The ICAEW welcomes the HMRC’s vision of a more flexible and responsive tax system outlined in the Tax Administration’s Framework Review, but warns that significant challenges, such as creating a single identifier for taxpayers and consolidating tax systems, can only be achieved with adequate resources from the HMRC can be mastered.
To conclude the consultation on the Tax Administration Framework Review (TAFR), the ICAEW identified three basic building blocks that will be needed to underpin the tax system going forward and called on the government to ensure that the HMRC has the resources to to implement the change required.
Ambitious plans need clear funding
The Tax Faculty of the ICAEW has been reviewing and discussing the ambitious TAFR proposals since their publication on March 23rd with members.
There is agreement that a more flexible and responsive tax system is to be welcomed, but the overwhelming opinion remains that the HMRC should be adequately resourced if this opportunity is to be used to the full.
Iain Wright, ICAEW Managing Director, Reputation and Influence, said: “We are delighted that HMRC has asked for opinions on how the tax administration can be reformed to support a modern UK digital tax system.
“We have identified three building blocks that need to be in place to facilitate future changes: a single personal identifier used in all UK tax and benefit systems, better processes for registration, authentication and authorization of tax agents and for everyone Set income taxes, social security and capital gains tax liabilities in one system. However, we believe that the starting point should be a significant simplification of the underlying tax rules before reforming the administration.
“HMRC will need very significant additional resources and funding if it is to be able to deliver on the ambitions of its 10 year tax administration strategy. Good administration is essential to collecting the taxes necessary to run the economy, so the government must view the investment in transforming HMRC systems as a long-term infrastructure investment. “
Basic building blocks
In the ICAEW’s response, published as ICAEW REP 65/21, the Tax Faculty identified three basic building blocks that need to be in place to support the tax administration and enable more broad changes in the future:
1. A single identifier for individuals
The Tax Simplification Office has proposed expanding National Insurance Numbers (NINOs) to include anyone who needs them. The ICAEW sees this as an advantage, as the NINO is probably the best-known identifier, although its connection to the performance system would have to be checked.
2. Registration, authentication and authorization of agents
HMRC needs funding to develop a single agent registration, authentication and authorization system in order to provide a solid foundation on which HMRC can develop digital agent services and which would also facilitate its work on agent standards.
3. Consolidation of systems.
Set income tax and social security contributions, whether they are PAYE or self-assessed, and all capital gains tax (CGT) liabilities (e.g. including UK home ownership) in a single system.
Simplification must be the first step
The existing tax administration framework implements many complex areas of tax law and practice that have evolved over many years. First, a simplification of the underlying tax rules is needed so that the new management system can be built for a simpler system.
Some work is already in progress on this simplification, including the possible reform of the base periods and the examination of whether the tax year end on April 5 is an obstacle to digitization. However, this simplification needs to be done and implemented before changes can be made to the tax administration.
The faculty also warns of the risk that changes of this magnitude will affect work already in progress in a very short time. The time and cost required to meet the requirements of Making Tax Digital, for example, should not be underestimated. This one initiative requires fundamental changes in accounting and processes for companies moving to digital records.
In its response to the TAFR, the Faculty outlined a number of key areas that address taxpayer and agent registration, debt reporting and calculation, tax payment and repayment, and the powers and safeguards of the HMRC.
- The key to the tax administration framework is to confidently identify all taxpayers dealing with the system. The UK currently uses several different identifiers for different purposes and it would be helpful to double-check and use a single unique taxpayer identifier where possible.
- A single identifier should be designed so that it is suitable for data exchange across international borders.
- Individual taxpayers need a smoother and more timely registration process with improved authentication and authorization for the agents representing them.
Read about the ICAEW’s response to TAFR on Taxpayers and Representative Registration.
Reporting and calculation
- Greater digitization of the tax system harbors efficiency opportunities, but also harbors risks such as the interception of sensitive data by third parties.
- The only digital account / customer file is intended to provide taxpayers with a uniform and complete financial picture and to bring together various taxes and data sources. However, it can only do this if the administration and collection of social security and the CGT are also taken into account. The current rules for CGT’s 30 day reporting are not good enough.
- It must be easy for taxpayers to challenge incorrect information submitted to HMRC by third parties. Taxpayers should not be held liable if this information is incorrect.
Read more about the ICAEW’s response to TAFR on reporting and calculating tax liabilities.
Payment and repayment
- The PAYE real-time information system continues to struggle with the issues identified during its review after implementation in 2016. PAYE codes are overloaded with adjustments, making them difficult for taxpayers to understand and often containing errors.
- HMRC’s PAYE records must be correct. Many employers are unable to reconcile their liabilities and payments with HMRC’s records, and differences between the HMRC and DWP numbers have created problems, especially for universal loan applicants. The departments should work together to share data so that taxpayers receive full service on their taxes and finances.
- Taxpayers’ statements are very difficult to understand, especially when it comes to down payments, the collection of amounts according to tax codes and interest. Better, more regular invoices and reminders within digital tax accounts would contribute to greater clarity.
- Taxpayers should have the right and access to offsetting and allocating payments to specific tax liabilities.
- Earlier payment of taxes based on estimates during the year may not be made until HMRC can demonstrate that it can be made accurate enough to provide a basis for payment.
Read more about the ICAEW’s response to TAFR regarding the payment and refund of taxes.
Powers and Guarantees
- ICAEW Tax Faculty members would like to see greater cooperation between HMRC and taxpayers / their representatives, particularly with regard to inquiries.
- This could be helped by HMRC sharing tax-related information it has about taxpayers and speaking openly and transparently about their concerns about the tax returns they submit.
- Any additional investigative powers granted to HMRC must be complemented by additional rights and guarantees of taxpayers, and HMRC should make these rights and guarantees clear in its correspondence with taxpayers.
Read about the ICAEW’s response to TAFR on HMRC’s powers and taxpayer protections.
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