The Government has published a summary of responses to the consultation ‘The Tax Administration Framework Review: New ways to tackle non-compliance’. It explored ways to simplify and modernise HMRC’s approach to correcting taxpayer inaccuracies.
The consultation, The Tax Administration Framework Review: New ways to tackle non-compliance, was published on 30 October 2024 and the latest document summarises responses received and the Government’s next steps.
The consultation explored the potential to modernise and reform HMRC’s response to increasing numbers of similar, relatively small mistakes, including those seen when claiming credits and reliefs. Four reform opportunities were covered:
- Amendments to conditions for making claims.
- The reform of Revenue Correction Notices (RCN).
- The introduction of a 'partial' enquiry.
- A new power requiring taxpayers to self-correct.
Naturally, respondents supported the simplification and modernisation of the tax administration framework. Although respondents saw the merit in reforming enquiry and assessment powers and harmonising powers across tax regimes, it was generally felt that HMRC needed the staff and systems to implement these ideas. Harmonising powers and processes across all the taxes should be done before any new powers are introduced.
Government response
The Government said it welcomed any views on reforms to HMRC’s enquiry and assessment powers, especially those intended to make it easier and quicker for taxpayers to put things right, while helping HMRC collect the right tax more effectively and efficiently.
As a result, HMRC will take forward several points for further consideration:
- The reform of revenue correction powers.
- How to approach taxpayer self-correction.
- Produce longer-term work to develop and test policy options to harmonise and simplify compliance powers across tax regimes.
The Government warned that fundamental reform would take time, but believed addressing the challenges HMRC faces in tackling compliance for high volume, low value risks more immediately.
- This includes reform of its revenue correction powers and exploring the most efficient approaches to taxpayer self-correction.
- Progressing these reforms will help address current operational challenges, while also offering benefits to taxpayers through easier routes of correcting errors and mistakes.
- Development of these initial reforms will enable the testing of the principle of greater simplification and harmonisation of compliance powers as part of the wider, longer-term work.
Responses
Amendment to the conditions for making claims
This section explored whether additional checks and more upfront information could help HMRC make better judgements when claims are made.
- Process, guidance and education
- Respondents noted that any changes that mitigated the risk of costly administrative burdens would need to be carefully designed with agents, rather than taxpayers, likely to have more information for submissions.
- There would be merit in increased upfront information requirements which would speed up processing and avoid later information requests.
- High Volume Repayment Agents (HVRA) should only be required to provide evidence under certain circumstances; for new HVRAs, for those with non-compliant behaviour and limiting certain areas of tax to only regulated agents.
- Timescales
- Changes to information provision needed to be realistic, with HMRC having adequate resources.
- Respondents also noted that providing supporting information up front could minimise the likelihood of an enquiry being raised, which are often seen as unduly lengthy.
- Technology
- There was support for a greater use of secure digital technologies while maintaining sufficient provisions for the digitally excluded.
- Some respondents promoted artificial intelligence-driven technology and smart data capture.
- Any system needs to be consistently available.
- Administrative burdens
- Administration burdens featured prominently amongst many respondents. It was felt that upfront evidence provisions were comprehensive, providing taxpayers with certainty that their claim, once processed, was fully accepted as valid, they might be willing to accept the accompanying administrative burden.
- Increased requirements could deter taxpayers from claiming reliefs they are entitled to due to perceived complexity, cost and the hurdles involved.
- Proportionality and usage
- Many respondents commented that the additional time and cost burdens should not outweigh the benefits to the taxpayer and HMRC.
- Information or evidence should be necessary and proportionate to the claim amount, with the ease of providing the information taken into consideration.
- Several respondents commented that a one-size-fits-all approach may not work.
- Capacity and capability
- HMRC must ensure they have sufficient resources and expertise to review the information provided.
- HMRC should make better use of the information it already has, and additional requirements should only be introduced where there is a gap.
- HMRC’s perceived current performance with similar information requirements, such as under the Research and Development additional information facility, was cited as a concern.
- Many respondents considered that the effectiveness of the Research and Development additional information facility should be evaluated before any new information requirement is implemented.
