Modernising the Tax System

A Bill proposing the simplification of tax obligations for individuals who only earn employment and investment income has received its first reading in Parliament.

Changes already enacted impose new requirements on payers of employment income and investment income to report details of who is receiving what income and how much tax has been withheld on that income. The proposed changes in the Bill look to use the increased information Inland Revenue is to receive to simplify the year end income tax filing obligations for individuals and ensure more appropriate withholding tax rates are applied during the year to income. It also includes proposals to automate the tax refund process and notification process for amounts of tax to pay.

Inland Revenue is proposing to replace personal tax summaries and IR3 forms with an online account that will include all income information that Inland Revenue holds about the individual tax payer. Those taxpayers that only earn PAYE and resident passive income (interest and dividends) will not have to do anything, Inland Revenue will automatically calculate their tax refund or amount of tax to pay. Taxpayers with other income or deductions that the IRD is unaware of will be required to provide further information.

Individuals will fall into one of three proposed groups:

  • Group A – individuals that earn only reportable income (salary, wages, interest and dividends) and for whom Inland Revenue considers the income information held is correct will receive automatic refunds or requests for payment.
  • Group B – individuals that earn reportable income, but based on previous returns or other information, Inland Revenue considers that the individuals may have additional unreported income or deductions. These individuals will be requested to provide additional information or to confirm that information held is correct.
  • Group C – individuals that have very little or no reportable income will be required to provide income information similar to the current IR3 process.

These changes are expected to come in to force on 1 April 2019 and will apply to the tax year ending 31 March 2020. For more information, please speak to your adviser.