UK to Phase Out Annual Tax Returns Within the Next Five Years

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Britain's Chancellor of the Exchequer, George Osborne, announced during his hourlong Budget 2015 speech on March 18 that the annual tax return is set to be phased out within five years.

His plan is outlined in the government document "Making Tax Easier."

The United Kingdom's tax regulator, HM Revenue & Customs (HMRC), will instead combine the tax affairs of taxpayers from employers, banks, investment firms, and other third parties into a single, digital tax account.

For businesses, the HMRC and Companies House will be streamlining the process to register a new company and sign up for taxes by May 2017.

In addition, during the summer the government will consult on a new payment process to enable tax and national insurance contributions will be collected through digital accounts instead of self-assessment.

By early 2016, all of the United Kingdom's 5 million small businesses and the first 10 million individuals will have access to their own digital tax account.

Osborne said the move will reduce the time it takes to deal with the HMRC, from an average of 40 minutes a year to 10 minutes. The changes will mean receipts and documents won't have to be collected by taxpayers throughout the year.

According to David Gauke, financial secretary to the Treasury, this is one of the "biggest-ever changes to the way that people manage and pay their taxes."

Some AccountingWEB UK members are split in their opinion about this change. Some are worried it will drive business away from accountants; others say it will create more work.

On AccountingWEB UK's Any Answers community forum, Shogun commented:“Hopefully, small business owners will still need us to save tax. I doubt that they can scrap tax returns for traders because of the expenses. If they do try to do that, it will create unprecendented chaos and more work for them which they don’t want. Without accountants the tax system will collapse."

Chas Roy-Chowdhury, the head of tax for the Association of Chartered Certified Accountants, said giving taxpayers a "holistic view" of the tax they pay is welcome news. But, it must be done properly.

He said the announcement is part of the government’s push to get the taxpayer to do more as HMRC’s resources continue to be squeezed by 5 percent cuts year over year. A change of this magnitude must be properly planned to ensure there are no problems with the rollout.

"It is imperative the public are able to embrace the move to a digital tax future if the government are to be successful in this scheme", Roy-Chowdhury said.

In particular, those still filing paper returns must be given the right tools, support, and guidance to transition to digital to ensure they are not left behind.

Rebecca Cave, tax policy editor for AccountingWEB UK, took a skeptical stance: “We know with Real Time Information [for PAYE] that when information gets to HMRC, it goes through a series of Chinese whispers and ends up different to what you submitted. If that can go wrong with PAYE data, imagine what else could happen. They’ll put that in an electronic account and tax you on it without you signing anything. They do seem to be trying to run before they can walk, because we know it doesn’t work at the moment.”

This article was originally posted on AccountingWEB UK.

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