Blockchain pegged as UK's tax future

Practice correspondent
Sift Media
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In a new report, the government’s chief scientist has said blockchain should completely redefine the relationship between government and the citizen in terms of taxation, data sharing, transparency and trust.

The government’s desire to move tax collection and reporting to a more real-time basis has been well reported on AccountingWEB. And from this latest report, it seems blockchain will comprise a serious part of that vision. “The UK government digital service is developing a digital platform to deliver its services [like the personal tax account] and distributed ledgers could be at the heart of this,” reads the report by Sir Mark Walport, chief scientific advisor to the government.

In ‘Distributed ledger technology: beyond blockchain’, Walport makes the case for integrating the technology into the state’s daily apparatus. “Ledgers have been at the heart of commerce since ancient times,” writes Walport. “Now, for the first time algorithms enable the collaborative creation of digital distributed ledgers with properties and capabilities that go far beyond traditional paper based ledgers.”

It still bears asking, just what is blockchain? We’ve covered it before on AccountingWEB, but for the uninitiated, a blockchain is a type of database that takes data and places them in a block (“rather like collating them on to a single sheet of paper,” as Walport puts it). Each block is then ‘chained’ to the next block, using a cryptographic signature. This allows blockchains to be used like a ledger, which can be shared and the information within it can be corroborated by anyone with the appropriate permissions. Any change to the data cascades through to all the other copies, making any nefarious schemes a tricky proposition.


As a societal model he’d like to emulate, Walport points to Estonia. The Baltic country is one of the most digitally advanced societies on Earth. Its citizens file their tax returns, get their prescriptions, and even start businesses through their e-business register. According to Estonia’s tax authority, almost all tax returns are now filed digitally. The lynchpin of Estonia’s e-society is their smart ID cards.

Citizens and government officials use the ID cards to access the full gamut of public services. This decentralised, digitally capable society means that digital authentication is critical. To facilitate this, the Estonian government has been experimenting with blockchain tech for a few years now. Keyless signature infrastructure (KSI), developed by an Estonian company, Guardtime, allows citizens and government to verify the integrity of their records on government databases.

It also makes it pretty much impossible - given sheer computational power it would require - for someone to perform illegal acts inside the government networks. KSI’s ability to harbour citizens’ data securely and accurately has helped Estonia to launch digital services such as e-Business Register and e-Tax.

The UK is obviously far bigger, with far more complex financial foundations than Estonia, a tiny Baltic state of 1.3m people, but this next step in the digital chain isn’t as far off as it seems. The government has introduced a standards-based approach to identity assurance: GOV.UK Verify. As Walport points out, “Enhancing and linking Verify to blockchains … could add value to Verify itself. Together, in their different ways, they would contribute significantly to the UK’s digital economy, border control and its efforts to combat cybercrime.”

The future

The government is clearly determined to move its services into the digital realm. Whether you think this is motivated by ruthless cost cutting or forward-thinking governance, a lot of upheaval is coming. As it stands now, the PTA will be in full effect by 2020. And blockchain could well further augment it beyond 2020.

“The collection of (monetary) resource through taxation of various kinds has become hugely complex and costly,” writes Walport. “This complexity may in part derive from its centralised nature.

“We are still at the early stages of an extraordinary post-industrial revolution driven by information technology. It is a revolution bringing important new benefits and risks. It is already clear that, within this revolution, the advent of distributed ledger technologies is starting to disrupt many of the existing ways of doing business.”


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27th Jan 2016 16:09


This is fascinating stuff and right now it feels like blockchain technology may well be the future of online transactional data. I've recently been working with musicians using the same tech to develop new models for tracking, licensing and paying for music streaming and downloads. For those of us (me included) who thought that the blockchain was only about BitCoin, the future holds some interesting prospects for our industry.

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28th Jan 2016 10:07

Thanks, Charlie

Thanks for that article you linked to. Really fascinating stuff. I've always enjoyed Imogen Heap's music and now I admire her even more. As far as the bitcoin/blockchain link: It's a teething problem that the blockchain will have to emerge from. Bitcoin - rightly or wrongly - has a tarnished rep. But the blockchain is so much more than just bitcoin. It's such a shapeshifting concept. 

