Tax Administration – where’s it going?

By Charlotte Barbour, Director of Taxation

2 August 2021

Charlotte Barbour outlines the recent work by ICAS to inform HMRC’s review of the tax administration framework.

Background

In March 2021 (on what was called ‘tax day’), HMRC issued a Call for Evidence on the Tax Administration Framework, asking for responses by 13 July. A subset of this review was addressed in the Call for Evidence ‘Timely Payment’ and, more recently, a consultation has been issued about basis period reform.

These strands of work are being conducted under the overall heading Building a trusted, modern tax administration system, which seeks to build a tax system fit for future purpose, with improved resilience and effectiveness, and to enhance taxpayer trust. The Covid-19 pandemic has highlighted which parts of the tax system are working well and the benefits of (more or less) real time PAYE data. It’s also highlighted which parts require improvement, such as the tax processes for the self-employed, and a desire to maximise the benefits of a digital world.

There is an appetite in government to drive this forward; hence, these various calls for evidence about how to modernise tax administration.

A ten-year project?

An overhaul of tax administration, which will include going digital, making automated processes work effectively, ensuring taxpayer buy-in, and preventing leakage is asking a lot. And whatever is put in place needs to be able to be phased in from the current starting position – there isn’t a clean sheet of paper to start with! In fact, part of the discussion is where to begin - should we simplify some of the taxes first (think basis periods), should we rewrite TMA (is the legislation key or should one start with making the processes digital), or should we start, say, with one particular tax (such as income tax, given its importance as a revenue raiser)?

There’s plenty of ideas and discussions but there is one certainty - it’s a huge project – and HMRC has put a 10-year time frame around it.

ICAS views

HMRC has had many meetings with the professional bodies and other interested stakeholders over the last few months to discuss the calls for evidence, and to which ICAS has contributed. This is clearly an area of fundamental importance to many Members and ICAS tax and practice staff have spent much of their energies inputting to this project.

Timely payments

ICAS has made written representations to the call for evidence on Timely Payment, which has a special focus on trading and property income for income tax and corporation tax, although it does extend across other taxes too. It addresses those taxes where there are complex calculations needed, for example with capital gains, or the tax is based on ingoings and outgoings over a period of time, such as for income tax and corporation tax on trading profits – and if it isn’t possible to know the exact tax liability immediately how should timely payment operate (timely payment being real time or something closer to real time).

Tax Administration Framework Review

In response to the call for evidence on the Tax Administration Framework Review, we submitted ‘Tomorrow’s Tax Administration’, a report that ICAS recently published. The report sets out the top ten ICAS priorities for UK Government action to improve tax administration that we think need to be addressed. Why did we do this? We wanted to clearly articulate what ICAS Members think is important, based on the feedback we receive from members and the input of both the Tax Board and the tax committees.

ICAS Members have a key role as agents, as tax advisers and as taxpayers, which provides insights into the many complex issues and decisions involved in tax administration and experience of the operational practicalities. We felt it was important to do this rather than simply responding to a list of pre-determined questions.

Third party data reporting

We have also met with, and given written evidence, to the Office of Tax Simplification who have had a call for evidence on third party data reporting, which is one aspect of the potential modernisation of tax reporting. We broadly agree that where HMRC already receives information from third parties it would be useful for taxpayers not to have to report that information again and that it should be prepopulated in tax returns or in a digital tax account.

However, any proposal to extend third party data reporting comes with a number of potential concerns. There may be questions about the accuracy of some data, which then leads to the question of who would be responsible for identifying, and correcting, any inaccuracies. This concern highlights a key question in the modernisation of tax administration – if you make tax easier (less for the taxpayer to do) then who is responsible for what?

Basis period reform

We are now canvassing the views of members on the proposed reform of basis periods – please let us know what you think of the proposals to move to a ‘tax year’ basis of assessment. It’s certainly the case that MTD for income tax self-assessment won’t work very well without first addressing basis periods. An Ask ICAS webinar will take place on 26 August to discuss the proposals and to canvass your views – do join us.