MTD for individuals is based on the Personal Tax Account. PTA is a new HMRC system which will allow tax payers to see details from their HMRC record and help them to manage their tax affairs more efficiently. They can register, file, pay and update their tax information online at anytime Secure messages are sent out to make sure that no deadlines are missed – it’s being compared to the ease and efficiency of online banking.
Individual taxpayers who are currently within self-assessment will be moved out of that process, in tranches, depending on the types of income they receive. The first groups expected to be taken out are those who are required to file returns because their income is more than £100,000 and those who are in self-assessment only to collect tax due on a state pension.
Until the introduction of the Personal Tax Account (PTA) there were no digital tax services available to PAYE taxpayers. HMRC currently issues tax codes which determine the PAYE deducted and checks taxpayers’ record after the end of the tax year, issuing a paper P800 tax calculation if there is an over or under payment.
The Making Tax Digital team will utilise the most powerful current source of third party information; RTI (Real Time Information) to update tax codes much more regularly. RTI was introduced 4 years ago to make PAYE submissions more efficient - meaning employers need to submit information to HMRC in real time, every time they pay employees.
One of the attractive features of PAYE refresh is that those taxpayers won’t pay tax and then have to wait for an end of year refund. Other taxpayers will experience the negative affect of PAYE refresh. They will see quicker and more significant tax deductions, as HMRC attempts to recover all the tax due by the end of the current tax year, rather than carrying some over to be coded out in a later year.
As the 2015/16 underpayments are already coded out in 2017/18 this will be a double hit of tax underpayment recovery in one year.
The net effect of these changes is that tax agents and employers will receive more, and more frequent coding changes, although we have been promised no more than one code change per month for a taxpayer!
I must encourage everyone to activate and use their Personal Tax Account (PTA) to see how the tax code is made-up. An employee can query their tax code directly from their PTA, and can check the progress of the query.
Follow this link to set up a Personal Tax Account - either using a Government Gateway account or with Gov.UK Verify;