HMRC has published a response to its consultation ‘Simplifying and modernising HMRC's Income Tax services through the tax administration framework’. Several improvements and legislative changes are planned to promote a 'digital by default' approach and improve systems around tax codes.
The Original consultation, which ran until 7 June 2023, set out the Government’s plans to modernise Income Tax services covering Pay As You Earn (PAYE) and Income Tax Self Assessment (ITSA).
39 written responses were received.
- The proposal for further digitalisation was generally welcomed, but respondents cautioned against moving too quickly as taxpayers would need time to adjust to the changes.
- It was generally agreed that a simple method of requesting paper forms was needed.
- Limited agent access to relevant digital services and client information via HMRC IT systems was cited as a barrier to accessing digital forms, resulting in a continued reliance on paper forms and letters.
- Issues around the complexity of the Government Gateway log-in and identity verification processes were also raised as a difficulty, causing paper options to be preferred.
- Respondents expressed concerns about how taxpayers would be notified of a move to digital.
- A majority suggested that the benefits to PAYE taxpayers of going digital should be better advertised, such as receiving PAYE refunds quicker.
- It was also suggested that simplifying the sign-up process and increasing functionality would increase take-up.
- It was generally felt that tax codes worked well for the majority of the PAYE population, but they did not always reflect employees’ current circumstances and could sometimes fail to keep pace with changes.
- This was particularly noted as being the case when an individual moved jobs part-way through a month.
- No viable alternative to tax codes, that could deliver everything tax codes do, was suggested.
- There was broad support for a requirement for new ITSA registrations to be made online, with a digital by default approach for subsequent notices to file.
- Respondents identified a general lack of awareness of the need to file an ITSA return.
- In many cases, it was suggested that taxpayers exercised the right to send a tax return because they were unsure whether they met the criteria, whilst others felt that filing a tax return was simpler than coding out via PAYE.
Next steps
Legislative changes to facilitate the move to digital channels are being explored. These will:
- Allow specified correspondence to be sent to taxpayers digitally by default, unless the taxpayer elects to receive paper communications.
- Require taxpayers to provide and update electronic contact details (where they have them) when transacting with HMRC.
- HMRC will explore how this information can best be collected at points when taxpayers are already transacting with HMRC.
- Allow HMRC more flexibility in how and when it communicates tax code changes to taxpayers.
- This might include providing details of changes digitally, with links to guidance to assist taxpayers in understanding what their tax code means.
For PAYE taxpayers, HMRC is making improvements to update tax codes more quickly, to reflect a change of job or change of circumstance.
- Guidance explaining How a tax code is generated is being redesigned such that it is based around life events such as starting a first job, having multiple jobs, or changing jobs.
Changes were Announced in January 2024, including:
- The design of a new online service for Employees to claim tax relief on all of their expenses in one place.
- Mandatory Payrolling of Benefits In Kind via payroll software from April 2026.
HMRC’s ambition is to build a digital self-serve tool that will allow employees to notify HMRC digitally of any non-PAYE income and new employment benefits and to claim expenses and allowances. It is likely that this will also allow Dividend income to be declared so that the tax on it can be collected via PAYE.
HMRC are undertaking a review of the ITSA criteria and associated guidance. This will be completed before considering any legislative change.
- In the interim, there will be a simplification of the process for taxpayers who become liable to the High-Income Child Benefit Charge (HICBC). Details of how the HICBC can be paid via a person’s tax code will be provided in due course.
- It was announced at the 2023 Autumn Statement that, for 2024-25, individuals with income taxed only through PAYE will no longer be required to file a Self Assessment return, even where they earn over £150,000.
Useful guides on this topic
Do I have to file a tax return?
When does an individual need to file a tax return? In what circumstances do HMRC need to be notified that a tax return is required?
What is the 2024/25 PAYE Code?
What is the 2024-25 PAYE tax code? What do the different types of tax code suffixes mean?
Annual expenses for employees: How to claim
A guide to explains the different ways employees can claim tax relief for the employment expenses they incur as part of their jobs.
Payrolling of benefits
The value of certain taxable Benefits In Kind can be included in taxable pay when calculating the PAYE deducted from payments of wages and salaries to employees.
Dividend tax
This practical tax guide explains how dividends are taxed. It includes HMRC's own examples, more detailed examples, including an Owner Managed Business (OMB) section together with tax planning tips.
Collecting tax debts via PAYE
When can HMRC collect tax debts via PAYE? What are the limits?
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