The call for evidence The tax administration framework: supporting a 21st century tax system published on 23 March builds on the ten-year administration strategy set out by government in July 2020. In his foreword, Rt Hon Jesse Norman, Financial Secretary to the Treasury, says that the tax administration framework ‘plays a critical role in how people experience the tax system and how much trust they place in it’. The ten-year vision is for a fully digital tax system able to support all the needs of taxpayers, allowing people to pay the right tax with ease, fitting into the way they work, live their lives and run their businesses while creating opportunities to drive productivity and innovation. The paper offers – and seeks – ideas for that transformation.
Some core objectives are set out for the tax administration framework: to provide certainty and appropriate safeguards for taxpayers; to be flexible enough to adapt to changing circumstances and enable targeted support; to make it easy to get tax right and hard to get wrong; to help build trust in a tax system that is recognised as fair and even-handed; to be as simple and transparent as possible; and to help reduce the cost for taxpayers of meeting their obligations and drive down costs for the exchequer.
The acknowledgement that any tax reform must be designed not just for the challenges of today, but flexibly and be as future-proof as possible in anticipation of as yet unknown challenges is important. The covid-19 pandemic may have acted as a greater, and completely unforeseen, catalyst for take-up of cloud-based software than MTD. It certainly prompted government to see new potential uses for a digitalised tax system; for example, as a mechanism for delivering more timely and effective support (with MTD quarterly reporting data giving a more up to date picture of business trading and profitability levels). Pandemics aside, the system has to be capable of accommodating the gig economy and new ways of working. It also has to harness technological innovation: much technological change will occur over the next ten years, and enough flexibility must be built in to MTD and other aspects of the system to accommodate that change.
The paper highlights that currently there are different registration and deregistration processes for different taxes and that there is scope to streamline and simplify these, minimising the amount of manual intervention, making use of information from third parties and requiring information to be provided to HMRC once only. The same principles should, it is acknowledged, apply to agents.
The section on improving the way tax liabilities are calculated suggests significant opportunities for reform: should trading income be assessed on a tax year basis for example? MTD creates new issues around reporting periods and the value of quarterly reports for ITSA: if the quarterly summary information is not adjusted for debtors, creditors, accruals, prepayments, stock and work in progress, but the year end result is, questions arise over the accuracy of any tax estimates based on the quarterly figures; if adjustments are made quarterly, the reliability of any tax estimate will increase, but at the cost of additional work for the business or agent. The MTD consultations issued in 2016 raised some of these issues and the problem is explicitly acknowledged in the call for evidence on timely payment, also issued on 23 March. If taxpayers are to be encouraged to rely on MTD in-year for an indication of their tax liability, the likely accuracy of that indication must be made crystal clear. This issue is absolutely fundamental.
I particularly welcome the mention of pre-population and the scope for enhancing the role and functionality of the single digital tax account. Three OTS reports are cited (the first exploring the potential to simplify administrative processes around claims and elections, the second relating to self-employment and rental income, and the third being the current review looking at the potential for utilising third-party data). The digital tax account should be the go-to hub for taxpayers. It should not, for example, be necessary to use a high-volume repayment agent to make flat-rate job-related expense claims: self-serve claims should be facilitated within the digital tax account. The digital tax account should be pre-populated with increasing amounts of tax-relevant information – certainly that already held by HMRC, but potentially by government more widely. Smarter use of data could transform the taxpayer experience. There are issues such as data security, data quality and accuracy of data-matching to consider, but these have been overcome in other jurisdictions and could be overcome in the UK.
The paper also refers to the potential for improving tax dispute resolution.
The broad thrust is consistent with the themes set out in the 2020 OECD paper Tax administration 3.0: the digital transformation of tax administration, one theme being a move towards greater use of real-time information. As with the ten-year strategy published in July 2020, the scope of this call for evidence is wide and its ambition is bold. It goes well beyond the core plan for MTD. It is an opportunity to think radically and to design ‘a trusted, modern tax system that is simpler, easier to navigate and more responsive to taxpayers’ needs’. To deliver on that ambition will need stakeholder engagement, investment in technology and a willingness – by all – to think outside the box.
