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Tax returns: Data population must be fair and accurate

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Tax and accountancy bodies warn that pre-population of third-party data on self assessment tax returns must not undermine the taxpayer’s right to check and correct that data.

4th Aug 2023
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As part of its review of the tax administration framework, HMRC has consulted on the process of collecting third-party data for pre-populating tax returns. This first stage consultation has also thrown up questions around:

  • who is responsible for the accuracy of the tax return;
  • the need for a secure and unique tax ID number;
  • importance of the single customer record (SCR); and
  • how the pre-population process will fit in with MTD ITSA requirements.  

Pre-population of tax return data     

Many of the areas discussed in this consultation were recommended for further discussion in the Office of Tax Simplification’s (OTS) 2021 report: Making better use of third party data: a vision for the future.

The professional bodies who responded (CIOT, ATT and ICAEW) all support proposals to make it easier to exchange data between third parties and HMRC. Reducing the taxpayer’s compliance burden in this way is a positive move but only if the taxpayer and their agent can check and correct that third-party data.

The professional bodies want HMRC to raise awareness among taxpayers so they know they must check pre-populated figures and not just assume the data is correct. The CIOT has suggested that third parties should be legally required to provide their customers with a copy of the information they send to HMRC, at the time it is transmitted to HMRC.

Risk of errors

Pre-population of data on tax returns is already a reality as HMRC includes employment or pensions income returned under RTI in taxpayers’ personal tax accounts. However, mistakes do happen, as reported by AccountingWEB member Jane Wanless.

On this occasion, Jane was able to correct the erroneous entries, but if the taxpayer can’t overwrite such data, it raises questions about how the individual can be held responsible for the accuracy of the return.

Who is responsible?

In question 2 of the consultation, HMRC asked whether taxpayers should continue to be responsible for the accuracy of their tax returns. The professional bodies agreed they should, but that does raise the question: if the taxpayer is not responsible for the accuracy of the tax return, then who or what is?  

The ATT commented: “Any changes in the responsibilities and accountability of taxpayers and data/information providers could raise fundamental questions about the self assessment system as a system of self assessment.”

Unique identifier

The OTS report highlighted the need for a unique ID number to ensure that the third-party data ends up in the right taxpayer’s personal account.  The national insurance number (NINO) is probably the closest unique identifier currently available, followed by the 10-digit Unique Taxpayer Reference (UTR). However, neither the NINO nor the UTR extends to all taxpayers, and records on each system are not always correctly matched.

ICAEW noted there are duplicate NINOs and fraudulent NINOs in existence, so the NINO should not be used as the unique identifier.

The CIOT feels using the UTR and the unique identifier would be more efficient as it would be better to give all taxpayers one number (the UTR) rather than issuing another number to everyone. However, HMRC allocates the UTR based on the taxpayer’s NINO verification. If the UTR were to become the default, then HMRC would need identity verification which would duplicate the NINO verification.

HMRC has concerns that using UTRs as a data-matching identifier could increase the amount of attempted fraud.

Single customer account

The ATT is concerned that this work on third-party data must be embedded into the next stage of the development of the Single Customer Account (SCA) and Single Customer Record (SCR), also known as the Unique Customer Record (UCR).

As Paul Aplin discussed in April, the SCA is a key component of a fully digital tax system, but to make it work it is necessary to standardise the collection of third-party data so that data can be easily displayed to the taxpayer.

MTD ITSA implications

Question 8 of the consultation asked for views on the frequency with which third-party data should be reported to HMRC.

The ATT said the frequency of reporting should depend on the obligations imposed under MTD ITSA. It pointed out that as income tax is currently assessed annually over a tax year, there is little immediate benefit in asking for data on a more frequent basis.

CIOT is hopeful that if third-party data can fulfil part of the MTD ITSA data requirements – particularly in relation to income – there might be scope to relax some of the reporting requirements of MTD for individuals. However, the CIOT notes that it is unlikely the systems to pre-populate tax returns with third-party data would be ready for the mandation of MTD ITSA in April 2026.

ICAEW warned that the aim of simplifying tax return completion will not be achieved unless HMRC fixes the issue of erroneous duplicate employments being generated by the flaws in the RTI design.

