2 February 2021: The Office of Tax Simplification and HMRC are considering how data from third parties could reduce the administrative burden on taxpayers. ICAEW’s Tax Faculty wants to hear members’ views.

On 27 January, the Office of Tax Simplification (OTS) launched a call for evidence on third-party data provided to HMRC, as part of its review into making tax easier for people through smarter use of such data.

The use of third-party data also forms part of HMRC’s ongoing tax administration framework review, and the Tax Faculty is urging members to share their views to support ICAEW’s engagement with the OTS and HMRC.

Third-party data used now

HMRC’s use of third-party data, including pre-population of tax returns, has been under consideration for many years.

An HMRC consultation in 2016 (ICAEW representation 176/16) was followed by some limited changes including:

• Simple assessment which is used for some taxpayers whose affairs are straightforward and would otherwise have needed to be in self assessment.
• Dynamic coding, where payroll data is used to collect more underpayments through the PAYE system during the year.
• Use of bank and building society interest data for PAYE taxpayers who are not in self assessment.
• Pre-population of employment data in HMRC’s self assessment software and to a limited extent to pre-populate a small dataset including employment data in commercial self assessment software.

These changes, limited as they are, have not gone smoothly. The self assessment pre-population APIs are extremely unreliable and need significant further investment by HMRC before they work properly.

HMRC’s limited use of bank and building society data for PAYE taxpayers has highlighted the need for a unique taxpayer identifier, which would need to be shared with payers. National insurance numbers are not available to everyone and so do not currently work as a unique identifier.

While low interest rates and the personal savings allowance have minimised the impact of this change, the process for correcting inaccurate data held by HMRC is reported to be very cumbersome.

Meanwhile, dynamic coding has caused problems as the process is not sufficiently sophisticated. For example, it cannot recognise one off bonuses.

Lessons to be learned

ICAEW’s Tax Faculty believes that while these experiences suggest there is great potential in the use of data from third parties, HMRC needs to proceed with caution. In particular it will need to consider further the need for:

• a unique taxpayer identifier;
• cross-government department data sharing;
• sufficient investment in HMRC’s systems and processes that use the data;
• an easier way for taxpayers and agents to correct inaccurate data; and
• the granularity of data HMRC wishes to hold. For example should HMRC be seeking to hold a record of interest at account level or dividends by company or invest fund?

There will also be an ongoing need for even greater security when sharing data, as more is known about individual taxpayers by the third parties who will be asked to provide the data. Significant costs may be incurred by the data providers.

Share your views

The OTS call for evidence is considering third-party data that is already provided to HMRC, rather than new types of information. The OTS also considered this type of data in its 2019 review of tax reporting and payments.

HMRC’s tax administration framework review, meanwhile, is broader and longer term. It will consider “smarter use of data on taxpayers and their activities – pre-population of tax returns, including with data from third-parties”, potentially including data that HMRC does not currently hold.

ICAEW would welcome feedback from members, initially on the questions posed by the OTS. The deadline for responses to the OTS is 9 April 2021, but the Tax Faculty expects to meet the OTS before then to discuss the review so comments would be welcome as soon as possible. Send your views to caroline.miskin@icaew.com.