facing taxpayers and their advisers in recent years. Individuals will keep their records of income (salary and bank interest for example) on these various apps and software and that will essentially ‘talk’ to HMRC central system. Once a quarter that app or software will pull together information for HMRC within these digital tax accounts. The government has already delivered digital accounts for small businesses, with more than a million currently using them, as well as a simpler online service for individuals. Feedback from these groups is helping to shape a what HMRC call a “bold vision” for the future of the tax system. It is hoped that these digital accounts will be simple, secure, personalised to the taxpayer. It is suggested it will also benefit many small businesses as it will enable them to link their accounting software to their personalised tax account and have the option to pay as they go. Not only this, but by paying as you go, this will hopefully help with cash flow for businesses. This will be one of the biggest-ever changes to the way that people manage and pay their taxes. Whilst HMRC are shouting about the benefit to taxpayers, it is clear that essentially they intend to use the system to collect tax earlier, quicker and with less cost, whilst also reducing the amount of manual intervention needed to maintain and monitor the self-assessment system. In the future, it is hoped that people will only need to check their tax information online in order to know how much tax is due with millions of people no longer having to complete a tax return at all —those with more complex tax affairs will be able to use their account to declare income and pay tax in year and may even be in a situation where they will need to submit information on a quarterly basis. Whilst we don’t yet know how everything will work in practice, it is clear that a significant change is coming and taxpayers will need to consider how they organise their affairs over the coming few years in order to ensure they remain compliant and up to date. If you would like to find out more about how Wisteria could support you and your business going forward, then please do feel free to contact our dedicated tax team on 020 8429 9245 or email [email protected]
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