The call for evidence The tax administration framework: supporting a 21st century tax system published on 23 March builds on the ten-year administration strategy set out by government in July 2020. In his foreword, Rt Hon Jesse Norman, Financial Secretary to the Treasury, says that the tax administration framework ‘plays a critical role in how people experience the tax system and how much trust they place in it’. The ten-year vision is for a fully digital tax system able to support all the needs of taxpayers, allowing people to pay the right tax with ease, fitting into the way they work, live their lives and run their businesses while creating opportunities to drive productivity and innovation. The paper offers – and seeks – ideas for that transformation.
Some core objectives are set out for the tax administration framework: to provide certainty and appropriate safeguards for taxpayers; to be flexible enough to adapt to changing circumstances and enable targeted support; to make it easy to get tax right and hard to get wrong; to help build trust in a tax system that is recognised as fair and even-handed; to be as simple and transparent as possible; and to help reduce the cost for taxpayers of meeting their obligations and drive down costs for the exchequer.
The acknowledgement that any tax reform must be designed not just for the challenges of today, but flexibly and be as future-proof as possible in anticipation of as yet unknown challenges is important. The covid-19 pandemic may have acted as a greater, and completely unforeseen, catalyst for take-up of cloud-based software than MTD. It certainly prompted government to see new potential uses for a digitalised tax system; for example, as a mechanism for delivering more timely and effective support (with MTD quarterly reporting data giving a more up to date picture of business trading and profitability levels). Pandemics aside, the system has to be capable of accommodating the gig economy and new ways of working. It also has to harness technological innovation: much technological change will occur over the next ten years, and enough flexibility must be built in to MTD and other aspects of the system to accommodate that change.
The paper highlights that currently there are different registration and deregistration processes for different taxes and that there is scope to streamline and simplify these, minimising the amount of manual intervention, making use of information from third parties and requiring information to be provided to HMRC once only. The same principles should, it is acknowledged, apply to agents.
The section on improving the way tax liabilities are calculated suggests significant opportunities for reform: should trading income be assessed on a tax year basis for example? MTD creates new issues around reporting periods and the value of quarterly reports for ITSA: if the quarterly summary information is not adjusted for debtors, creditors, accruals, prepayments, stock and work in progress, but the year end result is, questions arise over the accuracy of any tax estimates based on the quarterly figures; if adjustments are made quarterly, the reliability of any tax estimate will increase, but at the cost of additional work for the business or agent. The MTD consultations issued in 2016 raised some of these issues and the problem is explicitly acknowledged in the call for evidence on timely payment, also issued on 23 March. If taxpayers are to be encouraged to rely on MTD in-year for an indication of their tax liability, the likely accuracy of that indication must be made crystal clear. This issue is absolutely fundamental.
I particularly welcome the mention of pre-population and the scope for enhancing the role and functionality of the single digital tax account. Three OTS reports are cited (the first exploring the potential to simplify administrative processes around claims and elections, the second relating to self-employment and rental income, and the third being the current review looking at the potential for utilising third-party data). The digital tax account should be the go-to hub for taxpayers. It should not, for example, be necessary to use a high-volume repayment agent to make flat-rate job-related expense claims: self-serve claims should be facilitated within the digital tax account. The digital tax account should be pre-populated with increasing amounts of tax-relevant information – certainly that already held by HMRC, but potentially by government more widely. Smarter use of data could transform the taxpayer experience. There are issues such as data security, data quality and accuracy of data-matching to consider, but these have been overcome in other jurisdictions and could be overcome in the UK.
The paper also refers to the potential for improving tax dispute resolution.
The broad thrust is consistent with the themes set out in the 2020 OECD paper Tax administration 3.0: the digital transformation of tax administration, one theme being a move towards greater use of real-time information. As with the ten-year strategy published in July 2020, the scope of this call for evidence is wide and its ambition is bold. It goes well beyond the core plan for MTD. It is an opportunity to think radically and to design ‘a trusted, modern tax system that is simpler, easier to navigate and more responsive to taxpayers’ needs’. To deliver on that ambition will need stakeholder engagement, investment in technology and a willingness – by all – to think outside the box.
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