Save content
Have you found this content useful? Use the button above to save it to your profile.
Simplifying and modernising HMRC's income tax service | accountingweb
iStock_anatolii_savitskii_cat_on_fence

Simplify and modernise: HMRC’s balancing challenge

by

The discussion document released by HMRC on simplifying and modernising the income tax service looks to find the elusive balance between reducing costs and improving the experience for taxpayers.

11th Apr 2023
Save content
Have you found this content useful? Use the button above to save it to your profile.

One paper released by HMRC on Budget Day deserved more attention than it initially received (with the notable exception of Hugo Fair). The title was perhaps not the most riveting: Simplifying and modernising HMRC’s income tax services through the tax administration framework. The framework underpins HMRC’s 10-year strategy to build a modern, digital tax administration system. 

Digital drivers

Two key drivers for digitalising tax administration are reducing HMRC’s costs and improving taxpayers’ experience. The balance between these is important: both HMRC and taxpayers must be able to see real benefits from digitalisation.

At HMRC’s recent stakeholder conference, chief executive Jim Harra spoke about HMRC’s digital ambition. In his words: “We want to improve our customer service levels but in a world of limited and falling real-term budgets that is going to be challenging [and] realistically to do this we need even more of our customers using digital services and self-serving online… It’s vital that we reduce the need for customers to contact us by simplifying customer journeys by improving our guidance and by removing the causes of unnecessary contact; that will require action to nudge our customers into digital ways of dealing with us.” 

I understand the constant pressure HMRC is under to do more with less, but to deliver new digital services that taxpayers genuinely find helpful, HMRC will need to view the world through taxpayers’ eyes.

The discussion paper seems to acknowledge that need, saying: “HMRC will provide services that are designed around what customers need to do, that are accessible, easy and quick to use, and minimise the cost to customers.” 

Digital by default 

Digital channels are already used by large numbers of taxpayers. In 2021/22, digital personal tax and business tax accounts were accessed 134m times by 19.3m taxpayers. Around 96% of self assessment tax returns are filed digitally and the HMRC mobile app has had around 40m logins in this financial year. HMRC still, however, currently sends around 70m items by post each year at an annual cost of around £40m. 

The intention, therefore, is to move rapidly to “digital by default” for a number of specified letters and forms. HMRC will in future assume when taxpayers sign up for a digital account that they wish to receive all communications digitally unless they opt out. 

Digitally capable employers will be required to file P11D and P11D(b) forms online from April 2023 and HMRC will then move to providing them with P6 and P9 coding notices digitally. HMRC is also currently writing to 135,000 self assessment taxpayers who have previously filed paper tax returns to say that from 6 April 2023, they will no longer be able to download a form from gov.uk but will instead have to telephone HMRC to ask for one.

Other letters moving to digital by default include the SA316 Notice to File, SA300 Statement of Account and P800 Tax Calculation. 

Noting that “the introduction of good digital channels has helped reduce contact by phone”, HMRC “plans to provide easy-to-access digital services… to ensure that taxpayers experience a convenient, streamlined service” and that once this is in place, HMRC will offer less choice around the non-digital channels it offers to taxpayers where users are able to go digital. 

The words “once this is in place” are critical: non-digital channels must not be downgraded until the new digital channels have been proven to work to the satisfaction of the taxpayers for whom they are designed. 

Joining the club

The government also intends to review the circumstances in which a taxpayer is required submit a tax return with a view to setting clearer and simpler rules. Broadly, HMRC wants to bring in people who have a liability that is not managed through PAYE or another withholding regime, those who have more complex affairs, and those who need to make a claim or election via income tax self assessment (ITSA). 

There is an acknowledgement that “there is low awareness of income tax obligations and processes and a need for better and more targeted and proactive education and guidance from HMRC”. I agree, though I think the responsibility for educating people about tax goes wider than HMRC. One of the problems about the taxpayer “club” is the complexity of the rules, not just for joining but for remaining a compliant member. Many taxpayers simply do not understand the rules that apply to them. That, I suspect, is especially true of the increasing number of people who “join” by working in the platform economy. For many of those individuals the rules can be disproportionately complex.

Personalised membership

The Single Customer Account (SCA) is a key component of the government’s vision for a fully digital tax system. I believe that it could be the keystone of HMRC’s future digital services. HMRC’s vision is that the SCA will enable taxpayers to see information about their liabilities and payments and manage tax more easily. The Office of Tax Simplification (OTS) saw huge scope for it

Cracking the PAYE code

The tax liabilities of around 46m people are managed through the PAYE system, which was designed in the 1940s for the working patterns of a very different age. HMRC (rightly) wants to better understand how to make tax codes more reflective of a person’s circumstances more quickly when these change. 

