MTD for individuals is centred around the Personal Tax Account (PTA) which already has many of the services needed by PAYE taxpayers. HMRC continues to improve and develop the PTA and in due course it will offer the full range of HMRC services to personal taxpayers, including some of those who are currently required to complete self assessment tax returns.
13 June 2018
Individual taxpayers fall into two groups – some who are required to complete self assessment tax returns and a very much larger group whose tax affairs are dealt with wholly within the PAYE system (PAYE taxpayers). Individuals can and do move between the two groups as their circumstances change. Individuals who have income from self-employment or from property are regarded by HMRC as being businesses and should refer to the business section of this MTD hub.
Until the introduction of the Personal Tax Account (PTA) there were almost no digital tax services available to PAYE taxpayers and the service was largely paper based. The key elements of the system for PAYE taxpayers are tax codes issued by HMRC, reporting of data by employers, pension providers and the Department of Work and Pensions and an annual reconciliation to check that the correct tax has been paid. The tax codes determine the PAYE deducted by employers and pension providers. HMRC checks each taxpayer’s PAYE record after the end of each tax year and contacts the taxpayer if there is an over or under payment of tax (a P800 calculation or PA302 simple assessment).
Other services allow, for example, claims for employment expenses and allowances and a limited facility to collect tax due on other non-PAYE income. Taxpayers are obliged to notify HMRC of any untaxed income by 5 October following the end of the tax year but this requirement is not well understood by unrepresented taxpayers. Neither are taxpayers always sufficiently aware that it is advisable to check their PAYE tax calculations annually as the information held by HMRC is not always correct.
The Personal Tax Account (PTA) gives taxpayers much more visibility of their tax records and access to online information, forms and services. Although the service is not yet fully developed it should be the first port of call for any individual who wishes to check their tax or transact with HMRC.
Aside from providing online services through the PTA there are a number of other initiatives that fall within the scope of the HMRC Making Tax Digital for Individuals project. These are: dynamic coding and simple assessment.
In July 2017 HMRC started using data from employers and pension providers to update tax codes much more regularly. This is expected to increase significantly the number of PAYE taxpayers who pay the correct amount of tax in-year and reduce the number of over and underpayments which are not identified until after the end of the tax year. Some underpayments will be collected much more quickly under this system but HMRC has indicated that it will consider applications for underpayments to be collected over a longer period where there is hardship.
In September 2017 HMRC starting issuing simple assessments. These assessments are sent to those who have underpaid PAYE for 2016/17 or a subsequent year where the underpayment cannot be collected by an adjustment to a tax code. In previous years such taxpayers would have received a P800 tax calculation followed by one or more requests for voluntary payment.
Taxpayers who did not pay voluntarily were put into self assessment and ran the risk of late filing penalties. Now they will instead receive a PA302 simple assessment which looks similar to a P800 tax calculation but is an enforceable assessment.
The second group to receive simple assessments is those who receive state pension above the tax free personal allowance where this is their only source of income. Such taxpayers were previously required to file a self assessment tax return; now they will instead receive a simple assessment.
Some individual taxpayers who are currently within the self assessment regime are expected to be moved out of that system, in tranches. Their tax affairs will be dealt with in the PAYE system and the Personal Tax Account. HMRC conducted a review of its projects in early 2018 with a view to ensuring sufficient capacity to deal with Brexit related priorities. Following that review further development of the Personal tax Account and other MTD for individuals projects have been put on hold.
HMRC is expected to consult before using any additional sources of third party data or using simple assessment for more complex cases. There is still uncertainty about how income tax reporting through MTD for business will fit together with reporting of personal income. Currently, for the self-employed, information is split between their personal and business tax accounts. It is likely to be some time before the objective for information to appear all in one place is met.
A big disappointment with the development of the PTA is that agent access was not included in the plans from the outset. It is only now, two years on, that the first tentative steps are being taken to give agents the access they need to represent their clients.