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HMRC is planning to scrap the annual tax return and replace it with online reporting tools

HMRC has announced plans to overhaul the current tax system by 2020, scrapping the annual tax return and replacing it with a digital document which taxpayers can updateon a quarterly basis.

It means that most businesses, landlords and the self-employed will record and pay all their taxes online.

Taxpayers will have 12 months to get used to the new system before any late submission fines are applied

The taxman said it waspart of the governments commitment to make the annual tax return a thing of the past for millions of people and businesses.

Under the governments proposals, theMaking Tax Digital project will save the taxman8 billion a year, it said, because taxpayers will be getting their tax bills right first time.

Businesses, landlords and the self-employed will be able tokeep track of their tax affairs digitally, updating the online document on a quarterly basis, while charities and some small businesses will be exempt from the new system.

In a document published yesterday, HMRC said that free software will be available to the majority of the smallest businesses, but those that cannot go digital will not be required to do so.

Charities, too, will not be requiredto keep their records digitally or make quarterly updates, the taxman said.

HMRC stated it will pilot digital systems with hundreds of thousands of businesses before rolling them out across the board, to ensure the software is user friendly, and to give businesses and landlords time to prepare and adapt.

It added that taxpayers would have 12 months to get used to the new system before any late submission fines would be applied.

Jim Harraof HMRCsaid: We know that the majority of businesses want to get their tax right first time, but the latest tax gap figures show that too many find this hard, with more than 8 billion a year lost in tax as a result of avoidable taxpayer error by small businesses.

Making Tax Digital will help businesses to get their tax right first time; it will help reduce the likelihood of errors, lower the chance of unwelcome compliance checks and give them greater certainty that they are getting things right.

The appetite for digital services is growing and traditional paper-based processes make no sense in the 21st century where the vast majority use digital services.


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