Replies (19)

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Tornado
By Tornado
04th Aug 2023 14:07

Thank you for this article Rebecca

However, the CIOT notes that it is unlikely the systems to pre-populate tax returns with third-party data would be ready for the mandation of MTD ITSA in April 2026

Is there any evidence that accurate pre-population of Tax Returns or other tax forms will ever be possible, let alone by April 2026. A key feature of MTD ITSA is that Tax Returns will be pre-populated with data but HMRC have failed miserably so far with even basic information like State Pensions paid and some employment income, for example, not being pulled in by the API's, at least not in TaxCalc. What about interest, dividends and other investment income that does not appear at all yet. That will be an even bigger challenge.

This is in addition to the tricky problem of matching up information with the right person, as highlighted in Rebecca's article.

You have to have a quiet chuckle at all of this.

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Replying to Tornado:
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By Red1960
08th Aug 2023 10:00

"You have to have a quiet chuckle at all of this."

How much has this cost tax payers so far and how much will it have cost by the time it's all finished?

If it's ever finished!

I'm afraid I don't see the funny side since, like most tax payers, I'm not on the gravy train.

If I were I'd probably think it was hysterical.

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By ireallyshouldknowthisbut
04th Aug 2023 14:51

Wake me up when the ***current*** system for pre-population is working for data HMRC already have.

We are 40% of the way through the tax season and the amount of data there right now is utterly pathetic. There seems to be zero development of this system and no efforts at all to get the data in there for the bulk of the tax season. 15th Jan is a little bit late.

There seem no excuse it is in there by the first week in April once PAYE is filed.

If HMRC cant get their own data in on time, what chance the data from 3rd parties?

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Replying to ireallyshouldknowthisbut:
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By Not Anonymous
05th Aug 2023 10:12

I though Income Record Viewer had largely overcome those issues?

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Replying to Not Anonymous:
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By mbee1
07th Aug 2023 10:31

Not Anonymous wrote:

I though Income Record Viewer had largely overcome those issues?

For IRV access the client needs to have a Government Gateway account and, no matter how hard we try and persuade them to set one up, many don't. In addition, we work in a relatively niche market with many clients dealt with in PD1, where IRV is not possible nor do we get information via the API. 30 day CGT's are also not possible with PD1 (without a complicated workaround).

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By adam.arca
04th Aug 2023 16:05

At the risk of sounding like a caveman, I've got to say that I disagree with the whole direction of travel on pre-population.

"The professional bodies want HMRC to raise awareness among taxpayers so they know they must check pre-populated figures and not just assume the data is correct." That's extracted from the article.

But people can bang on all they like about the need to check pre-populated figures and the diligent taxpayer will indeed do that (just like the diligent taxpayer currently checks the figures we enter into their tax returns). The reality is, however, that the majority, maybe even the vast majority, of unrepresented taxpayers will do no such thing but will just assume the pre-population is correct AND COMPLETE (I think in the fullness of time it's fair to say that omission is likely to be the biggest risk rather than incorrect figures per se).

Even where a taxpayer has an agent, it's still entirely possible for us to make mistakes on their behalf and, in my opinion, that's much more likely where we're giving pre-populated figures a sanity check than when we're actually sourcing the info and keying it in ourselves. That's one reason why I have so far completely swerved this whole pre-population malarkey even before we talk about how long it takes for the Revenue to make the figures available or how inaccurate / incomplete they often seem to be when they are finally made available.

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Replying to adam.arca:
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By jonharris999
06th Aug 2023 11:22

I strongly agree with this.

Readers with long memories may recall that we took a number of cases all the way to the Parliamentary Ombudsman, of creative industry workers whose engagers had incorrectly RTI'd self-employment earnings, which in turn were pre-populated in HMRC-portal SA returns as employment, which in turn reduced or eliminated entitlement to SEISS which those individuals would have had, if they had had the courage to correct pre-populated figures.

As it was, they incorrectly assumed both that i) HMRC must be right and ii) it didn't matter anyway because it didn't have an effect, or much of an effect, on tax paid (but in some cases of course it did on Class 4).

