HMRC’s future requires updated data gatheringby
How HMRC collects and stores data to digitally transform taxpayer services is currently under debate. Paul Aplin looks at the challenges and potential ahead.
I recently wrote about one of the discussion documents released on Budget Day, Simplifying and modernising HMRC’s income tax services through the tax administration framework. Two further consultation documents relating to the Tax Administration Framework Review were published on 27 April. One of these seeks views on “how HMRC’s information and data-gathering powers… could be updated to enable digital transformation of taxpayer services…”
This follows on from last year’s consultation on improving the range of information and data HMRC collects, uses and shares across government. Responses to that consultation showed support for more effective and increased use of third-party information and data to pre-populate tax returns and endorsed the Office of Tax Simplification (OTS) recommendations on the use of third-party information and data. Respondents stressed the importance of safeguards governing data integrity, acquisition and use, and highlighted the need for clear-cut obligations and responsibilities.
Making it personal
I have written several times about the potential that the Single Customer Account (SCA) holds for improving the experience of tax administration for individual taxpayers. Key to that potential is pre-population of the account (and tax return) with information that taxpayers would otherwise have to add themselves. Several overseas tax authorities already pre-populate tax returns to a greater or lesser extent (and some have been doing so for many years).
As the new consultation acknowledges, however, “HMRC is currently only able to pre-populate returns on a limited basis, and this will remain the case without reform of information and data-gathering powers, and safeguards.”
Pre-population carries benefits and risks. If a taxpayer logs on and sees all – or virtually all – of their tax information prepopulated by HMRC, to what extent should they be responsible for checking its accuracy? To what extent should their agent (if they have one) be responsible? To what extent is HMRC or the third party who provided the information responsible? Is there a risk that taxpayers could become less engaged if all they need to do is press a button to accept the prepopulated figures as, effectively, their return?
The current UK position is that the taxpayer is responsible for the accuracy and contents of their return. The discussion document notes that “countries that extensively use pre-population utilise various methods to allow taxpayers to have final accountability for their tax return. For example, Ireland, Norway and Denmark use ‘deemed acceptance’, where a pre-populated return is perceived as automatically correct, unless a taxpayer raises a concern during the opportunity to review,” and that “most other tax authorities place a responsibility on the taxpayer to confirm a return is correct, by requiring them to review information and data pre-populated in their return, and agree accuracy of the return, or either, make the necessary amendments themselves, or provide these to the relevant tax authority.”
Picking up on recommendations made by the OTS, the new consultation asks for views on where responsibility should lie and on processes for challenging and resolving discrepancies when the taxpayer or agent believes that a figure is incorrect. The ability to challenge and amend figures is crucial for accuracy, trust and confidence in my view.
More extensive pre-population will necessitate an extension to HMRC’s information powers. The consultation sets out several different legislative approaches to building a simplified and more flexible information and data-gathering framework. Australia and Estonia, for example, set out generalised information and data-gathering powers in primary legislation, supported by secondary legislation and guidance. Slovenia takes an approach which, rather than focusing on separate categories of data-holders, instead specifies record-keeping and reporting obligations for all parties within its tax system. The consultation document gives more detail on these potential alternative approaches and again asks for views.
There are practicalities to consider here. Third-party holders of information will not have designed their systems around a requirement to supply data to HMRC. They will need time to adapt to any new obligations. There will also need to be an agreed format or schema – such as that prescribed for CRS reporting, or for reporting by digital platforms from January 2024 – in which to provide the data so that it can be quickly, easily and accurately ingested into HMRC’s systems and allocated to the correct taxpayer’s account. Inevitably this will involve costs for providers.
HMRC is also seeking to update its powers in Section 114 Finance Act 2008 to “obtain access to, inspect and check the operation of any computer and any associated apparatus or material which is or has been used in connection with a relevant document”. Section 114 was cast in a world before the cloud became a significant element in data storage and handling and does not reflect “the more transient and fluid nature of modern information and data flows”.
Another critical factor for the success of pre-population is the existence of a unique, strong taxpayer reference number or ID. Without it, there is a risk of misallocation. The OTS suggested that the taxpayer’s national insurance number (NINO) would be a potential candidate. HMRC believes that NINOs are not sufficiently robust for this purpose as not every taxpayer has one, and there are instances of duplication. There is therefore a need to identify or develop a robust method for identification and matching. One of HMRC’s key transformation programmes, the Unique Customer Record (UCR), will seek to make use of a range of identifiers that HMRC already holds – or will obtain from taxpayers – to cross-reference and identify, and then remove or merge, unconnected or duplicate taxpayer records.
A variety of solutions are employed by other tax authorities: some have unique identifiers used only for tax purposes, others for cross-government purposes. This could prove a difficult nut to crack.
The issues explored in this consultation are fundamental to the success of the SCA. They are also fundamental in terms of the balance of rights and responsibilities between taxpayers, third parties and HMRC. If you have views, they can be shared at [email protected].
You might also be interested in
Paul Aplin was for many years a tax partner with an independent West Country firm. He is a past president of ICAEW, a former Chair of the ICAEW Tax Faculty, a member of CIOT Council and the Tax Technology Committee of CFE. He is a non-executive director of three companies, a member of HMRC’s Admin Burdens Advisory Board and the OTS Board....