The annual tax return will be a thing of the past by 2020, according to HMRC - potentially saving the taxman over £8bn per year.
Under the government's proposals - part of its Making Tax Digital project - taxpayers will keep the Revenue updated online on a continuous basis, rather than filing a yearly return.
After eight months of consulting with businesses, self-employed workers and landlords, HMRC today unveiled more details of its plans.
The government's proposals include the following:
- businesses will be able to continue to use spreadsheets to record receipts and expenditure, which they can then link to software to automatically generate and send their updates to HMRC
- free software will be available to the majority of the smallest businesses
- the option to account for income and expenditure on a simple ‘cash in, cash out’ basis will be extended
- customers will have at least 12 months to become familiar with the changes before any late submission penalties will be applied
Last year, the taxman confirmed it would no longer be requiring small businesses to make quarterly reports. Today's proposals come just over a year after HMRC first launched online personal tax accounts.
The overhaul is aimed in part at reducing the amount of money lost each year due to taxpayer errors - HMRC estimates these mistakes cost it more than £8bn a year.
"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," said Jim Harra, HMRC's director general, customer strategy & tax design.
Harra added: "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 £8bn 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."