(Many accountants said at the time and will say, that this is a risk that those punters took by doing a DIY job. I don't really agree. First, in at least two cases we looked at, an accountant was engaged but made the same error of omission. Second, I rather think that there are many people who *should* be able to do SA themselves, and not have curve-balls thrown at them by the State and then be worried that they have to have we knights in shining armour to protect them from the service they are paying for.)

The Ombudsman rejected all these claims. They said (correctly) that HMRC had done exactly either what the law requires them to do, or what it was clearly well within their discretionary powers to do. It was hard cheese on those punters to whom it was open to correct the errors at the time.

Although this matter only affected (so far as we know) about 50 people, for me it was the biggest shame and scandal of SEISS. A perfectly understandable unwillingness to change pre-pop data led to some people losing out on thousands and thousands of pounds of grant money that the law 100% intended those in their situation to receive. It caused unutterable hardship, entirely unnecessarily.

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By Open all hours
05th Aug 2023 09:16

Sorry to repeat this but the ideal chance to pre populate anything was the SEISS grants which could have all been done in house. Having failed to take that opportunity once again HMRC have shown themselves to be serious under performers even in the most straightforward circumstances.

In the unlikely event that significant pre population ever happens, whoever supplies the data should be held responsible for that part of the return and the taxpayer signs to say that the return is correct to the best of their knowledge and is held responsible only for the information which themselves supplied.

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By AdamJones82
05th Aug 2023 10:03

HMRCs prepopulation is woeful and now Taxcalc has an error where it acts as if I am not authorised when I am, even tried re-authorising. This is their error as they are looking into it.
Shambles

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By Postingcomments
05th Aug 2023 20:06

Like all tech, it will only half work. So you have to check it all yourself anyway and correct errors = may as well not have bothered with the tech.

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By michael2022A
07th Aug 2023 09:22

Pre-population data is so hit and miss. Very rarely does it pull through employment data. Pensions more often but it just gives totals rather than a breakdown which would be helpful when your client has more than one pension!

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By JustAnotherUser
07th Aug 2023 09:32

"ICAEW noted there are duplicate NINOs and fraudulent NINOs in existence"

And what will stop the same root causes appearing in any new unique identifier?

This has nothing to do with pre-population but more to do with giving HMRC more powers disguised as an attempt to help the tax payer.

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By petestar1969
07th Aug 2023 09:48

Hmm, while HMRC are looking at tax return administration, maybe they could take a look at another issue that bugs me.

The system is called "self-assessment" but, all too often, HMRC decide taxpayers (sorry customers) don't need to file tax returns, primarily based on the last submitted tax returns.

I get really bored calling HMRC to tell them actually Mr. X does need to file a tax return as he has a new source of income or something else new. Every time I get some snarky HMRC official trying to tell me I'm wrong, really irritating.

They did it to me this year. I filed my own 2022/23 tax return as I was due a refund. They didn't process it because their system decided I didn't need to file based on my 2021/22 return. What they didn't know is that I made an EIS investment in 2022/23 and was trying to claim the tax credit.

Now I need to try and contact them, as a punter, wish me luck....

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By Ben Alligin
07th Aug 2023 09:52

Some clients have their state pension pre-populated on their HMRC tax return, others don't. I have yet to figure out why.

However in 2021/22 one of my clients started receiving their state pension, so I rang HMRC to find out how much state pension had been paid in the tax year. They very helpfully looked it up and provided me with the figure, duly entered on said tax return, return filed, job done or so I thought.

Last week I received an enquiry letter so I rang the Numpties aka HMRC to ask specifically what they were enquiring into. Answer - the state pension entered in Box 8 of the return TR Page 3. 'Oh that's the figure HMRC gave me' I replied. 'No it wasn't' replied Paul!! Well please could you tell me what the correct figure? Answer £179.60. 'Gosh that is considerably different from the first answer I received from HMRC' I proffered. Please could you tell me where you have got that figure from?

Answer - 'That is the weekly amount client receives for his pension'!!

