HMRC continues to develop the prompts that were promised as one of the benefits of the Making Tax Digital programme. Caroline Miskin provides a progress update.

Digital prompts are specifically tailored real-time messages appearing in software, aimed at helping taxpayers avoid errors and omissions in their returns. Prompts are sometimes confused with nudges, which are more general messages to taxpayers about problem areas in tax returns. Nudges are outside the preparation of the return, although those too may be targeted at specific taxpayers or groups of taxpayers.

HMRC has already deployed digital prompts in services such as income tax self assessment (ITSA) and VAT returns filed using HMRC’s own software. HMRC is also working on more sophisticated ‘intelligent prompts’ and with commercial software providers on incorporating prompts into their software.

Prompts in HMRC software

HMRC has trialled a number of different error-correction prompts and ‘upfront honesty declarations’ on VAT returns and certain sections of the online ITSA return. Where successful, prompts are rolled out to all users. Where outcomes are ambiguous or give unexpected results, they are redesigned or switched off to minimise grit in the process.

The trials of upfront honesty declarations in VAT returns proved to be successful, but similar declarations in specific sections of the ITSA return proved inconclusive. Typed-name declarations gave slightly better results than tick-box declarations, but they are more contentious and have been removed following concerns expressed by professional bodies about their use where agents are filing the return. One tick-box declaration will remain live in the capital gains section of the 2019/20 ITSA return.

An error prompt concerning relief for residential property financial costs generated additional revenue of £13.4m and is now part of the 2019/20 ITSA return.

A trial of a VAT Flat Rate Scheme error prompt showed evidence of positive behavioural change but will be rerun because of a slight concern over possible bias in the selection criteria.

A new prompt around flat rate expense claims by employees is being trialled in the 2019/20 ITSA return.

HMRC is developing several prompts relating to the reporting of coronavirus support scheme grants to remind recipients of the correct tax treatment of the grants.

Intelligent prompts

Intelligent prompts use data from various HMRC systems and prompt taxpayers in real time, with a personalised message, as they complete the return. The two prompts that have been developed are:

Where the number of let properties entered in the property section of the online ITSA return increases or decreases, compared with the previous year. If the number reduces, a prompt about the possible need to report a capital gains tax disposal is triggered. Where the number increases, a prompt about claiming income tax relief for revenue costs only is displayed.

Where HMRC holds common reporting standard/FATCA data about a taxpayer. This prompt preselects the foreign income section of the return and reminds the taxpayer that HMRC receives data from over 200 countries.

Both prompts are expected to go live in time for peak filing of 2019/20 tax returns. Further prompts may be introduced for 2020/21 returns.

Commercial tax software

ICAEW and other professional bodies have queried why HMRC has put resource into prompts in the software it provides when it is moving towards mandating the use of commercial software for Making Tax Digital for VAT and ITSA. The work that HMRC has done to date has allowed it to test the impact of prompts and, in many cases, the immediate yield to the exchequer has justified the effort.

HMRC plans to start testing the development of prompts in commercial software before the end of 2020, working with volunteer members of the Business Application Software Developers Association to do some trials using the successful prompts that have been developed in HMRC legacy systems. Once the results have been evaluated, HMRC intends to release the prompts for voluntary adoption by developers, and in due course may mandate adoption of some prompts.

About the author

Caroline Miskin Technical Manager at the Tax Faculty, with responsibility for practitioner matters including Making Tax Digital