Making Tax Digital for older people
The UK tax system is presently in the middle of a significant overhaul as part of a ten-year plan to fully digitise taxation to increase efficiency and reduce the scope for error. It’s estimated that over ten billion pounds are lost yearly in tax revenue due to honest mistakes by taxpayers and businesses. The government hopes that requiring customers to fill in digital tax returns will reduce the number of points where information might be wrongly reported, omitted, or miscalculated.
There are concerns, however, that some people may be disadvantaged by the new system or experience significant difficulties in transitioning to digital self-assessment. Among those sections of the population that could face challenges are vulnerable groups, including the disabled and the elderly. While HMRC has promised to introduce assistance and, in some cases, exemptions for the former category, the specific issues for older people are less easily addressed. Some older people may struggle with digitisation more than others, and the reasons could vary from one individual to the next.
Anyone concerned, be they older people or others, can read a guide to making tax digital to find out how they will be affected. VAT-registered businesses should already be keeping digital records, and from 1st November 2022, it will be compulsory to submit VAT returns digitally using HMRC-compatible records.
This will be extended to those paying income tax via self-assessment in April 2024. Small businesses, self-employed sole traders and property landlords earning £10,000 or more a year will be subject to the same requirements. Digital accounts must be prepared using HMRC- compatible software, with an income/expense summary submitted digitally every three months and a final report at the end of the financial year.
Research by HMRC suggests that older people have generally lower levels of computer skills and are less confident and less capable with digital technology, although this is not a universal truth. The same research found that while older people are more likely not to own or use a computer, many older adults can and do use computers regularly.
Additionally, specific forms of ID are required to register with and access HMRC online, and a 2019 report by the Money and Pensions Service found that these are less likely to be commonplace among older generations. It may become essential to own a current UK passport or driving licence and to have a checkable credit history, for instance, with a mobile phone provider. While this isn’t an insurmountable obstacle, older individuals who are affected may begrudge the expense and rigmarole.
Even if older business owners regularly use a computer, they may still keep their accounts in paper form. If they keep digital spreadsheets, these may need to be transferred over to software compatible with the new system. Alternatively, it may be possible to use bridging software to connect existing digital records to HMRC. In any case, keeping paper records for tax purposes will no longer be sufficient.
As noted by taxaid.org.uk, HMRC is not providing compatible software directly but is relying on named third-party providers to do so. It’s anticipated that older business owners and sole traders might find choosing the right software stressful. They will then have to learn how to use it. If the business has several employees who deal with accounting issues, they will also need to be trained.
It’s recommended that businesses engage a quality, paid advisor or agent to assist them in successfully transitioning to the new system. Whether they choose to do this or manage on their own, additional costs will undoubtedly be incurred. Depending on various factors, this has been estimated at anything from around £280 over four years to over £5000.
The main obstacles to compliance with Making Tax Digital among the older age groups can be summarised as understanding, confidence, and cost. These obstacles are not exclusive to the elderly; equally, some older people may find them easier to overcome than others. Help is available from HMRC and other parties, and HMRC has also stated that “where a customer’s age prevents them from using the MTD services, they may be exempt from the MTD requirements.”
In most cases, however, older users should be able to adapt to the new system. It’s recommended that they begin efforts to meet requirements sooner rather than later to minimise last-minute stress, and to seek out help and support when needed.