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Unique taxpayer identifier needed for third-party data use


Published: 23 Mar 2021 Update History

While plans to use data supplied by third parties, such as banks, could significantly reduce the administrative burden of income reporting for tax returns, they will not progress without a unique way to identify every taxpayer, warns ICAEW.

In responding to the Office of Tax Simplification’s call for evidence on the smarter use of third-party data to “make tax easier”, ICAEW’s Tax Faculty describes the UK’s lack of a unique tax identifier as a “major impediment”.

While the call for evidence suggests that the national insurance number (NINO) could be used as an identifier, the faculty highlights that not all UK taxpayers are required to have a one and that to move this idea forward, the issue of a unique identifier will have to be addressed.

Published as ICAEW Rep 31/21, ICAEW’s response also warns that there is a danger that taxpayers will accept third-party data prepopulated in returns as correct, and that clarity will be needed on who is responsible for checking the validity of the data – HMRC or the taxpayer?

It states: “A system would also be needed to allow a taxpayer to challenge and correct the data and to determine who would be responsible for making those corrections.”

The Tax Faculty suggests that the simplest way to manage this would be to allow taxpayers to check the third-party data and ask HMRC to check with the provider anything that has been flagged as incorrect.

“The taxpayer is responsible for ultimately determining the figures for their own tax returns, so should be able to override the third-party figures,” it concludes.

The faculty does agree, however, that if integrated successfully, the supply of data from banks, building societies, pension providers and letting agents, for example, to HMRC could “relieve much of the administrative burden of income reporting for tax returns”.

It cites better accuracy, more complete reports and time savings as the key benefits of such a system.

However, the faculty also highlights that loss of data by third parties and inaccurate reports are a concern. In particular, it warns of issues with cut-off dates at year end which sees income reported in the wrong tax year and the risk of mismatched identities (husbands and wives, for example).

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