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27th Jan 2016 17:49

Yep :)

I don't get many predictions right, so feel I can share this one from January 2015:

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28th Jan 2016 10:07

Good shout!

Adrian Pearson wrote:

I don't get many predictions right, so feel I can share this one from January 2015:

Good shout, Adrian. You have any plans on working or utilising the technology?

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By redboam
27th Jan 2016 22:21


With so much depending on traffic through the ether so to speak, what would be the effect of a mass coronal ejection of sufficient power to knock out satellites? Such events in the past would certainly have been strong enough for this and the perceived scientific wisdom is that it is only a matter of time before we see another one.

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28th Jan 2016 10:17

Mmh, I guess

redboam wrote:

With so much depending on traffic through the ether so to speak, what would be the effect of a mass coronal ejection of sufficient power to knock out satellites? Such events in the past would certainly have been strong enough for this and the perceived scientific wisdom is that it is only a matter of time before we see another one.

Things like mass coronal ejections are an unforeseen event.  But to really damage the blockchain it would have to knock out the power on every continent at once, which is extremely unlikely. In the case it did, we'd have faaaaar bigger problems to worry about. Even with a powerful solar flare that knocks out one region, the beauty of the block chain is once the power was restored there would be many copies of the blockchain still out there. It would be restored. 

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28th Jan 2016 12:40

Brilliant, BUT!

This is brilliant stuff, but as we all know HMRC will nail this in the coffin & still send wrong tax codes. No matter how much best technology is; but if the person @ other end is idiot; you can't blame tech...

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28th Jan 2016 19:08

Conference subject?

I agree, Francois. Maybe this could be a subject for your next Practice Excellence Conference. I could see if I can get someone highly knowledgeable to explain this extremely complicated subject in language that even accountants can understand :)  I've seen Imogen present most eloquently to musicians and others in that industry and perhaps one of her colleagues with whom she's working could do the same for us suits!

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28th Jan 2016 19:39

I'm going to become a pirate!

So stuff is all digital and linked?  Banking, money, business, spending?

Sounds like the government's wet dream.  Apart from being cheap, advising from somewhere that is less keen or able to invest in technology has its appeal.

Or as I barely/rarely meet any of my clients - I could stick all my tax books on a small sailing boat and cruise the high seas, firing off my advice as I cruise in and out of yacht club wifi hotspots!

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29th Jan 2016 09:18


Back on the ground floor, you still need someone sticking the data into the new shiny thing (traditionally known ad a bookkeeper) and then another  someone (traditionally known as an accountant) interpreting that data and working out what exactly to submit to the tax authorities so the business or person pays the right amount of tax.

All the rest is just method. 

The data doesnt create itself which is the main issue with utopian visions of the future.  Or distopian as this one sounds to me.


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29th Jan 2016 11:35

Block chain

What a load of nonsense, I know what to do with such nonsense and yes it does involve a toilet chain.  

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29th Jan 2016 11:36


"The lynchpin of Estonia’s e-society is their smart ID cards."

Exactly. The world I grew up in has almost disappeared and the final nail in that particular coffin will be the reintroduction of ID cards which were only withdrawn after the second world war because of citizen action. I expect that terism will be the excuse they use to impose ID cards in the UK. I know it attracts criticism to mention Orwell's 1984 but pause and think for a moment: Smart phones are effectively tracking devices; there are cameras almost everywhere; foreign wars are almost continuous; the introduction of ID cards comes next. Being a citizen in the future will not be very much like being a citizen when I was a youth.

BTW the biggest long-term practical problem with the Bitcoin type of implementation of blockchain is the length of the blockchain itself, because it grows exponentially. That means cost of storage for nodes, but (more important) it means high bandwidth use (and therefore cost) for all users.

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29th Jan 2016 11:46

This is why we keep these types safely locked away where they can dream their utopian visions without considering how things are in the real world at all.

Who let him out in the daylight?

These people really should be forced to set up their own business and run it for at least twelve months before coming any where near trying to design systems.

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29th Jan 2016 13:41

It can hardly be a surprise..

..that all those drooling over this are the "techies" who quite clearly are focusing on shiny new toys to play with whilst the rest of us worry about the implications.

