ICAS responds to UK Government proposals on business systems integration and company payments to participators

We support efforts to modernise tax administration. However, reforms must be practical, proportionate, and deliver benefits without placing excessive burdens on small businesses. Gordon Grant, Head of Tax - OMB & Practice (employment & VAT) shares ICAS’ response to two recent consultations.

We recently responded to two UK Government initiatives, the HMRC consultation Reporting company payments to participators — modernising the reporting framework and the HMRC/Department of Business and Trade Call for Evidence: Business Systems Integration.

We support modernisation and reform of tax administration in principle. However, in both responses we emphasised the need for a proportionate approach that recognises the practical impact of reform and avoids placing excessive additional compliance burdens on taxpayers or their advisers. 

Business systems integration 

The Government’s call for evidence sought views on whether better integration between business software systems, such as accounting software, banking platforms, e-commerce systems and point-of-sale applications, could help businesses keep records more efficiently and accurately. 

Our response recognised that integrated software systems should reduce administration and improve data quality. We also stressed that advisers’ and businesses’ practical experience often differs from the promises made by software providers. For example, members told us that software providers often issue upgrades during critical periods, forcing businesses and advisers to implement new systems mid-year, often at additional cost. 

Software challenges and lack of regulation 

We also shared member experiences showing that software integration failures can lead to disputes between suppliers, with each blaming the other while taxpayers deal with the consequences. The response included examples of integration failures that went undetected until an accountant reviewed the output, such as software failing to record sales transactions without generating a warning or error message. 

As technology becomes increasingly central to tax compliance, we suggested that policymakers should consider mechanisms that encourage greater accountability and co-operation between software providers. More broadly, our response noted concerns about inadequate technical support and questioned whether the absence of independent regulation leaves taxpayers, advisers and sensitive business data exposed to unnecessary risks. 

Additional costs and administrative burdens 

We acknowledged that successful integration could deliver efficiencies, while questioning whether the benefits always justify the costs, particularly for smaller enterprises. Members have reported that suppliers often underestimate the time and effort needed to set up fully integrated systems. 

The response notes that many small businesses achieve similar outcomes through simpler methods, such as downloading information from one system as CSV files and uploading it to another. In these cases, full integration may offer only marginal advantages compared with the implementation effort involved. 

In summary, we agree that business software integration may be beneficial, but policymakers shouldn’t assume that more integration automatically creates greater efficiency for businesses. 

Reporting company payments to participators 

This consultation focused on HMRC’s proposal to introduce enhanced reporting requirements for transactions between close companies and their participators. It was prompted by continuing government concerns about the growing small business tax gap and the compliance risks linked to transactions between companies and their owners. 

Represented and unrepresented taxpayers 

In our response, we recognised that many close company directors already receive professional advice and therefore have a reasonable understanding of their obligations. We noted that this understanding is often lacking where businesses operate without professional support. Many directors don’t fully appreciate the distinction between company and personal finances, with particular concerns around overdrawn directors’ loan accounts and potentially improper dividend practices. 

Members told us that advisers often become involved only after problems have arisen and then need to rectify unintended tax consequences. Our response also expressed concern that the growing availability of AI tools may encourage some businesses to do without professional advice, potentially increasing the risk of errors and misunderstanding of the rules. 

Reporting systems 

In our response, we noted that many professionally advised businesses already hold much of the information HMRC seeks. Cloud accounting systems commonly track participator transactions and directors’ loan accounts through dedicated ledger codes. This allows advisers to review balances and identify emerging issues throughout the year, although many smaller businesses still use systems that provide only annual visibility of directors’ loan accounts. 

Our response highlighted that the impact of any new reporting requirement would vary significantly depending on the sophistication of the systems already in place. We also said that any new reporting requirement shouldn’t be separate from, or more frequent than, the existing annual corporation tax return process, given the additional administrative burden this would create. 

Administrative burden, complexity and penalties 

More broadly, our response warned that requiring detailed reporting of transactions involving trusts, transfers of value for inheritance tax purposes, corporate participators and complex group structures could create significant administrative burdens. We questioned whether the proposed reporting regime might place disproportionate obligations on smaller businesses at a time when compliance requirements are already increasing. 

Our response suggested that HMRC should consider de minimis thresholds to reduce reporting obligations for smaller transactions. We also said HMRC should undertake further consultation before imposing reporting requirements on corporate participators and groups. 

On penalties, we argued that genuine errors shouldn’t be punished too harshly. We noted that the interaction between different tax regimes can be confusing, particularly for taxpayers who don’t use professional advisers, and called for proportionality in any proposed approach to enforcement. 

In conclusion 

Across both responses, we have consistently supported better-quality data, improved digital systems and measures designed to reduce error within the UK tax system. However, we have also stressed that policy design must reflect the realities faced by small businesses and their advisers. Compliance reforms should be proportionate, practical and able to deliver genuine benefits without creating excessive cost or administrative complexity. 

Read our responses to the Call for Evidence: Business Systems Integration and Reporting company payments to participators: modernising the reporting framework. 

Let us know your views 

We respond to tax consultations and calls for evidence and attend meetings with HMRC to discuss service levels, delays and other issues raised by members. We welcome member input to inform our work. Email us to share your insights and feedback.