Tuesday 31 January 2017 3:16 pm

HMRC lays out plans to scrap yearly tax return and replace it with continuous online reporting

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

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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."