Practitioners wary of timetable for switching to digital tax accounts

THE government’s decision to abolish end-of-year tax returns in favour of online tax accounts has raised concerns among practitioners sceptical about the ambitious timetable and the long history of botched government IT projects.

Chancellor George Osborne confirmed in the Budget plans to switch to digital tax accounts for individuals and small businesses by 2020, with five million small companies and the first ten million people making the switch in early 2016.

People will be able to sumbit accounts and pay their tax throughout the year – for example, by linking to a bank account so they pay in instalments or by Direct Debit – and see how their tax is calculated as HMRC automatically updates its information by bringing together details about earnings, pensions and savings in addition to new data from third parties.

While many advisers see the move as a natural progression for a system in need of an overhaul, the timetable and other practical issues have caused serious concern.

Designing, testing and producing a functional system within five years is unrealistic, particularly in light of the problems that took place when real-time PAYE was introduced, while the government’s track record of failed large IT projects augurs badly for the effective roll out of online tax accounts.

“There’s a huge gap between consultation and implementation in 2016,” Elaine Clark, founder of CheapAccounting.com, tells Accountancy Age. “I’ve yet to see HM Revenue & Customs display any capability whatsoever that it would be able to cope with monthly figures.”

There are questions too over fines, penalties, what happens when errors take place, the basis of the accounting used and the ability for the technology to accommodate everything, given the poor quality of broadband in remote areas of the UK.

And the manner in which the plan was announced, which has a sense of immediacy and permanence to it, could lead taxpayers to believe they no longer need to file a tax return this year or that they no longer need an accountant, practitioners have warned.

HMRC has moved to allay some of those concerns. Accountants, it says, will be necessary because the system will be voluntary at first and many will still need help with compliance in any event. The department’s spokesman also stresses the ‘soft landing’ approach it will take over the coming five years.

Not only that, the digital account will essentially serve as a dashboard for information, and will not process transactions as RTI does, HMRC confirmed. It’s clear, however, the move is part of a shift away from HMRC toward the taxpayer as the tax authority sees its resources cut by 5% year-on-year, ACCA’s head of taxation Chas Roy-Chowdhury suggests.

Despite that, few dispute the concept in general and are eager for further information to emerge. For individual taxpayers with straightforward affairs, it could make an annual task far less of a chore.