HMRC also says that it “is open to any suggestions on alternative ways to calculate tax and national insurance contribution (NIC) deductions in real time, without relying on PAYE codes”. That triggers memories of a 2010 discussion paper on “centralised deductions” where the employer would send the gross payment through the electronic payment system to a central point where the deductions calculated by HMRC would be made automatically. The resulting net payment would then be sent to the individual's bank account and the deductions to the government. Comments at the time acknowledged the potential benefits of calculating tax based on a more complete picture of the individual’s income and circumstances, but deep reservations were expressed about other aspects and the idea was shelved. I would be interested to know whether the authors of the Budget Day discussion paper were aware of that earlier proposal.

Striking a balance

There remains significant scope for further digitalisation of the UK tax system. 

In designing new digital services, however, the actual needs of taxpayers must be properly understood and genuinely regarded as just as important as HMRC’s need to reduce the costs of running the system. 

A debate around that balancing of needs is, I hope, what the new discussion document seeks to stimulate.

Replies (13)

Please login or register to join the discussion.

avatar
By Catherine Newman
11th Apr 2023 17:11

There is no point in suggesting improvements to HMRC. I am gratified to see that HMRC have taken on board suggestions on the Agent Forum.

1 The box rent, rates, ground rents and insurance in the Income from Property pages is still there (anachronistic as there hasn't been W&T) in spite of several of us agreeing this box is redundant.
2 You have to separate out ordinary dividends, dividends from unit trusts, stock dividends. Why as no tax is deducted and there hasn't been a need to show them separately? The requirement is unnecessary but is there for another year now. Stock dividends are still in the Additional Information pages-why? If you want people to fill in their returns properly they won't as they won't understand any of this.

It is 11 April and we are doomed to providing HMRC with totally unnecessarily information for another year.

If HMRC want digital by default may be they can provide Agents with PAYE codes whether or not the clients are in SA.

May be HMRC could provide Agents with details of clients' codes issued in the year prior to taking the client on.

May be HMRC could provide details of State Pension received back to the 6 April of the tax year and not show "No details of state pension" if you take a client on part the way through the year.

Thanks (6)
the sea otter
By memyself-eye
11th Apr 2023 17:57

How can we ever address this issue when every chancellor since Nigel Lawson has complicated the tax system?
Each 'tweak' in and of itself is presented as an 'allowance' or a 'saving' and is, in isolation innocuous, beneficial even (to those in receipt of it).

Won't happen.

Thanks (1)
avatar
By Hugo Fair
11th Apr 2023 18:26

The biggest issue is never mentioned (possibly because it doesn't suit politicians or Civil Servants to acknowledge it) ... new IT systems should never be something that you shoehorn into an existing environment (especially if that environment keeps being tinkered with).

In those distant days when it was part of my job to bring 'vision' and 'pragmatism' onto the same page, one of my most frequent quotes was: "Don't keep telling me how the technology has to support existing processes - instead tell me what's wrong with those processes, so that we can design a solution that achieves your objectives without being constrained by all the old faults".

Of course that requires a mindset attuned not just to short-term (personal) rewards - as people are starting to realise applies to any large-scale social change (from climate planning to migration and energy consumption) including all forms of interaction (such as tax) between 'state' and 'people'.

Thanks (7)
avatar
By Apache999
13th Apr 2023 10:38

Ah yes.
How to keep the ball in the long grass.
First, create an obstacle course.
Then, fully jargonize the lingo.
All info fully available on the Government Website of course.
Any problems, speak to your professional advisor.

Thanks (1)
avatar
By Brightster
13th Apr 2023 10:57

They could reduce the number of contact from agents if they simply gave us easy access to the following items that they already have:
Pay and tax from PAYE
State pensions
Tax codes
CIS information
Bearing in mind that not everyone is as computer literate as HMRC would like to think and many have an aversion to getting and retaining the log-in for a gateway account, the amount of calls I make where the client claims to have not received or lost this information just to allow me to provide information on a tax return that HMRC already have!

Thanks (3)
Replying to Brightster:
avatar
By johnjenkins
13th Apr 2023 14:30

Bring back "agent strategy" and most of the need to contact HMRC will have been eliminated. In other words take control of admin out of HMRC's hands and let them do what they should be doing, "investigating and collecting".

