Should HMRC get more third-party data about you?
By Susan Cattell, Head of Tax Technical Policy
8 February 2021
Susan Cattell highlights the Office of Tax Simplification call for evidence on the potential for more third-party data about individuals’ income and gains to be supplied to HMRC.
Office of Tax Simplification review of Third-Party Data Reporting
The OTS is carrying out a review which will consider the principles that should apply in relation to third-party data and taxpayers generally, sources of third-party data it could be helpful for HMRC to receive and how this data can best be integrated into HMRC’s work on developing online tax accounts and wider system design. To inform its review the OTS published a call for evidence in January 2021.
This is not the first time this subject has been considered; in 2016 ICAS responded to an HMRC consultation 'Making Tax Digital: Transforming the tax system through the better use of information'. Some of the points raised then remain relevant now.
The call for evidence
The OTS is considering whether and in what ways it could be helpful to individuals for additional third-party data about their income and gains to be supplied to HMRC. It also wants to look at concerns individuals might have and whether (and how) these could be addressed. The OTS would like evidence from both individuals and agents – and from potential third-party data providers. The questions in the call for evidence are split between these categories.
Which sources of data is the OTS considering?
The focus of this review is personal tax data relating to individuals and does not cover the reporting of self-employment income or rental income data within HMRC’s Making Tax Digital for income tax project. It also not considering data relating to partnerships, companies etc.
The sources of data under consideration by the OTS are:
- Bank and building society interest (building on the information already available)
- Dividends of UK companies and distributions from authorised unit trusts
- Distributions from UK and overseas open-ended investment companies
- Pension contributions
- Gift aid payments to charities
- Data from investment and wealth managers, including information about chargeable gains, excess reportable income, interest, dividends and equalisation payments
- Insurance bond chargeable events
- Royalties
Potential benefits
HMRC already receives some data on a regular basis, for example details of bank and building society interest. However, it is mainly used for compliance purposes rather than to pre-populate tax returns and the OTS notes that there can be issues with the quality of the data and the lack of any unique taxpayer identifier which leads to problems matching the information to the right taxpayer.
Millions of taxpayers currently have to provide details to HMRC of income and gains on their investments. The OTS wants to understand whether data could instead be provided to HMRC by financial institutions, wealth managers etc and reflected in individuals’ tax returns or online tax accounts.
Additionally, many taxpayers do not currently claim the relief they are entitled to for gift aid (higher rate relief) or pension contributions. If a third party could report details of such payments to HMRC these too could be pre-populated in returns or claimed through the online tax account.
The OTS is seeking information from individuals and agents on issues including:
- what type of data they currently use to complete returns/claim reliefs;
- areas where provision of third-party data currently creates issues with the accuracy or timeliness of returns (for example, due to delays in receiving data);
- information held by HMRC or other government departments that it would be useful to have shown in an online tax account or pre-populated in a tax return;
- what types of third-party data it would be most helpful to have provided direct to HMRC.
Risks and concerns
The OTS scoping document for the review mentions that one aspect of their work will be to consider taxpayer confidentiality and privacy and the importance of engendering public trust.
It would be essential for HMRC to be certain that information provided by third parties could be allocated to the correct taxpayers. The call for evidence notes that individuals might therefore need to provide third parties with their National Insurance number as identification and asks how they would expect to provide it and whether there are some types of third parties they would feel more comfortable providing it to. It seems likely that individuals would feel more confident supplying detailed identification information (which could be useful to criminals) to institutions with experience in maintaining security and enforcing GDPR policies. Stringent standards for security and data protection would need to be put in place (where they did not already exist) for all data providers and for the reporting mechanisms used for transmitting data to HMRC.
The call for evidence also asks about the most effective way for individuals to be able to query the accuracy of the data provided to HMRC by third parties, and whether any safeguards should be considered to maintain trust. The ICAS response to the 2016 consultation set out our view that as taxpayers have a statutory obligation to ensure that information provided to HMRC is correct and complete, they should have the ability to correct any incorrect data (where they have the information to do so). They should not be obliged to contact third-party providers to request a correction.
One question which is not raised in the call for evidence is the approach to be adopted to jointly held accounts and investments, where income and gains are split between individuals; this would need to be addressed.
Our 2016 response also flagged concerns that many taxpayers assume that HMRC and their employer will get things right; extensive pre-population of data in tax returns or online tax accounts is likely to reinforce this view. Individuals may need to be reminded of their statutory obligation and encouraged to check any pre-populated data for completeness and accuracy.
Third-party holders of data
The OTS is also seeking evidence from those who might provide the data under consideration to HMRC. It recognises that data collection and provision to HMRC would add a burden to third parties and will consider how best to keep this to acceptable levels.
It is important that data holders engage with the review and supply evidence to the OTS, for example, about identification information they currently hold about customers, how they hold it and any difficulties they foresee in reporting the proposed information to HMRC. One of the questions asks how long it would take to adapt systems to be able to report to HMRC and the additional costs involved. This could influence the timeframe for any implementation of the proposed reporting, which needs to be realistic and allow sufficient time for providers (and HMRC) to put in place robust and secure systems.
ICAS would like your feedback
ICAS will be providing evidence to the OTS and would like to hear members’ views on the consultation questions. Please send us your feedback by emailing tax@icas.com.