On the 23rd of March, dubbed by HM Treasury as “tax day”, a number of consultation documents were released. The idea is to “enhance the stability and effectiveness of the UK tax system by outlining a future pathway for its tax administration and tax policy development”.
One of the documents concerns the tax administration framework and asks consultees a range of questions (from how to assist taxpayers in entering or leaving the tax system to how the system for payments and repayments should be updated) about how the system can be updated for a 21st century tax system. That goal itself is admirable. The legal machinery for tax administration was developed in a very different world, where paper and human tax officials were the norm.
Today’s world is completely different – ditigised records and automated decision-making are increasingly becoming the norm.
It would seem appropriate then to interrogate the assumptions that underpin the current legal machinery and ask whether they are still fit for purpose.
The questions asked in the call for evidence are generally geared around making the experience better for taxpayers and also more efficient for HMRC. These are not unimportant aims. But they are not really concerned with law.
To my mind the legal issues that emerge centre around liability and procedural safeguards. Consider self-assessment for instance. When everything is stripped back, the important legal fact of self-assessment is that it places liability for paying the correct taxes on the taxpayer and not on HMRC. In a world where it was difficult to verify the veracity of taxpayer’s returns, that makes sense. But given the amount of information held by HMRC today which is transmitted digitally (and automatically) by third parties, there is a question to be asked as to whether this is still appropriate. Particularly in the case of the self-employed who work through digital platforms which can transmit all relevant information to HMRC. Pre-populated tax returns are already in practice occurring (when I submitted my tax return this year, almost all of the relevant information was already inserted in my tax account) and given that this practice will likely continue and grow, it makes sense to reconsider where liability should rest.
What about the enquiry process? Once HMRC has opened an enquiry, it does not close by default. It can remain open until either HMRC decides to close it or it is forced to do so by the Tribunal (on request from the taxpayer concerned). Again, this arrangement makes more sense in a world in which it is difficult to access relevant information about taxpayers. But does it still hold firm today?
Or what about the enquiry window(s)? There are time limits governing when an enquiry must be opened: 1 year (for any reason), 4 years (where a tax loss is discovered), 6 years (where there’s been carelessness), 12 years (where there has been offshore non-compliance by an individual or partner) or 20 years (where there has been fraud). The definition of “discovery” for the purposes of the 4 year window is generously wide. Again, this makes sense in a paper world in which a human being would have to physically look at something. And it might well take 4 years for an overstretched tax official to put their mind properly to a paper return. But is that still necessary today, when online systems can pick up irregularities automatically and flag these to an inspector? There is nothing stopping HMRC from opening an enquiry every time an issue is flagged up on its system after all.
These issues and many others would seem appropriate for consideration in the 21st century. The shame is that it is not clear how these issues can get an airing in the consultation. Though perhaps like the stretched approach to “discovery”, the call for evidence questions can be generously interpreted to accommodate such a conversation.