I appraised Paul of the legend in bold above Box 8 'not the weekly or 4-weekly amount' to which he rather surprisingly told me he was tax trained (he didn't say by whom, and I didn't dare ask) and that was the correct figure I needed to enter on the tax return.

In the ensuring 'conversation' I requested to speak to a) his manager, b) someone who was actually tax trained or c) someone with an ounce of common sense. Surprisingly after 10 minutes on hold Paul returned and I was told that no-one was available to take over the call.

So I tried a new tack. How had he come up with that figure of £179.60? Answer - from a PAYE coding notice. Since no PAYE coding notice for the client is available on his online account that threw me a bit, but then I asked what date my client had started receiving the pension from. 2nd March 2022 was the answer (actual correct answer was in Sept 2021). Well if it was that date, and the pension is paid every 4 weeks, he must have at least received £718.40 before 05/04/2022 I countered. Paul hesitated and then insisted it was still the weekly figure of £179.60.

When pressed, he finally conceded that the figure might now be £718.40.

So currently my client has an open enquiry into the state pension he might or might not have received in 2021/22 and so far, we have 3 different figures all supplied by HMRC. According to my last contact with Paul, I have to reduce the figure to record the weekly amount. This obviously will produce a tax refund, and apparently close down the enquiry. So we apparently have to enter the wrong figure, under-state taxable income received in 2021/22 just to allow HMRC to close their enquiry.

Any suggestions?!

Thanks (6)
Replying to Ben Alligin:
By SteveHa
07th Aug 2023 13:15

I have a suggestion. Disagree with HMRC, and invite them to close their enquiry based on their own figures, and then appeal the closure notice. This will give you the opportunity to escalate (via internal review) to someone who might have a clue.

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By David Gordon FCCA
07th Aug 2023 13:13

The instruction book I was given with my very first office computer -1979 Apple 48K-
Listed as the 2nd rule of computing, was
"Garbage in = Garbage out"
HMRC have not yet taken that rule to heart.
2)
Has anyone else noticed that the IT company which messed up over the Post Office scandal, is the same IT Company that was involved with HMRC.
3)
What was the first rule of computing in them there days?
"If your computer does not appear to be working, is it plugged in?"
4)
If you are putting a new system, make sure it works before turning off the old

After 44 years I still sincerely believe these rules help avoid 90% of IT screw-ups
Unfortunately, I do not believe the persons in charge of HMRC recognise them.

learned that rule

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Replying to David Gordon FCCA:
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By rockallj
07th Aug 2023 16:12

David Gordon FCCA wrote:

The instruction book I was given with my very first office computer -1979 Apple 48K-
Listed as the 2nd rule of computing, was
"Garbage in = Garbage out"
HMRC have not yet taken that rule to heart.
2)
Has anyone else noticed that the IT company which messed up over the Post Office scandal, is the same IT Company that was involved with HMRC.
3)
What was the first rule of computing in them there days?
"If your computer does not appear to be working, is it plugged in?"
4)
If you are putting a new system, make sure it works before turning off the old

After 44 years I still sincerely believe these rules help avoid 90% of IT screw-ups
Unfortunately, I do not believe the persons in charge of HMRC recognise them.

learned that rule

Spot on, David. The answer to all of the above is HMRC - guilty.

I've had a client's tax return overruled by HMRC for an employment client apparently has in another UK nation at the other end of the country. HMRC says, "RTI was received for them, so it MUST be right!". I appealed this months ago and HMRC have still not responded at all as to how my client's NINO has been used to file employment income my client does not have.

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By moneymanager
08th Aug 2023 02:55

"Houston, we have a problem" and that is that Houston isn't listening.

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By LJCASE
08th Aug 2023 10:01

Did you notice this part of Rebecca's article:

"Many of the areas discussed in this consultation were recommended for further discussion in the Office of Tax Simplification’s (OTS) 2021 report: Making better use of third party data: a vision for the future."

And if you look at the report it says:

"However, for those that do not currently report to HMRC, and for larger scale changes where, for example, reporting would be on a more real time basis, it is likely that this would take significantly longer, and respondents suggested a timescale of around 5 years, dependent on the changes to be implemented".

Sad day when the OTS was abolished.

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