Pushing the digital tax account agenda could impose heavier burdens on self-employed

Chancellor George Osborne’s announcement this week that most self- employed people, including landlords, would be required to update their tax information at least quarterly using their digital tax account has been met with a mixed response.

While some observers hailed the move, others expressed concerns that the requirements would place an onerous burden on businesses owners.

In his Budget statement earlier this year, the Chancellor announced that individuals and small businesses would be able to access digital tax accounts that would be used to make tax payments simpler.

The accounts will contain all the tax information that HM Revenue & Customs (HMRC) already have about taxpayers and the announcement earlier this year anticipated that individuals would be able to review their digital tax account and use it to make any tax payments necessary.

Mr Osborne has now confirmed that the accounts will be available by the tax year 2016/17, presumably meaning they will be available from 6 April 2016.

The latest announcements widen considerably the functionality of the accounts, seemingly require individuals, businesses, the self-employed and landlords to actively manage and track their tax affairs digitally, using the digital tax account and apps to provide updates/returns to HMRC at least quarterly and potentially accelerating their tax payments.

Susannah Simpson, tax partner at PwC in Scotland welcomed the news saying: “Against a backdrop of increasing tax compliance, moving to new digital tax accounts is a great step forward. For those taxpayers who have suffered incorrect coding notices and endless time on hold to HMRC, this digital transition will be met with optimism, even if it is a little guarded.

“It will also be important that for those taxpayers who, for a variety of reasons, are not able to or are uncomfortable using online systems, that there is sufficient HMRC capacity in the ‘old way of doing things’ to give them the support they need.

“Ultimately, this is about simplicity and speed - an easy-to-use digital platform for self-assessment will not only make it easier for individuals and businesses to pay taxes, it should also help save them and HMRC time and money.

“The announcement that the platform will be used to accelerate capital gains tax payments on second homes suggests this is ultimately about collecting revenue faster. But if digital tax accounts make it easier to pay tax, this should also reduce penalties for taxpayers. The tax system needs to be simplified and this is a helpful step forward.”

However, the Low Incomes Tax Reform Group (LITRG) said it was concerned that using new digital tax accounts to make self-employed people report to HMRC more often, together with plans to bring forward payment dates, will add to their workload.

Anthony Thomas, Chairman of the LITRG, said: “We gave a cautious welcome to the new digital tax accounts on the basis they might simplify matters for some low income taxpayers, although we remained very concerned that a significant proportion of the population, often the most vulnerable, remain digitally excluded.

“Extending the use of these accounts to enforce more regular reporting by the self-employed seems to us to show a total lack of understanding of the financial awareness of many business owners: even with exemplary records it might be very difficult for a business owner to report an accurate profits figure other than at the year end, unless he employs an accountant to help him.

“We would be very concerned indeed if this proposal goes ahead without significant consultation since the additional burdens for self-employed people both in terms of administration and potential costs will almost certainly be substantial enough to discourage entrepreneurship altogether.

“Consultation is expected on accelerating tax payments, another worrying development which could go spectacularly wrong for the self-employed and we will be considering these carefully together with any transitional arrangements.”