Thanks (1)
avatar
By gillsoffice
13th Apr 2023 11:22

Over the years I have asked many friends/new clients & people I've met if they know what their paye tax code is and how it is calculated. Probably only 1 in 10 had any idea how it worked and even fewer knew if it was right or wrong and this is supposed to be the 'simple' part of our tax system!
HMRC are dragging more and more people into the tax return system (child benefit charge being a good example) with 'tweaks' which add layer upon layer to an already overly complicated tax regime. They then expect them to be able to navigate the HMRC online guidance, set up personal tax accounts, submit correct tax returns, and pay the right amount of tax - what could possibly go wrong!
HMRC (& all Govt/civil service depts) need to be held to account for every penny they are spending of our money. They should ask us to vote on their proposed mad schemes - eg,would we prefer MTD or alternatively for them to get their act together and answer the phone within 30 mins?

Thanks (3)
avatar
By Mr J Andrews
13th Apr 2023 12:21

An interesting article of HMRC's vision, intentions, ambitions and desires. But somewhat flawed by the 'understanding' that HMRC is under constant pressure to do more with less. This statement almost accepts that this eroded Govt. Dept. has not self inficted the current mess it is in. Years of mismanagement from the top down - with no accountability at any level is the cause of the problem and let's not lose track of this fact.
Those who can recall JFK's inaugral speech should read CEO Harra's conference speech as :-
''Ask not what HMRC can do for you ; ask what you can do for HMRC....''

Thanks (2)
By mydoghasfleas
13th Apr 2023 13:06

Nice to see Jim Harra and self-serving in the same paragraph.

Thanks (0)
avatar
By Catherine Newman
13th Apr 2023 13:24

I put a post on the Agent Forum about not being able to see the state pension figure in "Information to enable you to prepare your client's tax return" in the heading but accidentally left the "not" out in my thread in my annoyance at finding that yet again they haven't listened to us. The client doesn't have a PAYE code so the state pension figure isn't there. They have asked me to clarify what I expect to see and what software I am using! I even pointed out that if HMRC wanted to be digital by default this is not a great start. They can't even provided what is required.

Thanks (0)
Morph
By kevinringer
14th Apr 2023 09:41

HMRC held a Teams meeting last week about this. The first issue HMRC want to address is reducing the number of paper Tax Returns. As far as agents and taxpayers are concerned, reducing the number of paper Tax Returns are so trivial an issue, it is not on our radar at all. HMRC dreadful service levels is the top priority, for which HMRC's "solution" is to reduce the tasks the ADL can handle, which will make service levels worse, not better. HMRC are so out of touch with their "customers", there is a chasm between what HMRC thinks needs to be addressed and what agents/taxpayers know need to be addressed. Our problem is that HMRC only listens to what it wants to listen to. MTD ITSA is a good example: we agents raised loads of problems in the 2016 consultants, HMRC chose to ignore much of the feedback and steamrollered on with MTD ITSA but in 2022 HMRC began to realise that we were right and HMRC would need to tackle these problems. I suspect HMRC regarded us as "whinging agents" that were only interested in lining our pockets and were worried that MTD ITSA would make us redundant, when in reality we knew that MTD ITSA would overwhelm us with work. So how do we make HMRC realise that they need to change focus and address the big problems (service levels etc) and ignore the trivial (reducing paper Tax Returns)? HMRC tends to forget that many of us have been in practice for decades and remember the pre-SA HMRC whereas many HMRC staff are relatively knew and have never known a HMRC that used to offer good service, so they think the current appalling state of HMRC is normal and how it should be.

Thanks (2)
avatar
By [email protected]
26th Apr 2023 18:44

There is a lot potential in this consultation but proper implementation takes time and frequently the implementation is rushed and does not allow taxpayers time to adjust. A telling omission from the document is that there is no mention of agents. Frequently agents appear to be an after thought and consequently, digitalisation of the tax system frequently doesn't met their needs nor from the taxpayer's perspective the aims of HMRC's Charter.

Thanks (0)
Replying to [email protected]:
avatar
By johnjenkins
27th Apr 2023 09:58

Unfortunately the aim of HMRC is to have complete control over "employment status" and eliminate the small business. Everything they do is geared towards that. The fact that there is no mention of agents says it all. Everything in this country is "broken" and we need a strong PM to sort it all out. Unfortunately there is no one with the guts to do it. Prepare for a few years of "wishy washy" Government and economic stagnation.

Thanks (0)