by Nick Robinson | Apr 16, 2015 | Business, Personal Tax, Taxation
As part of the 2015 Budget, George Osborne has announced that real-time accounting will replace the paper tax return by 2020. Instead of filling out an annual form, the Chancellor said, small businesses and individuals or their accountants will upload accounts data in real time throughout the year. Chancellor Osborne called the move “a revolutionary simplification of tax collection.”
Businesses will reportedly be able to upload this data via smartphone or tablet as well as on a computer. As accounting data will be entered on an ongoing basis, businesses will also have the option to spread the cost of paying tax over the full year rather than facing a single, large tax burden after once a year after filling out their tax returns.
The move is intended to make things easier for the 1.8 million companies and 11 million individuals who currently fill out a tax return. It will also mean businesses and their accountancy professionals will benefit from easier access to a greater range of information, making it easier to build up a comprehensive and up-to-date picture of a company’s financial position.
The first five million small businesses and ten million individuals will have access to the real-time accounting system next year, the Treasury claims. The switch is expected to be fully in force by 2020, though annual tax returns are likely to remain an option for those businesses that prefer them.
The idea of real-time accounting is not an entirely new one. The idea was first floated in 2011 as part of a discussion document entitled “Modernising the Administration of the Personal Tax System.” The Personal Tax Transparency Survey conducted the following year also raised the idea of a real-time accounting system replacing the annual tax return, but the recent announcement from the Chancellor marks the first confirmation that the government has firm plans to introduce such a system.
Taxpayers, businesses and accountancy professionals will have access to a secure online account, expected to be similar in some ways to online banking systems. There, they will be able to regularly submit information and receive tax bills that more accurately reflect the current performance of the business, rather than being calculated based on data from the previous year. The account will also be updated automatically by HMRC using any relevant information it may receive from banks, pension providers and employers.
By the time the switch has been fully made in 2020, it is expected that the real-time tax reporting system will be able to integrate with major accounting software packages. This will allow accounts departments and contractors to submit information directly and conveniently in the process of ongoing accounts work and using the same tools that they currently utilise to maintain accounting records. It will reportedly also be possible to link bank accounts to the system to further simplify the process and ensure accurate assessment of tax liability.
Some experts, however, are sceptical of quite how accurate the new system can be. In particular, they question how much vital information – such as rental income and interest earned – will really be available to HMRC in order to automatically update the account. If this information is not available, then it will need to be entered manually and therefore complicate the system.