ICAS responds to two recent tax consultations
By Susan Cattell, Head of Tax Technical Advisory
31 July 2023
We have responded to consultations on proposals for a possible new approach to piloting tax changes and reforms to HMRC’s data and information powers.
On 27 April, two consultations were published as part of the ongoing Tax Administration Framework Review. One dealt with a potential new option for piloting and testing tax changes – a ‘sandbox’ approach. The other considered proposals for updating HMRC’s information and data gathering powers, alongside standardising data provision from third parties. This consultation also looked at increased pre-population of returns.
Creating innovative change through new legislative pilots
In this discussion paper, HMRC proposed a new ‘sandbox’ approach that would allow the creation of temporary legislation to suspend the usual tax administration rules for time-limited pilot schemes.
Although we agreed with the suggestions in the paper that HMRC could be more transparent in developing policy and take a more collaborative approach to delivering change, we concluded that the case for legislative sandboxes had not been made. There was no clear articulation of the circumstances in which sandboxes would be used, why they would be beneficial, and why other approaches would be inadequate.
Our response outlined concerns that the use of the proposed sandboxes could cause problems for taxpayers and agents, and potentially undermine trust in HMRC and the tax system, particularly if HMRC could mandate participation.
If the proposals are taken forward the response noted that the following conditions should be met:
- Transparency: Ideally, opportunities to take part in pilots should be properly publicised and the pilots should be open to anyone meeting the criteria for participation. However, as a minimum, taxpayers (and agents, where relevant) should know that they are taking part in a pilot and should have agreed to participate. Consent to taking part should be based on a proper explanation of what will be involved.
- Participants and agents should be able to opt out of pilots if they find that they cannot deal with the alternative regime.
- Participants should not be disadvantaged: They should not end up in a worse position as a result of taking part. Any additional penalties or interest charges should be removed and there should be compensation where any additional costs arise from participation.
- Participants should be given adequate support and guidance – not only prior to and during the pilot but potentially afterwards. It appears that HMRC envisages using sandboxes where the outcome may not be a permanent change. This is not the same as using a pilot to test a new system to identify issues before a wider roll out, so participants may need support in returning to compliance with the ‘normal’ rules or processes.
- Access to the normal appeal and statutory review process should be retained.
We also stressed that the use of sandboxes should supplement, not bypass, the five-stage consultation process set out in the consultation framework. Proper formal consultation, involving public scrutiny and the opportunity for anyone to comment on proposals (not just those taking part in a sandbox) is vital.
Changes to HMRC’s information and data powers
This consultation proposed to reform and update HMRC’s information and data-gathering powers (in schedule 23 Finance Act 2011 and schedule 36 Finance Act 2008). The aim of the proposals is to enable more effective use of information and data, including greater pre-population of tax returns.
Our response was broadly supportive of proposals for pre-populating tax returns. We emphasised that where there are errors or omissions in pre-populated data provided by third parties, taxpayers (or their agents) must be able to make the corrections themselves; they should be able to override the pre-populated data, rather than having to contact the third-party data provider.
We saw potential merit to making some changes to the schedule 23 'bulk data' powers, so that the legislation does not have to be updated every time another data holder is added and to introduce some standardisation in reporting. However, we noted that taxpayer safeguards had been seriously eroded with the introduction of financial institution notices (FINs), which do not require any independent approval. We stressed that any changes to the schedule 36 information powers should not involve any further weakening of safeguards.
Let us know your views
ICAS responds to many tax calls for evidence and consultations, as well as producing tax policy papers and reports. We also regularly attend meetings with HMRC at which service levels, delays and other issues are discussed, and we raise problems being encountered by Members. We welcome input from Members to inform our work; email tax@icas.com to share your insights and feedback.