What about the unanswered questions including:

Estonia is a very new and very small country: creating a whole new IT infrastructure is so much easier for them pretty much starting from scratch and  even leaving aside any consideration of our horrendous record with official IT projects.

Estonia has an authoritarian history: would we be willing to have smart ID cards? I sincerely hope not. Would we be willing to allow our govt to access everything about us all in one spiffing database. I also sincerely hope not on this one.

How do we know this is technically any more secure? Hackers won't have given it a good shot yet.

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29th Jan 2016 14:18


Anything devised by man, can be broken by man. Computers are relatively easy to hack, otherwise why would we see the likes of recent hacks? Each successive new banknote is mooted as counterfeit proof. So why do have more and more new issues?

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30th Jan 2016 10:49

It's way more secure

To hack a block, to really destroy its integrity, you'd need to gain control of 51% of the network. The computational power required to do that would VAST. Like beyond the capability of all but a few people. 

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By adagen
29th Jan 2016 14:26

And once an error gets into the block chain it's there forever. It may be followed by the correct information but it's going to take exponentially increasing processing complexity and power to deal with that. Put together an initial HMRC database riddled with errors, and HMRC's record with IT systems, and dystopian solution doesn't even begin to describe the result.

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30th Jan 2016 10:51

That's not how it works

For a mistake to be replicated, ad infinitum, it would require ALL the people who have the ledger to make the same mistake. Sure that's possible, but unlikely. 

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30th Jan 2016 14:42

Length of blockchain

@Francois Badenhorst: How do you solve the exponential growth in the length of the blockchain and still preserve the ability of all participants to validate it?

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By adagen
31st Jan 2016 13:58

Untrue. A mistaken entry would be replicated in exactly the same way as a correct entry. But take a solution with a single ledger and you have the possibility of designing to enable correction. The security of a block chain lies in the fact that it is an entire history of all transactions, including corrections. So, to ensure accuracy, it would be necessary for each transaction to read the entire history after finding the relevant data, to look for subsequent corrections. And there would also be a need as part of normal processing to check other ledgers to ensure the one being used was not corrupt.

The nearest equivalent in today's world would be to say that, for every transaction, you must read an entire detailed audit trail and a proportion of all backups. That's a lot of processing.

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By remrah
14th Feb 2016 11:52

Block chain pegged as UK's tax future

The idea that the government chief scientist can pontificate that "block chain should completely redefine the relationship between government and the citizen in terms of taxation, data sharing, transparency and trust" is extraordinary, in the most literal sense of 'extra-ordinary'.  A moment's pause for thought means one can dismiss the last - trust - because the trust equation between government and those it serving (or it is meant to be serving) goes way beyond a nascent technology.  Further pause should yield the reminder that government's ability to deliver change with even tried and tested technology is woeful - try submitting a corporate tax return using HMRC's kit, but if you're satisfied by that then consider the billions of pounds squandered (alright - it created some employment for a while) on NHS systems that haven't worked as intended.  Aside from trying to deal with the real taxation 'elephant in the room' (byzantine complexity), there needs to be real thought given to the nature of the block-chain notions and technological realization.  The notions are seductive enough - distributed ledgers, content integrity, auditability and many more.  But does our chief scientist really think that the UK government should run our tax system on something the only proven application of which is a dodgy currency used by dodgy people to evade transparency and which can be broken into?  The proponents of block-chain will point to the 'peer-to-peer' validation of transactions.  The notion of transaction in the block-chain world is, currently, at best, flaky - there are no ACID credentials, which seem to be a rather good standard to keep an eye on.  The claims that the block-chain can't be subverted without more than 50% of the validation power applied, and because no one can sequester more than 50% therefore the system integrity will never be compromised, carries the same arrogance that the Third Reich applied to Enigma.  People will break into secrets, or will try to gain control of the process.. Then take the validation process - 'mining', getting to the 'point-of-proof' ahead of the pack - is verging on the preposterous because of the sheer processing (and concomitant electrical) power required.  One surefire way of destroying the planet would appear to be the adoption of the block-chain as technology to power massive transactional processing.  So, to all chiefs (scientists, bank CEOs etc, prime minister, presidents etc..): look very carefully at this stuff before you leap onto yet another bandwagon at societies' expense.   

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