Reform of Revenue Correction Notice (RCN) conditions
- Harmonisation
- Many of the respondents recognised RCNs as a valuable tool that enable HMRC to make simple corrections quickly and easily, without the need for an enquiry.
- Most respondents supported aligning the methods of rejecting revenue corrections across the taxes, commenting that this might reduce errors and help taxpayers understand their rights and obligations.
- Respondents would welcome an extension of the time limits to reject Income Tax corrections, in line with Corporation Tax and Stamp Duty Land Tax.
- Many respondents raised concerns that RCNs were not being used appropriately and the inappropriate use of revenue corrections undermines trust in HMRC.
- HMRC explanations and taxpayer evidence
- There was support for the idea that there should be a requirement for HMRC to provide an explanation for a revenue correction.
- Clear explanations should already be standard practice.
- Views on whether there should be a mandatory requirement for taxpayers to provide evidence to support a rejection of a revenue correction were more mixed, with concerns that it could be an additional burden on taxpayers.
- Many respondents suggested that if taxpayers were required to provide evidence, then the time limit for them to reject Income Tax corrections must be extended beyond the current 30-day time limit.
- Some respondents questioned whether a mandatory requirement to provide additional information was necessary. and encouraged HMRC to seek such information on a voluntary and collaborative basis.
- Improving the process
- There were two key things to improving the revenue correction process. One was for HMRC to provide a clear and meaningful explanation of why a revenue correction was made. The other was for revenue corrections to only be used for obvious errors.
- It would be helpful if HMRC were to clarify the circumstances when a revenue correction was appropriate and ensure revenue correction notices were not used for more complex issues.
- There were requests for better guidance on dispute routes and the consequences to taxpayers of not taking action.
Introduction of a partial enquiry
- Concerns
- Some respondents considered that the case for partial enquiries had not been made, with many stating that it would add complexity within an already extensive tax statute. There were concerns that with the possibility of enquiries or compliance checks into other aspects of the return still being possible, this would increase uncertainty.
- To ensure that compliance checks are undertaken efficiently and expediently, it was suggested that HMRC review their advice, guidance, and training for compliance officers.
- Legislation
- Many respondents considered that legislation already provides HMRC with the ability to enquire into any part of the tax return without the need for additional legislation.
- The consensus amongst respondents was that HMRC can already close individual matters down using partial closure notices and discovery powers, and that introducing a new type of enquiry would risk duplication, adding unnecessary complexity.
- Implementation
- There were many comments around difficulties with implementation. Respondents felt an additional layer of intervention would complicate the compliance system further and lead to protracted, costly and administratively burdensome demands.
- Governance was noted as an area that needed careful consideration. The extent of HMRC’s ability to extend a partial enquiry into other areas of the return was noted as something that would need to be made clear and safeguards introduced.
- Possible use
- It was suggested that under a partial enquiry power, it should only be possible to have one partial enquiry opened into a specific return at a time.
- A full enquiry should not be opened until any partial enquiry has been closed, and multiple enquiries into the same tax return should not be initiated where a full enquiry would be more efficient.
- Timescales
- There was support for obligations being placed on HMRC to work within specified time limits, with realistic response deadlines for both taxpayers and agents.
- For HMRC to be able to adhere to such obligations, HMRC will need to allocate sufficient resources to ensure that this can be delivered.
- Some respondents felt that the ability of taxpayers to apply to the First Tier Tribunal to direct HMRC to close a partial enquiry and the ability to appeal HMRC’s conclusions and computations should be retained.
- More generally, respondents commented that it would be better to pause this suggestion until the whole enquiry and assessment regime is reviewed and modernised.
A requirement for taxpayers to self-correct
- Use of a new power
- Several stakeholders felt this approach to tackling non-compliance could be applied most effectively where HMRC did not have enough information to make a correction itself or where the error was less complex.
- Of those with mixed views, there was a strong consensus that the scope of the power was too narrow. It was suggested that a broader, more generalised requirement to correct would be the preferred approach.
