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HMRC’s ‘legislative sandbox’ proposals would be difficult to implement


Published: 24 Jul 2023 Update History

In its response to a consultation document issued by HMRC, ICAEW’s Tax Faculty highlighted the difficulties such an approach would cause if used to test potential changes to the administration and operation of the UK tax system.

HMRC’s discussion document, The Tax Administration Framework Review: Creating innovative change through new legislative pilots, proposes a new approach to test innovations in tax administration. 

A legislative sandbox is essentially a set of rules set by statute that would apply to a pre-defined group of taxpayers, which differ from the rules that apply to the rest of the taxpayer population. 

The difference between this and a standard pilot is that taxpayer participants in the sandbox would fulfil their relevant tax obligations through participation in the sandbox. In other words, actions taken as part of the sandbox would have real-world impact. For example, failure to make filings or payments as required within the sandbox, would result in pre-defined penalties, where appropriate. 

The faculty began its response by questioning whether subjecting a discrete group of taxpayers to a different set of tax rules to the rest of the population was compatible with the responsibility of the Tax Assurance Commissioner and HMRC’s code of governance for resolving disputes. 

The faculty also pointed out that overlaying a different set of tax rules to apply to a particular group would likely result in additional costs for HMRC, agents and taxpayers. It takes the view that agents and taxpayers should not be financially disadvantaged by participating in the sandbox and that any taxpayer/agent costs should be fully or partly reimbursed from the public purse. 

It also sought assurances from HMRC that no participant should suffer additional tax liabilities, penalties and interest compared to not participating in a sandbox. 

Early in the consultation process, HMRC indicated that all future legislative sandboxes could be implemented by Parliament passing one piece of primary legislation. ICAEW has requested clarification on this, given that the rights and responsibilities of HMRC, taxpayers and agents would need to be defined in each case. For example:  

  • on what basis would penalties be imposed; and 
  • could taxpayers raise an appeal against this and other decisions made by HMRC? 

Finally, ICAEW stressed the importance of sandboxes enhancing, rather than replacing existing processes for scrutinising legislative change, such as consultations and focus groups. 

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