HMRC outlines details of its digital tax strategy

HMRC has outlined the details its digital tax strategy in a series of consultation documents, published today.

The six consultation documents, which seek views on HMRC’s Making Tax Digital programme to digitalise the tax system, are being unveiled as HMRC also announces that 1.3 million small businesses will be able to benefit from Making Tax Digital without needing to update HMRC quarterly or keep their records digitally.

The announcement follows the news that HMRC’s chief digital officer is set to leave the department when his contract expires next month.

The government is also considering deferring digital record-keeping and quarterly updating for a further group of small businesses and will explore options to assist businesses with the transition. Finally, the consultation documents confirm that those who cannot go digital will not be required to.

Jane Ellison, financial secretary to the Treasury, said: “We are committed to a transparent and accessible tax system fit for the digital age, and Making Tax Digital is at the heart of these plans. This new system will make the UK’s tax administration more efficient and straightforward, and will offer businesses greater clarity when it comes to paying their tax bills.

“By replacing the annual tax return with simple, digital updates, businesses will be able to concentrate on putting people and profit, not paperwork, first.”

The documents on Making Tax Digital look at:

1. Making Tax Digital: Bringing Business Tax Into the Digital Age – This consultation considers how digital record keeping and regular updates should operate including exemptions.
2. Business Income Tax: Simplifying Tax for Unincorporated Businesses – This consultation seeks views on: changing how the self-employed map accounting periods onto the tax year (basis period reform); extending cash basis accounting; reducing reporting requirements; and reducing the need to distinguish between capital and revenue for businesses using cash basis accounting.
3. Business Income Tax: Simplified Cash Basis for Unincorporated Property Businesses – This consultation considers the extension of cash basis accounting to landlords.
4. Making Tax Digital: Voluntary Pay As You Go – This consultation: looks at options for business customers covered by the requirement for digital record-keeping to make and manage their voluntary payments; considers how voluntary payments will be allocated across a customer’s different taxes; and explores the best way of dealing with the repayment of voluntary payments. It also broaches the opportunity regular updating provides to make earlier repayments of withheld taxes.
5. Making Tax Digital: Tax Administration – The consultation covers aspects of the tax administration framework that need to change to support Making Tax Digital. It also sets out proposals to align aspects of the tax administration framework across taxes, including the simplification of late filing and late payment sanctions.
6. Making Tax Digital: Transforming the tax system through the better use of information – This consultation focuses on how HMRC will make better use of the information we currently receive from third parties to provide a more transparent service for customers that reduces end of year underpayments and overpayments. It also explores our future ambition for the use of third party information from 2018 onwards, which will enable us to deliver the end of the tax return by 2020.

Edward Troup, executive chair, HMRC, said: “Making Tax Digital represents very significant change. It will bring the tax system into the 21^st century and help make HMRC one of the most digitally-advanced tax administrations in the world. Going digital will abolish the annual tax return as we know it by 2020, replacing it with a personalised digital service through which taxpayers will be able to send and receive information to HMRC at the click of a button.

“There is still a lot to design and develop, and it’s important that we do this hand-in-hand with our customers and their representatives; these consultations are the next step in this process.”