Guide to Making Tax Digital for individuals

Making Tax Digital was first announced by the government in 2015 as an initiative to improve the effectiveness and efficiency of the UK tax system, and reduce its complexity.

The government’s original goal was to transform the tax system by 2020 by introducing digital recordkeeping and quarterly updating for businesses, the self-employed and landlords for income tax self-assessments, value-added tax and corporation tax.

The original timeline set out by the government proposed a phased introduction of MTD for businesses between the 2018-19 and 2020-21 tax years.

However, following consultation with the industry, the government announced in July 2017 that it would delay the introduction of MTD to April 2019 at which date the scheme would only apply to VAT. It said that the initiative would be extended to taxes other than VAT by 2020 at the earliest.

So, what is required under MTD and how will the initiative affect individuals?

Reasons for MTD

For individuals, the MTD scheme will allow taxpayers to view their tax information online and in one place through their personal tax account. As with businesses, MTD aims to offer individuals much more flexibility and certainty when it comes to managing tax affairs. For individuals who pay more than one tax, they will be able to see all of their tax liabilities through one portal.

Making Tax Digital for individuals also aims to enable individuals to interact digitally with HMRC, including through webchat and secure messaging.

What will change for individuals under MTD?

Personal tax account

The personal tax account was launched in December 2015. By September 2016, over 600,000 individuals had received an income tax refund directly to their bank account, more than 100,000 individuals had updated company car details and nearly 1m customers had renewed their tax credit claims before the 31 July deadline.

Through the personal tax account, individuals have access to their tax affairs online in order to review records and carry out account management.

In order to access a personal tax account, individuals need a Government Gateway account, a national insurance number and proof of identity. Bank account details, a P60, the three most recent payslips and passport number and expiry will be accepted as proof of identity.

Individuals who have used HMRC online services previously should have a Government Gateway account already. Those setting up a Government Gateway account for the first time need their name, date of birth, national insurance number, and email address in order to sign up. They will then be required to create a password and will be sent a user ID.

Once the account has been activated, individuals will be able to select the services they wish to use, following which the relevant department will send an activation code.

Once an individual has gained access to their personal tax account, they will be able to carry out the following activities:

• Review income tax estimate and tax code
• Complete, send and view a personal tax return
• Claim a tax refund
• Review and manage tax credits
• Review State Pension
• View and manage tax forms that have been submitted online
• Update marriage allowance
• Notify HMRC about a change in address
• Check and update any work benefits, including company cars and medical insurance

HMRC has said that more services will become available in future months.

Self-assessment tax return

HMRC’s aim is to phase out the self-assessment, replacing the tax return with the personal tax account so that individuals can update their information and manage their tax affairs digitally. Eventually, individuals will not be required to complete an annual tax return.

Approximately 10m customers currently submit a self-assessment tax return. Making Tax Digital for individuals would aim to prevent mistakes or errors being submitted by taxpayers on the return, leading to a drop in penalties and interest being levied on customers.

PAYE and third-party information

HMRC will aim to use third party information effectively so that individuals will not need to provide HMRC with information that it already has.

Additionally, the tax authority will use PAYE information to make in-year adjustments to tax codes in real-time. By doing so, individuals should avoid over or underpaying tax at the end of the tax year. They will also be notified if the right tax has not been paid.

HMRC will also use the personal tax account to explain to individuals how tax has been calculated.

Read our guide to Making Tax Digital for businesses.