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Tax Day: Government launches a wholesale re-design of UK tax administration

Tax Day: Government launches a wholesale re-design of

The Government issues call for evidence for the most fundamental re-design of UK tax administration for over 50 years.

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As part of ‘Tax Day’ on 23 March 2021, the Government issued a range of documents focused on the administration of UK taxes. Most importantly, this included a call for evidence in relation to a root and branch re-design of the UK tax administration system. In doing so, the Government makes clear that fundamental reform and modernisation of the administration system is required, alongside increasing digitisation, in order to deliver a trusted, modern tax administration system that is simpler, easier to navigate, more responsive to taxpayers’ needs and resilient in the face of potential future crises. Other related announcements include a call for evidence on potential changes to the timing of payments for certain income tax and corporation tax payers; and a request for consultation on forcing all UK tax advisers to take out insurance to protect consumers.

The Government’s call for evidence in relation to reforming the administration of UK taxes is extremely wide ranging and ambitious. It signals the likelihood of radical changes in the way that individuals, businesses, tax advisers and others will experience the tax system in the future.

Scope

The review covers the whole of the UK tax administration system. This includes:

  • When and how individuals and businesses are identified and register with HMRC;
  • How tax liability is assessed, calculated and paid;
  • The steps HMRC can take to check tax returns and claims; and
  • Key elements of the tax dispute resolution process. 

The scope of the call for evidence does not include underlying policy decisions (such as who should be taxed, or how reliefs should be targeted – matters which are left to Parliamentary and political processes). Customs Duty administration is to be reviewed towards the end of the process, but all other taxes and duties are included. Benefits and Credits administration is not included in the review but impacts on that area will be considered once the likely reforms to the tax system are determined.

Evidence requested

The Government is seeking evidence across a very wide range of questions, including:

  •  What should be the priority areas for reform, what else might be brought into scope and what principles should guide the review (such as certainty, flexibility, simplicity, transparency, fairness and efficiency)?
  • How might the computation of income and profits be changed; what should a modern ‘tax return’ look like; and how might data be collected and used?
  • Do HMRC’s enforcement powers and associated safeguards for taxpayers need to be changed to encourage better compliance and deter avoidance and evasion; especially in the context of an increasingly digital and likely more real-time tax administration environment?

Responses to the call for evidence are required no later than 13 July 2021 and the Government is committed to further consultation when any specific proposals for reform are made.

Timely payment

A separate but very much related call for evidence has also been issued in relation to potential reforms to the timing of tax payments for certain Income Tax and Corporation Taxpayers: those individuals in receipt of income not covered by the PAYE/NI deduction system; and companies who currently are not required to pay tax quarterly. It should be noted that future reforms could affect ‘gig’ economy workers and those who use personal service companies, as well as others. The consultation will also interest organisations, such as those who engage contingent labour, who might be required to provide information to support the real time calculation and payment of relevant tax.

The Government’s objective here is to bring the calculation and payment of tax closer to the point in time at which the income/profits are made. This raises a number of potential complexities, including how income and profits are to be estimated in real time in order to drive the calculation of taxes due. There are also clear linkages with HMRC’s ‘Making Tax Digital’ programme which is already being implemented for VAT administration. Responses are required no later than 13 July 2021 and again the Government will consult on any proposed reforms.

Mandatory insurance for tax advisors

Tax advisors and agents clearly play an important role in the administration of the UK tax system and the Government is committed to looking for ways to raise standards in the tax advice market and protect consumers. This follows on from work commenced in 2020 and the consultation document issued on ‘Tax Day’ focuses in particular on the proposal to mandate that tax advisors must take out professional indemnity insurance (PII). The majority of UK tax advisors (estimated by HMRC at 70 percent of the market) are already required to have PII either by regulation or as a condition of membership of their professional body. This consultation document focuses on the mechanics and monitoring of mandatory PII (notably how it could apply to the remaining 30 percent of the market) and also on how ‘tax advice’ should be defined for these purposes: this would include e.g. consideration of whether tax software providers may be classified as ‘advisers’ and subject to mandatory PII requirements. Comments are required no later than 15 June 2021.

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