Rather than having to file before the traditional January deadline, the online system will come into operation for some small businesses in 2016, individuals in 2017 and then all applicable businesses in 2020. It is hoped allowing small businesses to conduct tax affairs in this way will give them better control over when and how tax is paid.
The Treasury believes the new system will help individuals and businesses pay the right tax at the right time , facilitated by a monthly procedure. However, it will also mean, despite the low interest rates that currently exist, money set aside to pay a tax bill in January will not be accruing interest for taxpayers.
It will bring into line the self employed, those earning but claiming benefits and businesses with workers paying tax monthly through PAYE. Digital accounts will be filled in automatically, including details from employment, pensions and banks.
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Described as being similar to an online bank account, the digital tax system will be accessible from computers or mobile devices mirroring the way consumers are increasingly conducting financial affairs.
There are currently 11m taxpayers and 1.8m companies currently using the traditional annual tax form, cited as complex, costly and time-consuming .
Details from the Treasury show the switch will be completed by 2020, at which time businesses will be able to link to accounting software to create a real-time system.
However, those wishing to stick with the previous paper tax return will be free to do so. In an aim to sell the new system, the Treasury believes it will mean taxpayers only spend ten minutes on average a year doing self-assessment.
Derek Kelly, managing director of tax and accountancy firm ClearSky, sounded a cautionary note. He said: This is a positive step, and it’s great to see a desire among policymakers to make life easier for independent professionals by moving systems belatedly into the 21st century.
However, we all know from experience that government IT projects rarely run on time. Even if this one does, the changes are potentially half a decade away.
Once implemented, I dont think the new system will make a great deal of difference to self-employed professionals, limited company contractors and small business owners. u2028u2028These individuals are already able to file their tax returns online, well in advance of the January 31 deadline. Human nature dictates, however, that many leave it until the last minute. Its extremely difficult to see this changing.”