Reports of the death of the tax return have been greatly exaggerated…

During his recent Budget, George Osborne made the surprise announcement that the annual tax return would be phased out by 2020 and replaced by “digital tax accounts” which every taxpayer and small business will be able to access to check, agree and pay their tax each year. The digital account would be kept up to date and populated with information already held by HMRC from employers, pension providers and banks.

Initial reaction to the news has been one of cautious welcome – it should after all relieve many of the straightforward cases from the burden of completing an annual tax return – but there remain concerns over the lack of detail of the replacement system and the Revenue’s poor track record of large computer projects.

Taxpayers will be able to see a real time view of their tax affairs on any device, and choose the option to pay their tax on a “pay as you go” basis with taxpayers’ bank accounts linked to their account, enabling HMRC to take any tax owing directly from it – which would be a significant shift from the current system of HMRC waiting to receive payment from the taxpayer.

All this sounds fine for those with simple tax affairs, but there are many taxpayers whose final tax position for any given tax year cannot be determined until all relevant income and gains details are to hand – income sources such as property letting accounts, share portfolio income and gains reports etc can only be calculated after the tax year has ended. So clearly there must still be a requirement for taxpayer to “agree” each tax year as final and to pay any tax owing. It therefore follows that deadlines for signing off tax years and paying tax must still remain, as will penalties for non-compliance.

Currently the overwhelming majority of taxpayers who are required to complete and file their annual tax return do so online, whether by themselves or with assistance of their agent. Most agents use specialist third party software to process and submit tax returns to HMRC’s servers, and it is understood that these third party developers are already working closely with HMRC to ensure that they can both feed into and obtain information from HMRC systems.

Agents will continue to be able to manage their clients’ digital accounts. So those with less straightforward tax affairs, and those who prefer to rely on professional advice to ensure their tax reporting and paying obligations are met, their tax position is correct each year and to seek advice on wider tax planning matters to minimise their tax liability, will continue to rely on the services of their professional adviser.

For professional advice please contact a member of our personal tax team on 01904 464100 or