Introducing the document Jesse Norman, financial secretary to the Treasury, said the changes of the past two decades, including better communications and increased customer expectations, meant that ‘the UK both can and must have a fully digital tax system able to support taxpayers across the full range of their needs’.
Norman said: ‘The strategic importance of this goal has been highlighted by the COVID-19 pandemic.
‘HMRC have risen magnificently to the challenge of delivering internationally renowned employment support schemes, in record time and with huge efficiency. But to do so they have had to deal with the constraints imposed by a tax administration system that is badly in need of renewal.’
The document highlights three elements to the strategy: extending HMRC’s Making Tax Digital online reporting system; looking at the timing and frequency of the payment of different taxes; and reforms of the tax administration framework.
A single digital account for all taxpayers that is easily accessible and secure is a key component of the government’s vision, with reporting, communications and payments moving closer to real time exchange.
HMRC will introduce increasingly integrated processes, drawing on information from business systems and validated third parties.
The strategy document suggests that with more timely data HMRC would have had greater flexibility in designing support schemes similar to those introduced during the pandemic, enabling a more flexible, inclusive and if needed, a more precise targeting of policy responses to a future crisis.
Alongside more frequent reporting through Making Tax Digital, the government is seeking to encourage public debate on exploring appropriate timings and frequency for the payment of different taxes.
Real-time information can be introduced without the automatic need to change the frequency of tax payments, but the government wishes to explore whether, over the longer term, tax payment should be brought more in to line with the increasingly real-time nature of tax reporting and other customer services.
Opportunities to modernise tax administration could include simplified registration processes, so that businesses need only register once with HMRC for all taxes, rather than navigating different rules, processes and deadlines for different taxes, and pre-population of tax returns, including with data from third-parties, to reduce the need for taxpayers and agents to submit additional information that HMRC either already holds or could verify itself.
The government intends to publish a call for evidence later in the year to help identify the range of reforms that could be required.
This is likely to cover how taxpayers are identified and registered by HMRC; how tax liabilities are identified, amended and assessed; the obligations on HMRC and taxpayers; penalties and sanctions; and taxpayers’ rights and safeguards.
HMRC will hold discussions about these plans and proposals over the summer.
Chris Sanger, EY’s UK head of tax policy, said: ‘This marks the second stage of the relay race that was triggered with David Gauke’s aspiration to abolish the tax return.
‘Today Jesse Norman pushes even further forward, placing HMRC at the heart of the relationship between the citizen and the government, starting the debate about reforming the system so that the immediacy of tax payments under Pay As You Earn can be achieved in other taxes.’
The Low Incomes Tax Reform Group (LITRG) welcomed HRMC’s direction of travel, but said it was critical to ensure that no-one is left behind in the move to an ever more digital system.
Victoria Todd, LITRG head, said: ‘HMRC recognise that some people will need more hand-holding than others in adapting to these changes and that there will be some who still need to deal with their tax affairs by more traditional means.
‘This acknowledgement is welcome, provided HMRC ensure that those traditional channels remain accessible in practice and not just in theory.’
Todd also highlighted proposals for third party software suppliers to work with the tax authorities to produce new, innovative services as potentially divisive.
‘Free software may be available, but it is likely to have much more limited functionality than paid-for versions.
‘This could risk even those who are able to engage digitally being left behind to the extent that they may not benefit from the extra functionality that digital engagement can offer (such as prompting claims for tax relief and so forth).
‘Full access to the tax system should not be based upon affordability of software.
‘We continue to urge HMRC to produce their own free software to help taxpayers comply with their new obligations.’
Building a trusted, modern tax administration system is here.