Digital tax: ‘HMRC wants a direct link to everyone’s bank accounts’
HMRC have announced that they want to build, “the most digitally advanced tax system in the world”. This includes in particular a direct link to your bank account, making self employed taxation almost automatic. What are the benefits of this system? What will it change for you? Let’s explore this.
How do they do it currently?
The way that self employed tax is collected now is through a yearly return, with records being kept by each individual business. Of course, HMRC doesn’t have the time or resources to go through each and every invoice or expenditure that a business generates. To a certain extent, they trust your word on the tax return. However, HMRC reserve the right to audit your business at any time, requiring you to provide evidence for any tax calculation you have submitted.
What are they planning on introducing?
The proposed system from HMRC, although not explained in great detail at this point will essentially digitize the entire tax process. This thus means that in theory that they can view your business bank account in real time. This will allow them to monitor the activity throughout the year and make it easier to spot potential tax fraud when tax time comes.
Another feature that they are discussing is the possibility of logging all payments and earnings in real time. Through the release of some apps that are integrated with various systems any invoice that you receive can be simultaneously logged by the HMRC system. This also is true for any revenue you receive, thus giving HMRC an approximate idea as to how much profit you are making before you even send your tax return.
HMRC claim that this is not an attempt to gather all our information like the, “stasi” but a way to streamline their processes, and make the collection of tax pounds easier.
Why are they doing this?
It makes sense that in an era where technology is advancing very rapidly, the government will start using it more and more. Another large reason will be that hiding some income will be increasingly difficult. This includes people who work in a mainly cash based business. Eventually you are going to put the money in your bank account, and when you do, it will show up on the HMRC system.
It will also mean that computer systems can be set up to spot fraud or irregularities and flag them quicker. This will save man hours in terms of auditing or other admin tasks that a computer could handle.
What will it change for you?
If you are already paying your taxes on time, not massaging your accounts and generally being honest, then nothing really should change. What some people are worried about is that HMRC may start demanding tax more regularly throughout the year. This is something that HMRC have categorically denied, stating that the current once per year model will remain. We should always bear in mind that they are the government, and the government doesn’t always have a good track record for keeping their word!
One fear that people are voicing include the idea that the technologically slow will suffer with this new technology. Obviously, as time goes on, this factor will become less and less important. It does mean however that the tech non-savvy will have a period of adjustment to this new process. HMRC will probably provide good help and guidance for these people, and of course hiring a good accountant will be very important in these cases.
How can you prepare for it?
There is nothing that can especially be done to prepare for this new technology. What is important is that you are making sure you are currently paying your taxes properly. Since, when this new technology comes into place, you may end up with less money in your pocket than you are used to. As mentioned previously, hiring an accountant will save you plenty of headaches in the long run.
If you are currently diligent about your taxes, then there isn’t anything to worry about, this technological trend isn’t going to end anytime soon, it is going to transform almost every area of our life, so we just need to get used to it!
This isn’t bad news for people who are honestly paying their taxes. It can be alarming to think that the government will have a prying eye into our personal accounts, but the boring truth is that it is probably just a cost saving exercise on their part! Sit back, relax, the robots are taking over!
GM professional accountants based in London and Essex.