Should we understand our taxes?
As a chartered accountant, chartered tax adviser and chartered IT professional, Donald Drysdale takes a critical look at OTS views on the role of technology in tax administration. The views expressed here are his own and not necessarily those of ICAS.
OTS focus paper
In January the Office of Tax Simplification (OTS) published a focus paper entitled ‘Technology Review: a vision for tax simplicity’, exploring some key questions that will need to be considered as advances in technology impact on the administration of taxes.
For example, how important is it that every taxpayer is able to understand how their tax liabilities are calculated? Or how much responsibility should rest with an individual taxpayer, if the information is available to HMRC to give effect to a tax relief on their behalf?
The OTS expects new technologies to improve the administration of taxpayers’ affairs. But it finds these largely untested in what is a complex tax regime and believes the government must strive to deliver genuine improvements.
While the likelihood of any effective, wholesale reform of the current tax code seems a distant and difficult objective, the OTS sees the need for a constant watch for opportunities for simplification, to deliver benefits for both taxpayers and government.
The OTS believes that as technology develops, and opportunities and risks arise, the government should:
- consider how to mitigate the risk that taxpayers lose sight of their obligations through the use of technology;
- continue to monitor private sector technological innovation to enhance the experience of the taxpayer in managing their tax affairs;
- consider the potential for applying new technology in engaging with the public to deliver efficiency and cost savings;
- monitor the impact of the General Data Protection Regulation (GDPR) on taxpayer choices regarding security, privacy and convenience;
- consider enhancing HMRC’s current personal tax account to deliver better-targeted guidance and information while also looking at automatic enrolment into this service for all taxpayers; and
- consider active monitoring of the impact of moves towards a cashless society and risks of digital exclusion.
These measures would complement Making Tax Digital (MTD) and other work currently in progress in HMRC on exploring new uses of technology.
Advances in technology
Implicit in the report is the continuing pressure from HMRC to deal with tax online. In considering technological advances, the OTS paper addresses a number of disparate aspects.
Blockchain distributed ledger technology is suggested as a possibility for streamlining the way taxpayers and tax authorities interact. The OTS thinks that blockchain may also be used one day to connect databases across all areas of government, linking departments to shared sources of information.
In spite of the OTS suggestion, I fear that wider use of blockchain – a technology which is not yet widely understood or trusted – might create the sort of public backlash that greeted the scheme for national identity cards, abandoned in 2010.
The OTS wants taxes administered in ways that ensure privacy and security of data, whilst retaining the convenience of online interaction. However, maintaining privacy and security do not necessarily sit easily with transparency, or with the government’s desire to use data more efficiently.
Although the GDPR offers safeguards, data breaches by many apparently reputable organisations are still hitting the headlines. In spite of these, the OTS notes that individuals are quick to abandon technology which offers greater protection whenever privacy requires additional effort or degrades user experience.
I believe that many individuals and businesses still don’t fully understand the risks they face online – at least, not until they have suffered a direct attack. Respective incidences of viruses, malware and ransomware are increasing exponentially. Maintaining computers, phones and other devices free of infection is not an easy task.
The OTS makes no mention of new threats from ‘the internet of things’. Online dangers will only increase as users connect more and more so-called ‘smart’ devices – many of them not adequately supported by security patches or firmware updates from manufacturers.
Paradoxically, even those taxpayers who are most digitally active are not necessarily best equipped to deal with their tax affairs online. HMRC have found that the most likely group to contact them other than through an online portal is the 16-to-24 age group.
The OTS questions whether technology might create risks that taxpayers would lose all oversight of their tax obligations – having tax automatically calculated, scrutinised and paid to HMRC. It wonders whether the online personal tax account might play a part in keeping the taxpayer more closely involved but I suspect this wouldn’t be enough.
Unfortunately, I believe reliance on technology favours the ‘haves’ rather than the ‘have-nots’. Better-off taxpayers can afford professional advice and software to ensure they get their tax right. Those with limited income and wealth must rely instead on unintelligible tax calculations by HMRC – some of which have been proved to be wrong.
The OTS concludes that it should continue to look into the role of technology in tax simplification. It plans to gather further evidence of the role of technology and public perceptions of it through the publication of an online survey in due course.
The report ends with a strange non-sequitur. The OTS says it will publish a follow-up to its paper of July 2018 on the platform economy, considering in more detail the concept of introducing withholding tax regimes for the self-employed in the platform economy. This is not referred to anywhere else in the report.
An overarching question
In publishing this paper, the OTS has asked itself an existential question: “Will tax simplification still be needed as technology advances?”
It notes that efforts to simplify taxes have concentrated to date on removing complexities in order to make the tax system clearer for taxpayers and administrators. It suggests that, in the future, technology has the potential to manage the complexities of the tax system, leaving taxpayers needing only to press a button to meet their tax obligations.
In my view this suggestion is naive. If governments are to be accountable to the electorate, citizens must be able to understand and have trust in how their tax is calculated. Likewise, if businesses are to be persuaded to invest in the UK and do business here, they and their advisers must have confidence in how they will be taxed.
Article supplied by Taxing Words Ltd