Traditionally, the tax return is an annual chore for millions of employees, self-employed workers, landlords and small business-owners across Britain. The process takes time, administrative effort, and can result in costly complications if mistakes are made. In 2015, the government announced plans to change all that - with the introduction of digital personal tax accounts: online accounts which bring each taxpayer's details together in one place and - in theory - make the tax return process much easier.
The transition to digital personal tax accounts represents a significant change in the landscape. HMRC director general, Ruth Owen has compared the new system to the "equivalent shift in service" that accompanied the introduction of internet banking, describing it as "a ground-breaking development for HMRC and our customers".
So, How Do Digital Tax Accounts Work?
Like online bank accounts, HMRC's new PTAs give users the ability to view and manage all their tax information and payments from a single, secure portal. Phased-in initially for people in the self-assessment system - but now available for personal taxpayers and small businesses - online accounts are changing the way tax is managed and paid:
- Online accounts host comprehensive, real time tax information for businesses and individuals.
- Taxpayers can pay tax, update their details, and see how their tax is calculated anytime, anywhere.
- Since personal data is stored in the system, there is no need to re-input information HMRC already holds - removing bureaucracy and increasing the efficiency of the tax payment process.
Crucially, the new system will facilitate tax returns on a quarterly, rather than annual, basis. By April 2018, quarterly tax reporting will apply to all businesses (including the self-employed and landlords) where that activity constitutes a main income. That quarterly obligation will also extend to those with secondary incomes over £10,000 (where a main income is provided by employment or a pension).
Filing tax four times a year may seem like more work, but the streamlined, digital process promises to eliminate the traditional administrative effort required. The new schedule is also designed to prevent the inefficient, annual build of tax due and refunds owed - reducing the likelihood of both mistakes, and unwelcome surprises at the end of the financial year.
Since personal tax accounts collate all relevant information in one place, users have everything relevant to their tax situation at their fingertips - including liabilities and entitlements like childcare and retirement benefits, employment history, and National Insurance records. It's also possible for users to integrate their bank and building society details so tax can be paid via direct debit or in instalments.
Beyond the capacity to calculate and pay tax, more features are being added to the PTA system as it rolls out. As of September 2016, your account allows you to:
- Check your PAYE information as payroll submissions are uploaded
- Review your state pension forecast
- Claim a tax refund
- Manage tax credits
- Apply for a Marriage Allowance
- Estimate income tax
- Report errors to HMRC
- Change personal information and more...
The digital tax system will also allow for 'personalised support', meaning taxpayers and small businesses will be able to access help and support services focused to their specific needs. For example, VAT support will be available to small businesses which may not have experienced the process before, or similarly, workers approaching retirement age will be able to find easy access to pension resources.
Uptake of the new service is growing: by August 2016, over 3.5 million people were using digital personal tax accounts and, by the end of the year, 10 million individual taxpayers and 5 million small businesses are expected to have signed up. HMRC's goal is to have all taxpayers, individual and corporate, using the system by 2020.
The era of the annual tax return is almost over - the sooner you and your business become familiar with the digital landscape, the sooner you can begin taking advantage of the benefits it brings.
Sign-up For Your PTA
Taxpayers wanting to take advantage of the PTA system will need to create a Government Gateway Account - remember, setup requires your NI number and involves several verification steps. Once you've created your account, it's worth noting down your login details for ease-of-access in the future.