HMRC’s ten-year plan for the digital transformation of tax administration was set out in Building a trusted, modern tax administration system in July 2020. MTD is just one component of that plan; another is the single customer account (SCA). The Office of Tax Simplification has highlighted the importance of the SCA in several reports (including its July 2021 report Making better use of third-party data) and in its recent evaluation note on the topic, it describes the SCA as the ‘keystone’ of digital transformation. I agree with that assessment.
MTD is acting as a catalyst for the adoption of digital technology for record keeping by businesses and as their API-enabled link with HMRC. Meanwhile, HMRC is progressively moving data onto its enterprise tax management platform (ETMP). Consolidation onto ETMP will facilitate a more joined-up approach to data management and use. The single customer record will capitalise on this, enabling taxpayer-specific data to be mirrored in the SCA. This transformation holds the potential to personalise the experience a taxpayer has of tax administration to a degree that has hitherto been impossible ‘to view their tax position and tell HMRC anything they need to know trough a single online account’.
For many businesses – especially the very smallest – MTD inevitably feels like an imposition, a one-way flow of information from them to HMRC and from which they gain nothing. That perception can be changed by making information flow the other way, through prompts and nudges, to help businesses avoid errors and secure reliefs: something that was promised explicitly when MTD was launched at the end of 2015 and delivery of which is vital to MTD’s success. The SCA can take this two-way flow concept much further and could, I believe, be transformative.
So far, the government has committed more than £200m to the development of the SCA but, as the OTS points out, significant commitment and continued funding will be needed over several years to develop a mature product. The prize is ‘the potential to greatly improve the tax experience for 32 million individual taxpayers while also creating significant efficiency and cost savings for HMRC’.
The vision the OTS has for the SCA is that it should go well beyond a simple merger of the current personal tax and business tax accounts and incorporate additional functionalities, such as the capacity to facilitate the use of increasing amounts of third-party data, act as a hub for claims and elections and deal with CGT. In the evaluation note, the OTS recommends that HMRC should provide an indicative roadmap setting out key development stages and functionality, that it should overhaul the PAYE system to ensure that the PAYE and SCA systems are properly aligned and that the SCA should dovetail with HMRC’s agent strategy to ensure that appropriate access is built in from the very beginning.
The UK tax system, like many others, relies on the willingness of taxpayers to be compliant. That willingness is, in my view, built not just on trust and a natural desire to do the right thing, but on experience of the system. The more a taxpayer feels that the system is easy to interact with and designed to help them comply with their obligations and receive their entitlements, the stronger the trust becomes. Prompts, nudges and personalised support can reinforce that perception and so can helping taxpayers avoid penalties.
The new points-based late-filing penalty regime is fairer but far more complex than the regime it replaces. It brings with it a significant increase in the number of occasions on which a penalty can be triggered, from five a year to 15 a year in the case of a self-employed, VAT registered individual with property income. Digital technology could and should be used to alert taxpayers and to help them avoid accruing points. The SCA could be a key enabler of this proactive approach.
So, while MTD is an important building block, the SCA is well described as the keystone of HMRC’s digital transformation of tax administration. If everything is built around it, a more personalised system is possible, with benefits for HMRC, businesses – and indeed those 32m individual taxpayers cited by the OTS.
HMRC’s ten-year plan for the digital transformation of tax administration was set out in Building a trusted, modern tax administration system in July 2020. MTD is just one component of that plan; another is the single customer account (SCA). The Office of Tax Simplification has highlighted the importance of the SCA in several reports (including its July 2021 report Making better use of third-party data) and in its recent evaluation note on the topic, it describes the SCA as the ‘keystone’ of digital transformation. I agree with that assessment.
MTD is acting as a catalyst for the adoption of digital technology for record keeping by businesses and as their API-enabled link with HMRC. Meanwhile, HMRC is progressively moving data onto its enterprise tax management platform (ETMP). Consolidation onto ETMP will facilitate a more joined-up approach to data management and use. The single customer record will capitalise on this, enabling taxpayer-specific data to be mirrored in the SCA. This transformation holds the potential to personalise the experience a taxpayer has of tax administration to a degree that has hitherto been impossible ‘to view their tax position and tell HMRC anything they need to know trough a single online account’.
For many businesses – especially the very smallest – MTD inevitably feels like an imposition, a one-way flow of information from them to HMRC and from which they gain nothing. That perception can be changed by making information flow the other way, through prompts and nudges, to help businesses avoid errors and secure reliefs: something that was promised explicitly when MTD was launched at the end of 2015 and delivery of which is vital to MTD’s success. The SCA can take this two-way flow concept much further and could, I believe, be transformative.
So far, the government has committed more than £200m to the development of the SCA but, as the OTS points out, significant commitment and continued funding will be needed over several years to develop a mature product. The prize is ‘the potential to greatly improve the tax experience for 32 million individual taxpayers while also creating significant efficiency and cost savings for HMRC’.
The vision the OTS has for the SCA is that it should go well beyond a simple merger of the current personal tax and business tax accounts and incorporate additional functionalities, such as the capacity to facilitate the use of increasing amounts of third-party data, act as a hub for claims and elections and deal with CGT. In the evaluation note, the OTS recommends that HMRC should provide an indicative roadmap setting out key development stages and functionality, that it should overhaul the PAYE system to ensure that the PAYE and SCA systems are properly aligned and that the SCA should dovetail with HMRC’s agent strategy to ensure that appropriate access is built in from the very beginning.
The UK tax system, like many others, relies on the willingness of taxpayers to be compliant. That willingness is, in my view, built not just on trust and a natural desire to do the right thing, but on experience of the system. The more a taxpayer feels that the system is easy to interact with and designed to help them comply with their obligations and receive their entitlements, the stronger the trust becomes. Prompts, nudges and personalised support can reinforce that perception and so can helping taxpayers avoid penalties.
The new points-based late-filing penalty regime is fairer but far more complex than the regime it replaces. It brings with it a significant increase in the number of occasions on which a penalty can be triggered, from five a year to 15 a year in the case of a self-employed, VAT registered individual with property income. Digital technology could and should be used to alert taxpayers and to help them avoid accruing points. The SCA could be a key enabler of this proactive approach.
So, while MTD is an important building block, the SCA is well described as the keystone of HMRC’s digital transformation of tax administration. If everything is built around it, a more personalised system is possible, with benefits for HMRC, businesses – and indeed those 32m individual taxpayers cited by the OTS.
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