How the HMRC is making tax digital
Guy Smith, Tax Investigations Manager at Abbey Tax, deciphers HMRC’s new Digital Strategy and how it will impact on agents.
HMRC is embedding digital delivery into the heart of everything it now does in order to improve the customer experience, reduce costs and maximise yield. It has 450 digital specialists working in five Digital Delivery Centres in London, Newcastle, Worthing, Telford and Yorkshire.
The centre in Newcastle focuses on digital services for individuals and was responsible for the new online tax credits renewal service. This allowed 750,000 people to renew their tax credits online in 2015, which was an increase of 94% on the previous year. The digital centres in London, Worthing and Telford concentrate on professionals and businesses, with Worthing also collaborating closely with the Valuation Office Agency. The centre in Yorkshire is still so new that the centre has yet to be formally inaugurated, but one of the areas it is focusing on is social media analytics.
Ultimately, by 2020, HMRC wants to see the end of the tax return, with businesses and individual taxpayers updating their information and paying their tax, at any time of the day or night. But there is a long way to go before we get to 2020, especially as HMRC wants businesses and landlords to start keeping their business records digitally and to start reporting accounts information at least quarterly. By April 2018, HMRC wants income tax and national insurance information to be reported quarterly, followed by VAT a year later and Corporation Tax by 2020.
Digital tax is an opportunity for HMRC to pre-populate information it has already received from employers, other Government agencies and third parties. When people log in to file online returns, they are likely to see basic details of earnings and tax deductions already filled in. But how reliable will that information be?
Ruth Owen, HMRC’s Director General for Personal Tax, has already acknowledged, in a comment quoted in the Financial Times, that passive taxpayers present the authority with a challenge. Will they just accept the pre populated figures at face value and assume HMRC has entered the right amounts, or will people do as HMRC expects, and double check the entries are correct?
For this reason, she says taxpayers will always have to click a dedicated button to sign off their returns online. To help people navigate their way around their digital accounts, advice is going to be available through an automated assistant called ‘Ruth’. Ruth will be available to answer frequently asked questions around the clock. Help will also be offered through a live web chat tool.
What taxpayers and accountants need to be wary of here, is what will happen if there are any errors? Will any error in pre populated information be HMRC’s fault, or will the blame fall on the taxpayer for clicking the dedicated button? Will that error be deemed to have been made despite taking reasonable care, down to carelessness or deliberate behaviour?
What will happen if the taxpayer has tried to find the answer, perhaps even asking Ruth, but still made a mistake? Will that be accepted as evidence of someone having taken reasonable care, or will the mistake be classed as careless or deliberate because the answer was not interpreted correctly or misunderstood. We suspect the answer from HMRC will be that each error will be judged on its own facts.
HMRC is intending to use what it calls Push and Pull techniques, or nudges, to ensure SME’s are pointed in the right direction to avoid errors and to remain compliant. This fits in with HMRC’s Promote, Prevent, Respond approach to compliance.
HMRC seeks to promote compliance by designing it into systems and processes and tries to prevent non-compliance at or near to the time of filing. The respond approach is seen through the action that is then taken to target non-compliance.
Abbey Tax has already seen HMRC try this approach with the benchmarking of business sectors during the last 12-18 months when HMRC wrote to businesses it believed had filed accounts containing a net profit ratio outside the expected range for that sector and invited amendments. Firms will also be aware of the ‘effective rates of tax’ letters HMRC issued to people earning over £150,000, in which they told the recipients their tax bill was too low compared to their peers.
What is particularly frustrating for accountants and agents at the moment is that they cannot see their client’s Personal Tax Accounts or their business' Your Tax Accounts.
In a recent interview, Theresa Middleton, HMRC’s Director of Business Customer and Strategy confirmed agents cannot access their client’s digital accounts yet, but has committed to ensure this happens in the next nine months.
In view of the long delay in getting Agent Services up and running, some agents have been resorting to using their client’s digital accounts to respond to HMRC. HMRC calls this ‘spoofing’ and doesn’t like this because it prevents the identification of genuine fraudulent activity.
The way forward
There is a long way to go before Making Tax Digital is finalised, and at least five consultations are planned and are likely to cover how information from third parties is used, the scope of quarterly reporting and support for the non-digital.
Abbey Tax is hosting a series of Tax Investigations Webinars and training workshops over the coming months and will be ensuring firms are kept up to date with all the latest developments. Please use the link below for more information and to register your interest.
Webinars & training workshops
About the author
Guy Smith manages a team of 6 Senior Tax Consultants who, like himself, are all former HMRC Tax Inspectors. His team represent clients who are under tax enquiry, have a status dispute, a fraud investigation or who need to make a disclosure of undeclared income.
In addition to his role at Abbey Tax, Guy is also a Consultant Editor and Author for Tolley Guidance and sits on the ICAS Technical Bulletin Editorial Board. A frequent writer for the Abbey Tax Blog, Guy’s articles have also been published in Taxation magazine and other in house corporate magazines.
This blog is one of a series of articles from our commercial partners.
The views expressed are those of the author and not necessarily those of ICAS.