Making Tax Digital for individuals is only eight weeks away, and industry experts are joining forces to make people aware of the pros and cons of signing up to a Personal Tax Account (PTA). On one hand there are concerns that the introduction of MTD for individuals may herald chaos for PAYE codes from 6 April, but on the other hand experts are pointing out that there are definite advantages in engaging with the tax system and owning personal tax data.

By the end of March 2017, HMRC estimates that seven million taxpayers will have activated their Personal Tax Account (PTA). There is an account ready for every one of the 40m UK taxpayers and, after problems in 2016 when people were trying to activate their accounts, HMRC has put in place a much simpler system for accessing PTAs. Taxpayers log on to their personal tax accounts through the government gateway and use a two-step security verification which includes a code sent to a mobile phone or landline.

Advantages of PTAs

Any changes to PAYE deductions will be shown on the employee’s PTA so it will be possible to cross reference tax and NI deductions with payslips from April 2017. This means that any discrepancies can be sorted out immediately with an employer rather than dealing with HMRC.

Bank and building society interest will be added to the PTA, although HMRC admits that reconciling the matching process is proving more challenging than first thought.

It will be much easier for an employee to notify HMRC of a change of address, which will be an important factor in allocating the apprenticeship levy back to employers.

The PTA will make it easier for HMRC to refund tax overpayments immediately so an employee will not have to wait six months as they do currently. However, although the facility to repay overpaid tax was introduced in November 2016, it may be September 2017 before P800 tax calculations are issued.

Currently, any tax due in respect of a benefit in kind is due from the point of notification. Under PTA, tax due will be recovered by the end of the tax year in which the benefit was first provided.

Disadvantages of PTAs

Employees have been used to a delay before tax underpayments were due. The introduction of PTAs will make it easier for HMRC to amend tax codes according to an individual’s changing circumstances. Frequent changes of PAYE codes and the recovery of underpaid tax over shorter periods will become the norm.

A significant number of people could be paying back underpayments from the previous tax year, while paying a potential underpayment for the current year. This could lead to an increase in the number of queries for both employers and tax agents.

PTAs will increase the volume of tax code changes, all of which will have to be implemented by the employer who may not have made plans to deal with the extra work.

HMRC’s responses to concerns about PTAs

HMRC has confirmed a number of safeguards which will alleviate the potential impact of the changes which the increase in PTAs will introduce:

  • Any underpayment must be less than £3,000 (the sum of the 2017/18 potential underpayment and the 2016/17 actual underpayment)
  • Any coding adjustment will not result in an individual’s tax liability being more than double the original sum
  • No more than 50% of taxable pay can be deducted in tax.