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Testing, testing – HMRC ponders a new piloting approach

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HMRC's new 'sandbox-based' approach to piloting changes to the tax system could offer keen insights to the tax authority. However, many unanswered questions and potential pitfalls for taxpayers and agents still remain, writes Helen Thornley.

4th Aug 2023
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Back in April, as part of a discussion document titled Creating innovative change through new legislative pilots, HMRC proposed the idea of a legislative sandbox as a new way of piloting changes to the tax system. What could this mean for taxpayers? 

What is a legislative sandbox? 

In computing, a sandbox is an isolated part of a computer system where new software can be tested without risk of damage to wider systems. In HMRC’s proposals, a legislative sandbox is a form of pilot where HMRC would suspend the usual tax rules for short periods for small groups of taxpayers. Those selected would follow different rules to test and refine them before they are rolled out to the rest of the population.

In discussions, HMRC explained that while they expected most pilots would be done with volunteers, they would want any new rules to permit compulsory selection to ensure they have a representative sample of taxpayers for some studies.  

Implications for taxpayers 

In discussions, HMRC told us that pilots would mainly focus on administrative changes and those in a pilot would not be financially worse off than the rest of the population. In HMRC’s view, this means keeping the tax liabilities for those in a pilot the same as those outside them. However, those in the pilot could potentially be exposed to different penalties or interest charges, so from the perspective of the overall financial cost to the taxpayer, there may be differences between those in or out of the pilot. 

The proposals bring a number of challenges for taxpayers and their agents. Those in a pilot will need to spend time familiarising themselves with their new obligations and may incur costs if they have an agent who has to do likewise. We consider that no one in a pilot should be worse off as a result of taking part, and that there should therefore be some form of financial compensation for those involved, which also covers any extra agent fees. 

We also think that participation in a pilot should be voluntary. If the pilots are made compulsory, then there should be permitted opt-outs, similar to those provided in jury service. 

To ensure that those in a pilot are treated fairly, and that any changes to their tax affairs are not too onerous, we’d also like any proposed pilots to be reviewed by an independent oversight board to help ensure that HMRC is upholding their Charter obligation to treat taxpayers fairly. 

Is there another way? 

While it is clearly important that HMRC are able to fully test new ways of doing things, it was disappointing that HMRC was unable to provide any specific examples of recent situations where they think a legislative sandbox could be beneficial for taxpayers. This might have made for a more compelling argument for this approach. 

In our view, following issues with new services such as the new VAT registration service, the CGT on UK Property Service and the Trust Registration Service (TRS), there are plenty of other steps HMRC could take with existing processes to improve the launching of new policies or services.

Ask the experts

When HMRC launches a new product or service, it does do a lot of user testing, but the testing we end up engaging with is usually focused on the user experience - i.e. is it clear to a taxpayer which box to tick, or where to go next? In the testing we have seen, there is no emphasis on whether or not the system makes sense to experienced tax practitioners and allows taxpayers to comply with the underlying legislation. 

We think that there needs to be more testing of whether systems actually do what they need to do and if they match the underlying legislation. We called this Ronseal testing – does the system do what it says in the TIIN? This might have helped with the development of the TRS by highlighting at an earlier stage the gaps between the requests for information in the system, and the information that the legislation requires.   

We’d also like to see testing of how new or changed processes might fit into the agent workflow. For example, we frequently have to request the inclusion of a ‘save and return’ function in new services to allow for more senior review and client approval before documents are submitted to HMRC.

Protecting those outside the box 

Where we do think the idea of placing some taxpayers in a safe environment outside the usual rules could be useful is not in piloting, but when new systems or processes go live. Instead of a testing sandbox, this would be a shielding sandbox, giving HMRC the power to grant exemptions or exclusions for those who can’t immediately access new systems or processes.

When the new VAT registration service was launched last year, not everyone who needed to use it was able to do so – and it took a year before the TRS was upgraded to take into account all the new trusts required to register under 5MLD. That meant that trusts wound up after 6 October 2020 when the new rules took effect - but before 1 September 2021 when the system finally opened to non-taxable trusts - were obliged to register and then immediately deregister themselves once the system was live, even though the trust no longer existed. A shielding sandbox could have exempted those trusts from this onerous obligation. 

Conclusion

At the ATT, we are unconvinced by the current sandbox proposals and are concerned about the potential extra costs in time and money for taxpayers selected for such a pilot. We think that HMRC should take a step back from this specific idea to look in more detail at some of the problems experienced by taxpayers, agents and HMRC as a result of some recent policy/operational changes. Better outcomes could be obtained by expanding and developing HMRC’s existing testing approaches. 

The ATT’s full response to the consultation is available on our website. 

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Replies (7)

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Tornado
By Tornado
04th Aug 2023 16:11

Once again, HMRC 'ponders' a new way to do something, when there are many well tried and tested ways already to do what they need to do.

This is another disaster on the way as HMRC try to be different again for no obvious reason other than, perhaps, to provide well paid jobs on an extended project to those that have sold the idea to HMRC.

Thanks (3)
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By Hugo Fair
04th Aug 2023 21:16

I can't work out, Helen, whether you're simply being extremely careful to retain civility or have fallen for the classic HMRC 'empty heart' here.
[An empty heart is where there is NO actual core tenet or central objective, but it remains obscured by the build up of faintly logical sounding proposals that - by definition - are irrelevant to the core issue].

