HMRC Announces New Digital Strategy

HMRC has announced its new digital strategy which aims to improve the efficiency of paying taxes whilst making use of new digital capabilities. Some have voiced concerns about the changing role of tax agents, although HMRC have explained they are actively engaging with representative bodies of agents and stakeholders to ensure the new strategy is considerate of both the taxpayers and the agents.

HMRC currently provides a public service to all taxpayers and the new digital environment has to be capable of providing this and more. All taxpayers, individuals and businesses, will have a digital tax account in which all their tax affairs will be managed. Whilst this will simplify some processes, it is expected that taxpayers will still want to engage an agent regardless of the new system’s capabilities and efficiency.

Changing role of the tax agent

The digital accounts are not expected to interrupt the relationship between the client and the agent. The taxpayer will give their agent access to manage their account on their behalf. Businesses will also have the opportunity to pass their tax affairs to agents to manage. The role of the agent is expected to change in terms of providing additional business advice and added value. This is a negotiation that will need to be made between the individual and their adviser.

Categorisation of tax agents

The proposed categorisation of agents to be announced in full within a guidance document from HMRC once finalised. It is expected the categorisation will be implemented by a set of professional standards. This will then mean that some services are managed dependent on meeting minimum requirements in a standard framework. The new digital strategy hopes to promote high standards and is aware that this could influence agents’ business models.

This categorisation will be risk-based using objective criteria. Compliance and performance will also be monitored and intervention will be made if necessary. No specific targets have been set as yet; it is expected this will be announced following cooperation with representative bodies.

Phasing out tax-returns

George Osborne’s announcement that the tax-return will be phased out is likely to be completed with the pre-population of tax return data. HMRC plans to use the data already held to pre-populate tax return forms so that taxpayers do not have to send repeat information each year. Full guidance on how this will be managed will be given and tax administration for individuals and businesses will be transformed. The question of information security will be addressed by tax agents using their own credentials to access individuals’ accounts where they have been granted permission. Once all these processes are in place, this should mean the end of self-assessment filing or deadlines.

These changes will still require taxpayers to inform HMRC of their taxable income and to ensure HMRC have all information needed to calculate tax liability. For larger businesses or those with more complicated accounts might need to reconcile their data at the end of the year.

Annual returns with digital accounts

Completing annual returns should be less of a burden with the introduction of the digital accounts; the new system will give the opportunity to report information at any time rather than at specific times. This is expected to encourage taxpayers to be more efficient with managing their affairs because the additional convenience of anytime reporting should encourage client to complete their obligations in a timely manner.

However, expectations that the digital accounts will make the tax system easier to navigate and simpler to use is true to a point. Ultimately, the complexity cannot be reduced without simplification of processes and high-profile reforms to tax administration, like those announced by the Chancellor in the Summer Budget.

Timing of implementation

The timetable for implementation will be staggered. All businesses are expected to have access to their digital accounts by early 2016. Individual accounts are currently being tested by volunteer agents for PAYE liability and payment services. This will be extended to self-assessment, VAT and corporation tax in 2016.

Overall, this digital strategy should permit improved engagement with HMRC for individuals and agents as well as more accurate work. Efficiency and productivity should also be improved, so that phone calls and post is no longer required for basic issues. Similarly, the services will be available 24/7 which should give HMRC advisers more time to spend with complex affairs and monitor those who deliberately do not comply.