In his March 2015 Budget Statement, the then Chancellor of the Exchequer George Osborne promised to ‘abolish the annual tax return altogether’.
A week, a month, three years are a long time in politics. Somewhere along the way, this promise has morphed into two computer-driven projects.
First, Making Tax Digital. This is a project which will, if realised in the way which its HMRC paymasters currently envisage, require individuals and businesses to file quarterly tax declarations online. Starting with VAT-registered traders in April 2019, this will eventually expand to everyone within the self-assessment tax regime. Ignoring Parliament’s concerns that the project is being rushed ahead much too fast, with regulations published before pilot projects have completed and lessons learned, HMRC’s main hope for this phase of the MTD project is that it will reduce errors in VAT returns and so increase the amount of VAT collected by the Treasury.
Second, at a later date, online tax return filing which is based on pre-populated tax returns provided to taxpayers by HMRC using data mined by what it once affectionately called its ’web-bots’ in a software suite known as Connect. Leaving aside the massive international concern arising from data-scraping by unscrupulous companies of Facebook members’ information, and the consequential issues regarding the public perception of Connect, we have to question whether it is safe for the tax authorities to rely on software in this way.
The peril of excessive reliance on software systems is illustrated by the recent adverse publicity suffered by HMRC in respect of the cancellation of income tax return penalty notices. This demonstrates that the department’s software simply cannot be trusted on its own to administer public taxes and to respond to the needs of individual taxpayers in a way which bears any resemblance to reality. Against this background, it’s disturbing to see the public statement from HMRC to the effect that it is not monitoring data regarding wrong penalty notices, because it is not persuaded that there is a business case to do so. But that’s only the half of it.
Across the English Channel, the French tax authorities are also embracing pre-filled tax returns. It appears that 500,000 pre-filled French tax returns for 2017 contain errors which understate the tax liability and so could expose French taxpayers to sanctions. This emphasises the importance that the software used by tax authorities must not only work as intended, but must be recognised by the population at large as working properly.
Large-scale software failures bring the tax system into disrepute and cause untold misery and anxiety (not to say time wasted and costs incurred) for the tax-paying public. History is full of examples of tax-collection systems which have fallen into disrepute when their systems fail, so fostering tax evasion.
If HMRC wishes to use Making Tax Digital and Connect to accelerate the timely collection of the correct amount of tax, it should learn from its own problems and from those of the French tax authorities. It should take time to ensure that MTD and Connect are fit for purpose. To do otherwise would be irresponsible, unjust and would exacerbate the tax gap.
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