As it stands this would be a DISASTER of epic proportions - for HMRC as well as the rest of us.

1. "pilots would mainly focus on administrative changes"
- Leaving aside the weasel word ('mainly'), who defines what constitutes an 'administrative' change?
- Throughout projects where I've been involved from day one (e.g. RTI, Parental leave, EA, IR35, Payrolling benefits, etc), HMRC have tended to describe as administrative/guidance problems that everyone else knew were a wholesale lack of full/clear specification (well before any 'user' got close to software or processes)!

2. "HMRC proposed .. a legislative sandbox as a new way of piloting changes to the tax system"
- Changes to the tax system sounds more like policy changes than purely administrative ones.
- It is precisely at that stage (post draft legislation but before parliamentary confirmation) that HMRC badly needs a 'sandbox' - such an ugly word (and I'm not going to make the cheap gibe at what you usually find in a sandbox after kitty has visited) - but they have always been terrified of 'sharing' with 3rd parties.
- There are (or rather were) a couple of dozen people who gave up vast amounts of their time (without remuneration) to assist HMRC on the above (and many other) projects ... and who saved HMRC from some of their own potentially critical bear-traps, despite being treated with suspicion and treated as a threat rather than a helper. But they're seen as somewhere between persona non grata and irrelevant now.

[It's no surprise that HMRC's increased reliance on advisory consultants (from whence all the ugly jargon emanates) has been based on paying excessive rates for what is no longer unbiased guidance free of self-interest ... but is wholly missing a guiding mind with relevant experience of taxation systems and leads to fiascos like MTD ITSA.]

I fear this is about to turn into a thesis (and therefore bore everyone to death) ... but one quick example of what I'm trying to explain here ...

'CGT on UK residential property'
* All the key issues when the (then 30 day) new reporting regime arrived were never purely administrative (which box to tick) but systemic design flaws.
Turnaround times, lack of integration/interaction with SA, digital vs paper, etc ... apparently no thought (at least by anyone with experience) went into the original rollout.
* How could HMRC conceive that they can force a group of taxpayers into compliance 'with no penalties or additional costs'?
Indeed how are they going to select those who are 'being volunteered' (without the option to say no thanks) - given that many people wouldn't even have decided to sell until a few weeks prior to sale?

I've saved what might be the biggest flaw 'til the end:
* What sane adviser/agent or software developer/supplier is going to put in the resources to enable them to support just one or two of the clients who have been unfortunate to be 'volunteered' by HMRC - especially since the whole principle of sandboxing/agile/pick-your-verbiage-of-choice is that everything can be totally changed (or even thrown away) by HMRC at short notice?
[Especially after they've been scarred by and lost money on the MTD ITSA experience!]

Thanks (6)
Replying to Hugo Fair:
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By Catherine Newman
04th Aug 2023 22:44

I am CIOT and not ATT, and have resigned my ATT-no disrespect to ATT qualified people but why aren't other PBs piling in?

It appears I am better off not being a member of a PB.

Thanks (1)
Replying to Hugo Fair:
Tornado
By Tornado
05th Aug 2023 13:15

Isn't playing in a Sandbox something children do to keep themselves amused?

Thanks (4)
Replying to Tornado:
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By Hugo Fair
05th Aug 2023 20:16

... but *should* they be 'amused' when playing with those little presents left by kitty?
[In HMRC's case, the presents are left by consultants and look remarkably like invoices ... never accompanied by evidence of anything usable, so quite apposite!]

At the mundane end of all this ... sandpits are what the kids should play in, whereas sandboxes were the precursor to litter trays (before the supermarkets realised they could charge for disposable bags of litter chips). But you wouldn't expect HMRC to notice the difference between something nice to stand in on a balmy beach and the recycled contents of a cat's digestive system - would you?

Thanks (3)
Replying to Hugo Fair:
By SteveHa
07th Aug 2023 12:16

"also sand-box, 1570s as a perforated device to sprinkle sand, from sand (n.) + box (n.1). From 1680s as "a box holding sand." In U.S. locomotives, "a device to put sand on the rails when wet wheels slip" (by 1849). By 1891 as a low-sided sand-pit for children's play."

Nothing to do with Kittys. Also, despite the common parlance that it's a restricted area where nothing can escape, it seems like the original meaning meant that almost everything in it could escape.

Thanks (2)
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By DKB-Sheffield
05th Aug 2023 00:44

Quote:

In HMRC’s proposals, a legislative sandbox is a form of pilot where HMRC would suspend the usual tax rules for short periods for small groups of taxpayers. Those selected would follow different rules to test and refine them before they are rolled out to the rest of the population.

Well, that all sounds hunky dory. What could possibly go wrong?!

HMRC do seem good at practising what they preach though. They seem to have spent the past few years in a sandbox, 'suspending' the Charter, following different rules to the rest of us, and selecting / enforcing the entire SA population to a 'pilot' closure of the helpline (don't even mention VAT).

It's good to see there are plans to test and refine processes... it would just make more sense to consider what those processes are meant to achieve first!

I particularly like the reference to compensating clients for extra agent fees. Whilst it's an admittance that there will be additional costs (unlike MTD), I'd be surprised if this was little more than a drop in the ocean. Something along the lines of £80 per day for a non-learned witness in court springs to mind.

Hey ho, another HMRC idea that's destined to reek havoc!

Thanks (2)