TAMD: HMRC’s review of tax administration
Summary of responses to HMRC’s recent tax administration consultation and a report on tax administration for large businesses are published.
Summary of responses to HMRC’s recent tax administration consultation and, a report.....
HMRC have published a summary of responses to their recent call for evidence, the Tax Administration Framework: Supporting a 21st Century Tax System, which was launched as part of Spring Budget 2021. HMRC also published a report on their review of tax administration for large businesses, which took place at the same time as the call for evidence. This article gives an overview of both publications. Among the key themes of the reviews were calls from stakeholders for greater certainty and transparency, and broad support for digitisation. In terms of next steps, HMRC have committed to developing a roadmap on the tax administration framework for future consultation and analysis. In addition, HMRC are launching new workstreams to support large businesses with mitigating uncertainty, changes to help long running enquiries, and improving the co-operative compliance experience.
The Tax Administration Framework: Supporting a 21st century tax system
This call for evidence, which closed in July 2021, was aimed at establishing how the UK’s tax administration could better support the following aims:
- Ensuring consistent obligations for people to enter and exit the tax system;
- Improving the way tax liabilities are calculated and assessed;
- Using data and information to make tax compliance effortless for the majority;
- Tax payments and repayments; and
- Building in effective methods of verification, sanctions and safeguards to promote compliance.
In the summary of responses, HMRC have highlighted the following key themes which emerged from respondents’ contributions:
Clarity, certainty & transparency: HMRC should be more transparent in their interactions with taxpayers, to give taxpayers a clearer picture of the information HMRC holds, and make better use of that information to improve taxpayer services. HMRC should provide greater certainty and clarity in both legislation and published guidance. There was a significant emphasis on ensuring that taxpayers could easily determine their tax liability and understand why HMRC request specific information. This was seen by many respondents as crucial for better financial planning and reducing unnecessary interactions with HMRC.
Fairness, trust: There was a disparity in treatment between different taxpayers. Some respondents highlighted the need for guidance to be clearer and broader so that all taxpayers are aware not just about their obligations, but also about the claims and reliefs to which they may be entitled. Some respondents suggested that HMRC could do more to support those who might not be able to afford professional advice. Respondents felt that a fairer system would help HMRC build more trusting relationships with taxpayers.
Digitisation: Many were also in favour of using the Tax Administration Framework Review to support digital reform to build a modern, digital tax system that is adaptable, resilient and responsive. These reforms included collecting more real-time information, increasing the use of pre-population and the development of the Single Customer Record and Account. Most stressed the need to support people who cannot use or struggle with digital technology.
In terms of next steps, HMRC say they will develop a roadmap for future consultation and analysis, “working with stakeholders to ensure this review balances careful, incremental reform with ongoing support for the Government’s 10-year vision for the tax system” (the summary of responses does not include a timeline for the development of the roadmap). The summary of responses also includes mention of certain specific initiatives which are ongoing and which will take account of the results of this consultation e.g. developing a single, digital account for all taxpayers; reforming income tax basis periods; using third party data and pre-population of tax returns.
All citizens at one time or another (for many, most of their lives) will interact with the tax administration system and it is likely that there will be widespread consensus with the calls for greater clarity, fairness (including accessibility) and trust in the face of an administration system that sometimes struggles to accommodate highly complex and voluminous tax rules.
The direction of travel towards digitisation is inevitable and a strategic approach from the Government, via the proposed roadmap for consultation and analysis, will be welcomed (as would a published timeline for the roadmap). It remains to be seen how significant complexity can best be married with an accessible, clear, digital administration system. Significant resources underpinned by investments in people and technology at HMRC will be required.
Review of Tax Administration for Large Businesses
HMRC also published their report of the review of tax administration for large businesses. This follows a consultation process, launched alongside the tax administration framework call for evidence, which involved dialogue with large business customers and large tax agent firms. The consultation focused on establishing how customers and agents experienced the operation of the tax administration system in their dealings with HMRC, predominantly through their work with HMRC’s Large Business Directorate and covering all taxes and duties.
HMRC’s report confirms that the discussion with stakeholders focused on the following areas:
- Tax risk and certainty;
- Compliance, enquiries and disputes; and
- The ‘co-operative compliance’ and ‘Customer Compliance Manager (CCM)’ model
HMRC report positive feedback from respondents in a number of areas: the way that HMRC had worked together with stakeholders in response to the pandemic (it was hoped that this would continue); generally, the UK tax administration system was viewed favourably internationally as part of the ‘top tier’; and the CCM model was considered positively in general, although there was a need for greater consistency of experience.
Respondents emphasised the need for reducing uncertainty across the whole system of taxes and duties. Complexity, continual change and long-running enquiries (in particular relating to transfer pricing) were emphasised as important negative drivers here. Timeliness was highlighted as key to help reduce uncertainty e.g. gaining up-front certainty, especially for high-value, one-off transactions where the outcome might be binary, in addition to more traditional tax clearances. The importance of published guidance was also noted as important here.
HMRC are launching workstreams in three areas in order to address the issues highlighted in the report, as follows:
- Mitigating uncertainty: additional investments will be made in two areas. One will build on the positive experience reported of the existing practical guidance published as part of the ‘Profit Diversion Compliance Facility’ and will be developed under the more general banner ‘Guidelines for Compliance’. The intention is to focus on providing additional clarity on HMRC’s assessment of risk, technical views and likely responses to specific areas. HMRC will also target improvements to existing published technical guidance. In both cases, focus areas will be identified via further consultation with stakeholders. HMRC expect to publish the results of this work mid to late 2022.
- Changes to help long running enquiries: working with external stakeholders, HMRC will establish new, objective indicators of long running enquiries and a clear and transparent process to accelerate their resolution. This will include providing businesses with the option to challenge long running enquiries. HMRC expect the work in this area to begin in early 2022.
- Improving the co-operative compliance experience: HMRC plan further consultation with stakeholders on priority areas identified (e.g. clarity, transparency, governance, dispute resolution), and look to make progress in 2022.
The issues highlighted in the report are likely to resonate as priorities with larger businesses and tax agents, and the report will be welcomed in that regard (particularly so for those businesses with complex, international operations). Some may be disappointed at the absence of any immediate operational changes and the relatively lengthy timeline put forward for next steps, which extends well into 2022. The commitment to continue consultation with stakeholders is positive and will be important to maintain focus on the right areas, build trust and sustain momentum.