Outcome of the latest consultation on improving third-party data to help get tax right

Susan Cattell looks at the latest developments on proposals to help taxpayers get their tax right through improved third-party data.

In June ICAS responded to the latest consultation on how data HMRC receives from third parties could be improved and used to help taxpayers get their tax right, for example though more accurate PAYE coding and pre-population. The main types of data covered were:

• Financial account information – including bank and building society interest (BBSI) and other interest.
• Card sales – data shared by providers of card acquiring services, such as merchant acquirers.

Our response concentrated on the proposals relating to BBSI, dividends and other investment income and commented from the perspective of agents and individual taxpayers.

We supported the overall aims of improving PAYE coding and pre-population but noted that changes to third-party data provision wouldn’t be enough on their own to ensure that taxpayers pay the right amount of tax. Improvements to HMRC’s underlying digital systems and processes would also be required.

Our response gave feedback on data that should be reported for bank and building society accounts, to ensure that HMRC would be able to make effective use of the information to help taxpayers. We supported quarterly reporting to HMRC by financial institutions, rather than monthly.

We also expressed concerns that the proposal to require financial institutions to obtain National Insurance Numbers (NINOs) from customers, could lead to those without NINOs having their access to accounts blocked. 

Government response to the consultation

The government published its response to the consultation and draft legislation on L-Day there have been some helpful changes to the proposals, which address some of the points we raised:

Frequency of reporting

We appreciated that HMRC requires the BBSI data sooner than it currently receives it, to facilitate improved coding and pre-population but it wasn’t clear why monthly reporting should be essential. We could see potential issues arising from monthly reporting and the summary of responses indicates that concerns were raised about the costs and administrative burdens for data providers. 

In an important change to the original proposals, the government has decided that for now financial account information will be reported quarterly rather than monthly. However, data suppliers are urged to take advantage of the ‘opportunity’ to modernise and automate processes so that reporting solutions are scalable and ‘future-proof as expectations of timely tax administration continue to move closer to real-time.’ 

Collection of NINOs from customers of financial institutions

The government noted the concerns raised about safeguards for both customers and third parties. To reduce the risk of debanking, financial institutions won’t be penalised for being unable to obtain NINOs from existing customers where they have made ‘reasonable efforts’. This is backed by a commitment to work with the institutions to explore and agree a definition of ‘reasonable efforts’ which will include understanding how digital communications can be used to reduce costs. For new accounts, the process for acquiring NINOs will align with ISAs. 

The government also commented that it understands ‘significant costs relating to client outreach and remediation of the existing customer base’ will arise – but considers that it’s vital to improve HMRC’s ability to match third-party data to taxpayer records. HMRC will consider how it can support communications to encourage people to share their information when requested. 

It’s helpful that an attempt is being made to address the concerns about debanking, but it remains to be seen whether the additional administration that will clearly be required could still result in institutions deciding that it would be simpler not to deal with those without NINOs.

Reporting of dividend and investment information to HMRC

We supported the introduction of requirements for investment platforms, investment managers and financial institutions to report dividend and investment information to HMRC. This could be helpful to taxpayers, as long as data that is prepopulated/included in coding notices is broken down, so that taxpayers can easily check that all their dividends are included. If a single total figure is given taxpayers may assume it includes all their dividends, whereas in cases where, for example, they also have direct investments, some will be missing. We also called for a simple online route for individuals and agents to report this income to HMRC.

The government response stated that HMRC will undertake further work with industry and other stakeholders to understand the challenges and nuances highlighted and will use this to inform next steps and any potential future changes.

Let us know what you think

We respond to tax consultations and calls for evidence and attend meetings with HMRC at which service levels, delays and other issues you raise with us are discussed. We welcome input from members to inform our work; email us to share your insights and feedback.

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