Government renews determination to digitalise tax administration

21 July: The government has set out its 10-year strategy for a resilient, adaptable tax administration system that can offer support in the face of human and natural disasters, drive up productivity and build trust.

The government’s intention to create a “tax system fit for the challenges of the 21st century” was first mentioned in 2015 and has been reiterated on many subsequent occasions, including by the current Chancellor at Spring Budget 2020. The plans have now been expanded on in a strategy document, Building a trusted, modern tax administration system.

ICAEW’s Tax Faculty, comments: “Much of what is in the report is not new, but it does reflect a renewed determination on the part of government and HMRC to press ahead with digitalising the tax system.

“The acknowledgement of the challenges of transition and the need for checks and balances is welcome, suggesting that HMRC has learned from the experiences to date with regard to the pace and sequencing of changes and the need to maintain and build public trust.

“We remain concerned that the estimates of transition and ongoing costs are unrealistic, but we look forward to working with HMRC to help develop better systems and processes; the investment required by government will be very significant.”

The benefits that government is seeking to achieve are:

• A better experience for taxpayers 
  The vision is for a single digital account across different taxes, combining personal and business tax accounts as well as, it is hoped, services that are outside these digital accounts. The Tax Faculty welcomes the recognition that this will require significant integration of legacy HMRC systems and that agent access will be designed in from the outset.
  The approach is intended to reduce the scope for error but also to allow HMRC interventions to be more targeted and made earlier.
• A reduction of the tax gap
  The report contrasts the PAYE tax gap which stands at 1% with the self assessment tax gap which stands at 13% (see latest estimated UK tax gap).
• Wider productivity and efficiency benefits for business
  The government highlights the potential for software innovation driven by Making Tax Digital but with much wider benefits for business administration.
• Greater resilience and responsiveness in times of crisis
  For example, real-time data on income from self-employment would have enabled the support offered through the Self-employment Income Support Scheme to be better targeted and extended to those that recently started self-employment.

There are three elements to the strategy that will be taken further in the short to medium term:

• A progressive extension of Making Tax Digital (find out more).
• Exploring the timing and frequency for the payment of different taxes
  The government intends to publish a call for evidence on how to make it easier for those who wish to pay their tax more regularly to do so on a voluntary basis. The government is also intending to explore how, over the longer term, payment might be brought more in line with real time reporting and, building on the announcement at Budget 2018, the role of intermediaries such as digital trading platforms. The report does acknowledge that more frequent tax payments would be a major change that could affect liquidity and would need to be introduced gradually and carefully. This subject was previously explored in consultations in 2016, but not progressed.
• A reform of the tax administration framework
  The report acknowledges that the legislative framework for tax administration is difficult to navigate and does not facilitate a modern tax system. The government will explore options for a revised framework, starting with a call for evidence later this year which is expected to cover:
  - how taxpayers are identified and registered by HMRC;
  - how tax liabilities are identified, amended and assessed;
  - the obligations on HMRC and taxpayers;
  - penalties and sanctions for failing to comply with obligations; and
  - taxpayers’ rights and safeguards, including appeals and dispute-handling.

The report then goes on to acknowledge the challenges of transition, including the pace and sequencing of reforms, the cost to business and the need for careful delivery where legacy systems and data platforms need to be upgraded.

The report also acknowledges the need to build public trust in the tax administration system and the need for checks and balances.