As part of its Making Tax Digital (MTD), HMRC have published a consultation, ‘Making Tax Digital: Transforming the system through the better use of information’. This describes how HMRC intend to make more and better use of third party information.
Key highlights are:
- Businesses and taxpayers will never have to tell HMRC information that it already has.
- HMRC will use third party information it collects as efficiently as possible to enable quicker handling of under and over payments of tax.
- From October 2016, HMRC will start ‘coding out’ tax on bank interest through the PAYE code, based on the previous year’s bank interest declared.
- From April 2017, PAYE RTI and information from pension providers will be used to calculate tax on a regular basis to identify over and under payments as soon as possible and allocate allowances across income streams during the year.
- From April 2018, HMRC will start ‘coding out’ tax on bank interest and other common sources of income through the PAYE system based on the up-to-date information held by HMRC.
- Default position will be to collect tax through PAYE where possible, with an opt out for taxpayers if they would prefer to pay the tax separately.
- Payroll software will automatically update the tax code changes to avoid unnecessary administrative burden for employers.
- HMRC will have minimum data standards which third parties will keep to, to ensure the right information is attributed to the correct taxpayer’s digital tax account.
- HMRC will not keep third party information for longer than necessary to complete its function in the digital tax account.
- HMRC will not collect historical data from third parties.
- HMRC will be open and transparent about the information used and the source of that information. They will only process the minimum amount of information that is required. The digital tax account will make it clear what has been used to complete the tax calculation, for example a list of every bank account used in calculating interest.
- A check and query function will be included in the digital tax account for taxpayers to query information HMRC has obtained.
- HMRC’s ambition is to have third party information and the digital tax software to work together to minimise the amount of information required from taxpayers in order to ‘do their taxes’.
- HMRC’s next aim is to try and obtain additional third party sources, such as dividend income and shares; peer-to-peer lending income; and income from property.
The consultations will run until 7 November 2016. HMRC’s response will be published at the Autumn statement with comments on how the responses will influence the future design work.
Consultation questions:
- Question 1: Where events during the year result in a change to a customer’s tax projection, what is the appropriate format and regularity of notification that HMRC should send to employers and customers?
- Question 2: Have you any suggestions for how we present third party information in your digital tax account in a way that will make it easier for you to understand your tax?
- Question 3. If you are concerned over privacy impacts of HMRC’s plans for improving how we use third party information we already receive, do you have any suggestions for how these concerns could be resolved?
- Question 4: If a third party information provider is aware of how the ownership of a joint asset is split, do you think the third party provider should inform HMRC?
- Question 5: Information providers will want to keep their customers fully informed about the information they provide to HMRC (and have a responsibility to do so under the Data Protection Act 1998). Do you think there should be a standard approach, or should information providers design the best approach to meet the needs of their particular business and customers?
- Question 6: Do you have any preferences for how you would like to be kept informed by third party information providers?
- Question 7: Do you think there are any additional safeguards we should consider in relation to the protection and use of third party information by HMRC?
- Question 8: Do you agree with the principles we have set out for how information queries should be resolved? What are your expectations for how this would work in practice?
- Question 9: How can we best align HMRC’s third party information requirements with information provider’s circumstances? For example, with other standards information providers need to meet; other regulatory change; internal business processes and requirements.
- Question 10: If you currently provide information to HMRC at year-end what would be the impact of moving to a more frequent in-year process, assuming that HMRC is able to align to your circumstances as described above?
- Question 11: We have given you a high level introduction to the standards necessary to make the exchange of data efficient and dependable. Do third party providers foresee any specific challenges in adopting standards along these lines?
- Question 12: What opportunities do current and potential information providers and software providers see for a stronger partnership with HMRC to enhance our customer experience?
- Question 13: What new sources of third party information would most enhance the customer experience and best contribute to the aim of ending the tax return for all?
- Question 14: How can we best open up discussions and begin to work with new potential information providers who are not currently providing information to HMRC on a regular basis?
Responses should be sent by 7 November 2016, by e-mail to
Links
External:
HMRC consultation: ‘Making Tax Digital: Transforming the system through the better use of information’