HMRC has issued a series of consultation documents outlining how the department plans to transform the UK's tax system under the Making Tax Digital initiative.
The reforms are intended to make HMRC one of the most digitally advanced tax administrations in the world by 2020.
"This new system will make the UK's tax administration more efficient and straightforward, and will offer businesses greater clarity when it comes to paying their tax bills.
"By replacing the annual tax return with simple, digital updates, businesses will be able to concentrate on putting people and profit, not paperwork, first."
HMRC has released six documents covering different areas of the tax system:
- Making Tax Digital: Bringing Business Tax Into the Digital Age. This consultation will examine how computerised record keeping and regular updates should operate.
- Business Income Tax: Simplifying Tax for Unincorporated Businesses. This will focus on changing how the self-employed map their accounting periods onto the tax year, extending cash basis accounting, reducing reporting requirements and cutting the need to distinguish between capital and revenue for businesses using cash basis accounting.
- Business Income Tax: Simplified Cash Basis for Unincorporated Property Businesses. This consultation will consider the extension of cash basis accounting to landlords.
- Making Tax Digital: Voluntary Pay As You Go. This will look at the options for business customers covered by the requirement for digital record-keeping to make and manage their voluntary payments and consider how voluntary payments will be allocated across a customer's different taxes.
- Making Tax Digital: Tax Administration. This will examine the administration frameworks that need to change to support Making Tax Digital. It will also set out proposals to align aspects of the tax administration framework across taxes, including the simplification of late filing and late-payment fines.
- Making Tax Digital: Transforming the Tax System Through the Better Use of Information. This will focuses on how HMRC can make better use of the information received from third parties to reduce "end of year underpayments and overpayments". It will also explore the possibility of extending the use of third-party information from 2018 onwards "which will enable us to deliver the end of the tax return by 2020".
The last document, bringing the possibility of the abolition of the tax return and its replacement by a pay-as-you-go system, would represent a fundamental revolution in the way tax is levied and paid.
"Making Tax Digital represents very significant change. It will bring the tax system into the 21st century and help make HMRC one of the most digitally-advanced tax administrations in the world," said Edward Troup, executive chairman at HMRC.
"Going digital will abolish the annual tax return as we know it by 2020, replacing it with a personalised digital service through which taxpayers will be able to send and receive information to HMRC at the click of a button.
"There is still a lot to design and develop, and it's important that we do this hand-in-hand with our customers and their representatives. These consultations are the next step in this process."
It is unclear, however, how this current initiative will dovetail with HMRC's recent decision to extend its mega-outsourcing contracts with Accenture and Capgemini.
The HMRC Making Tax Digital consultation will run until 7 November.
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