- It would be better to have a general statutory requirement to correct within a specific time when the taxpayer becomes aware of any mistake in the entirety of their tax affairs, not just after HMRC prompt them.
- Merits, challenges, risks and benefits
- Many could see the merits of requiring taxpayers to respond to a new notice and that correcting their own return would be a quicker, more efficient and less intrusive alternative to the full enquiry for certain types of error.
- Some also stated that a statutory underpinning could remove the uncertainty inherent in the current informal approaches.
- There were concerns that if HMRC held any inaccurate information, they would send notices to taxpayers who shouldn’t receive them and there was a need for HMRC to be adequately resourced to manage and follow up on responses to the notice.
- Obligations and reasonable timeframes for taxpayers and HMRC
- There was consensus that the time limit for taxpayers to respond to notices, ordinarily 30 days, is too short. Most respondents suggested 60 or 90 days would be a more appropriate time scale.
- Several respondents proposed that timeframes should be harmonised across all notices, and that HMRC should not be able to issue a notice if the time limits for opening an enquiry, or assessment time limits had passed.
- Several common themes relating to obligations emerged across all responses. These included the need for simple and easily understood notices, robust guidance, and harmonised processes across as many taxes as possible.
- Impacts, costs and burdens
- There were concerns about the potential impacts, costs and burdens of introducing a new requirement to correct.
- A particular concern was that if the notice was for one issue for one year only, then correcting multiple mistakes spanning several years would be less efficient and more time-consuming for taxpayers.
- The need for careful targeting of notices was emphasised, along with the need for HMRC to improve its data analysis capabilities and a threshold test could be introduced.
- Consequences for non-compliance and incentives for compliance
- Many respondents had views on appropriate consequences for non-compliance with a notice with provisions already available to HMRC.
- Thought would need to be given to how such a requirement fits into existing penalty regimes.
- Where there is ambiguity or discontent with a response, or lack of response, HMRC should open an enquiry into the relevant return or investigate using its information gathering and assessment powers. Having certainty that an enquiry will follow if no response is received could provide taxpayers with a clear incentive to engage early.
- The majority of respondents highlighted that it would be unacceptable to impose penalties on taxpayers where no correction or amendment to any return is needed.
- When asked to consider what incentives HMRC could provide to encourage compliance with a notice, respondents suggested the ability to receive lower or reduced penalties which may ordinarily apply for inaccuracies, and assurance of no further checks into the specific risk.
- Any framework introducing these rules must guard against the risk that the incentivisation means taxpayers feel compelled to accept HMRC’s position regardless of whether it is correct.
- Safeguards
- There was emphasis on the importance of appropriate safeguards and suitable routes for statutory appeal or other means of dispute resolution.
- Honest taxpayers have a fundamental right to closure within a reasonable timeframe.
- Implementation
- There was a view that many of the issues raised in the consultation could be alleviated through better use of existing powers and critical to that was the importance of adequately trained HMRC staff and better use of resources.
- Respondents highlighted the need for a clear vision of how any new power would interact with future-focused HMRC programmes such as Making Tax Digital and digital transformations.
Useful guides on this topic
Penalties: Errors in Returns and Documents (subscriber version)
What penalties apply if you make an error or mistake? Is there a penalty if you fail to tell HMRC about an under-assessment? How are penalties calculated? How do you check penalties? What can you do if you receive a penalty?
How to appeal a tax penalty
What are the steps in making an appeal? What should your appeal cover? What does recent case law say on this topic?
Reasonable care and tax penalties
What triggers a tax penalty? What standard of care is expected from a taxpayer? What is reasonable care? When is an error careless?
Grounds for appeal: toolkit
What grounds are there to appeal a tax penalty? How can you word a tax appeal? Can you appeal HMRC errors? What is a reasonable excuse?
Statutory Review (by HMRC)
What is a Statutory Review? When does HMRC offer a Statutory Review? Is it automatic? What happens in a Statutory Review? Can you challenge a Statutory Review's findings? Can you influence a Statutory Review? When does HMRC offer a Statutory Review?
External link
Consultation outcome: The Tax Administration Framework review: New ways to tackle non-compliance – summary of responses