Digital tax: Will HMRC ever learn?
By Donald Drysdale for ICAS
18 January 2018
A post-implementation review of RTI reveals shortcomings, and Donald Drysdale wonders whether lessons learnt will be taken into account in MTD.
Why digital?
Digital tax administration should reduce costs and enhance the tax compliance experience, not only for HMRC but also for individual taxpayers, businesses and their tax agents. Good IT-based tax systems ought to be available 24/7, improving access to key HMRC services and making tax compliance easier all round.
Even HMRC agree. On 27 December they tweeted: “You can do your #SelfAssessment return online at a time to suit you. Over 6,000 were done on Christmas Eve, 2,500 on Christmas Day and over 7,500 on Boxing Day this year.”
Imagine a world in which HMRC systems were as accessible as this – not only for taxpayers with time to spare over the festive season, but for individuals, businesses and agents seeking to interact with the tax authority at any time of day on any day of the year.
Recent digital glitches at HMRC
A couple of weeks ago, not wanting to let my tax return peck away at me, I got everything ready and headed to HMRC’s online portal.
The system accepted my income detail but then stated that the facility to submit the return was unavailable. It suggested I try again in a day or two. I did so, repeatedly, and several days later I successfully submitted my return on the fourth attempt.
If this was an isolated glitch, I might have forgiven HMRC for wasting my time and causing me significant inconvenience. However, the reality was more sinister. On 6 January, for example, it wasn’t only personal tax returns that couldn’t be submitted; most HMRC systems were unavailable, including RTI and VAT.
We are told how Making Tax Digital (MTD) will transform compliance, make our lives easier, cut compliance costs, and reduce tax lost through taxpayer error and fraud. These are worthy aims, but MTD – even just for VAT – is causing grave concerns among businesses. Before it proceeds, perhaps we should ask whether HMRC’s existing digital systems are fit for purpose.
Real Time Information – the pilot
The RTI programme implemented the biggest change to PAYE since 1944. It relied on digital systems to accelerate filing of employers’ payroll information, streamline collection of tax and NICs from employees, improve the accuracy of tax credits payments and support the introduction of Universal Credit.
RTI began with a pilot involving some 300 employers and pension providers, recommended by their payroll software providers as a representative sample across business sectors and sizes. For these digitally-aware pilot users, the move to RTI was generally less traumatic than for most small employers, who were not forced to comply until RTI had been tried and tested. This approach allowed extra time for the less digitally-aware to adjust to the new regime.
In a review of the pilot, HMRC wrote: “The pilot enabled HMRC to learn lessons in a controlled way with a relatively small segment of the employer population, and put in place measures to address emerging issues, prior to full roll-out.” That sounded appropriate.
Real Time Information – the post-implementation review
In April 2016 HMRC launched a post-implementation review to address whether RTI had achieved what it had set out to do; how RTI was performing more than three years after it started in April 2013; and what needed to be done to improve performance and make best use of RTI as a strategic asset for government.
HMRC’s report on this review, completed in April 2017, was held back for eight months before publication in December 2017 – apparently to allow time for deficiencies to be addressed first. However, some won’t be resolved until March 2019, a full seven years after the RTI pilot was launched.
Following the pilot, implementation of RTI had taken place in phases – with the largest employers first. The post-implementation review claimed RTI as a success, but the report set out useful pointers for HMRC’s newer IT projects.
It detailed a trail of material shortcomings with RTI data. These included unexplained discrepancies, duplicated employment records, unallocated credits, growing numbers of temporary reference numbers, and unidentified issues with the performance of the national insurance number verification request service.
Five years after the pilot had started, RTI systems were still being blamed for a host of problems. Employers and agents were unable to view their accounts in real time and had difficulty understanding how their liabilities were made up. Processes for updating current and earlier years or providing further information ought to have been more user-friendly. Reporting pay ‘on or before’ the date of payment remained an insuperable burden for many small employers, and there are still demands to move to monthly reporting.
HMRC’s RTI communications and guidance had not reached all employers, with some small employers struggling to understand their reporting obligations and the consequences of not meeting them. External stakeholders had called on HMRC to consider different ways of reaching and engaging with small employers.
HMRC estimated that RTI had imposed one-off and transitional costs of £292 million on employers, while (by strange coincidence) saving employers £292 million a year. They accepted that some external stakeholders believe these figures to be wrong. Furthermore, I’d suggest that the extra costs may have fallen predominantly on small employers dragged kicking and screaming into RTI, while any savings may be accruing primarily to large employers who had already been operating digitally.
Trust registration service
Although RTI was criticised for allowing inadequate access for tax agents, HMRC have been slow to learn from this, as explained here.
In spite of 80% of trusts being dealt with by agents, HMRC’s online trust registration service (TRS) was launched much more recently – in July 2017 – with no facility for agent access until this was provided from 17 October. Given that trusts created in 2016/17 were required to register by 5 October, this attracted an outcry until the deadline was extended – first to 5 December and later to 5 January.
Pre-existing trusts must also register to submit a tax return. The deadline for them to register for 2016/17 is 31 January 2018. HMRC came under pressure to extend this and have agreed not to levy penalties where registration takes place by 5 March.
Making Tax Digital
MTD envisages a transformation of tax compliance even more far-reaching than RTI, but there are already fears of history repeating itself. For example, many small businesses may struggle to understand their reporting obligations and the consequences of not meeting them.
HMRC have failed to provide convincing estimates of the one-off and transitional costs of MTD for businesses, or of savings that might subsequently flow from it. Concerns have already been raised about whether the role of tax agents is being properly taken into account in relation to MTD.
RTI started with those most likely to be able to cope with the technology, to prove that the new procedures worked. Why, therefore, will MTD apply from the outset to the smallest businesses within its scope, many of whom are not accustomed to using digital accounting systems?
Rather than hold back evidence of shortcomings in an attempt to improve their image, wouldn’t it be better if HMRC recognised the value of the lessons in the RTI report and concentrated on learning from them?
Article supplied by Taxing Words Ltd