Call to improve administration of tax reliefs

Taxpayers are missing out on claims for tax reliefs because of the complexity of applying, and HMRC should enhance the functionality of digital tax accounts and streamline expenses claims to improve take up, according to a report from the Office of Tax Simplification (OTS)

Almost all of the UK’s 1,190 tax reliefs require that the taxpayer makes a claim to receive the relief.

In its report, the independent body looked at how the administrative processes for making claims and elections could be simplified, across income tax, corporation tax, capital gains tax (CGT) and VAT.

It makes 15 recommendations, both on general areas that would help to improve the operation of claims and elections across the tax system and on specific claims and elections where processes could be simplified.

The two most significant areas, which would benefit the most people, concern the functionality of HMRC online tax accounts and reducing the number of categories of employee flat rate expense claims. 

The OTS said HMRC should increase the functionality of the personal tax account and the business tax account (including the forthcoming, merged, single digital account), including adding the ability to make more claims and elections within the account and store information and supporting documentation about them.

It should also make changes to employee expenses to improve the process of making a claim as well as reducing the number of different levels of flat rate expenses that have to be considered.

Over 5m employees each year currently claim tax relief on expenses not reimbursed by their employer.

The OTS suggests that the government explore moving to a system where there are a small number of rates (for example to just a standard and higher rate, of perhaps £80 and £120), and streamlining and updating the list of industries and professions to make it easier to navigate.

The OTS also suggests that it could be significantly simpler for taxpayers if employers were to notify HMRC directly of any employees who are entitled to claim flat rate expenses.

The OTS suggests that the government and HMRC should ensure consistency in time limits for amending claims and elections, so that they are the same whether it is made within or outside a return.

It is also critical of HMRC’s online forms, which it says many taxpayers find hard to fill in. Two particular reasons for this are that users often cannot see what information will be needed before starting to complete the form, and that the forms cannot be saved part-way through and then returned to.

The OTS said that in the case of more complicated forms, adding screenshots to a user guide would also be helpful. The addition of a free text box on some digitised forms, and the ability to upload documentation in support of a claim, were also raised as beneficial changes which would be likely to reduce subsequent correspondence.

HMRC does not presently take a consistent approach to whether forms need a wet signature and the OTS has heard that the need for one can cause delays, especially if a taxpayer is overseas.

Bill Dodwell, OTS tax director, said: ‘Millions of people make claims and elections every year, however there are still those who aren’t making claims for all that they are entitled to.

‘Claims for employee expenses are a particular focus, together with claims for higher rate relief for pension contributions and gift aid donations.

‘We welcome the commitments that the government set out in its recent vision for the future of tax administration, including the introduction of a single online tax account that is capable of doing more.

‘Increasing the functionality of the personal tax and business tax account, as recommended in this report and in our tax reporting and payment arrangement report, would significantly ease the process for many people.

‘This report also recommends changes to employee expenses, which would help employees understand what they are entitled to, as well as simplifying the process so that more people are easily able to make such claims themselves when they would like to.’

Ruth Stanier, HMRC’s director general, customer strategy & tax design, said: ‘HMRC is committed to making it easy for taxpayers to get their tax right including making it as simple as possible for taxpayers to claim the relief to which they are entitled.

‘We will carefully consider the recommendations in the report which will help inform our future work on building a trusted, modern tax administration system.’

The OTS is holding a webinar from 10am to 10:45am on Wednesday 21 October 2020 to outline the findings of the review in more detail and to respond to online questions from participants.

Useful links:

To register go here

OTS Claims and Elections review

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