Call for evidence outcome

Income Tax Self Assessment registration for the self-employed and landlords – summary of responses

Updated 20 July 2022

1. Executive Summary

1.1. The government wants tax to be straightforward, easy to get right and hard to get wrong. Most people want to be on top of their tax affairs. The Call for Evidence (CfE) about Income Tax Self Assessment (ITSA) registration for the self-employed and landlords asked whether bringing forward the point at which taxpayers identify themselves to HMRC would help achieve these goals.

1.2. Reform of ITSA registration aims to create a more efficient tax system that protects the taxpayer. If taxpayers interact with the tax system early, they get the best opportunity to understand their tax obligations and prepare for paying tax. This might include understanding good record keeping, or using HMRC’s Budget Payment Plan to plan, prepare and start paying towards a first tax bill.

1.3. For many self-employed taxpayers, registering for ITSA also opens the door to important additional benefits, such as building an entitlement to state pension through paying Class 2 National Insurance Contributions, accessing tax free childcare or access to the construction industry scheme.

1.4. Respondents agreed with the challenges set out in chapter 3 and summarised in chapter 4 of the CfE but most did not think these challenges would necessarily be addressed by bringing forward the date of registration:

• taxpayers don’t identify and understand the need to register
• taxpayers assume HMRC already knows about them
• HMRC makes insufficient use of third-party information, nudges and prompts
• taxpayers don’t always know whether they are trading or when they started or stopped trading
• the long period between starting a business and tax obligations can cause problems; poor tax habits can become established
• any future transition to Making Tax Digital (MTD) may be more difficult; the opportunity to integrate digital record-keeping with the way that people run their business from the outset may be lost
• lack of budgeting for the first tax bill causes cashflow and/or compliance problems
• HMRC’s knowledge about the size and make-up of the self-employed population is incomplete and out of date

1.5. There was little appetite among respondents to bring forward the date of the current obligation. Respondents felt registration should acknowledge the existence of the tax year and any attempt to bring forward the date of the current obligation to notify liability should be done in a way that allows taxpayers enough time to assess their liabilities after the tax year end.

1.6. There was little appetite among respondents to replace the current registration obligation with one linked to the start of trading or new income from property rather than linked to the tax year.

1.7. Respondents generally regarded earlier awareness of registration processes through greater publicity, education and process improvement, and not legislative or policy change, as key to improving both compliance with the obligation to notify a tax liability and taxpayer experiences of registration.

1.8. Respondents agree there is merit in further exploring the use of data at ITSA registration. They felt HMRC could do better with the data it already holds before it seeks to bring in additional data. Respondents wanted taxpayers to see HMRC using data to help them comply, as well as to detect non-compliance.

1.9. Respondents provided some new suggestions for addressing the challenges listed in the CfE including:

• reviewing the obligation for ITSA taxpayers to notify HMRC of a tax liability and considering whether it could be merged with the more familiar deadline for obligations around 31 January
• a review of the circumstances in which HMRC requires taxpayers to make and file a self-assessment tax return
• better communication of the current deadlines and opportunities to look for innovative ways to educate new and potential future taxpayers
• enabling taxpayers to make themselves known to HMRC sooner to access products, services and guidance in a process that is separate from registering for ITSA

1.10. The government is keen to explore some of the new ideas put forward by respondents and will not move forward at this time with the two ideas set out in the CfE to change the current obligation to notify liability. The government will continue to consider the appropriate timing of registration alongside its existing strategic programmes such as: MTD; Single Customer Account (SCA); Timely Payment and ongoing work to tackle the tax gap. HMRC will consult on any proposals at a future fiscal event before any changes are implemented.

2. Introduction

Background to the call for evidence

2.1. In July 2020 the government set out its 10-year strategy to build a ‘trusted, modern tax administration system’. It is a vision for working closer to real time to deliver a flexible, responsive tax system.

2.2. As part of that vision the government committed to seek views on whether bringing forward the point at which the self-employed and landlords make themselves known to HMRC would help achieve this vision. Registering earlier can help taxpayers develop good tax habits form the start. This will improve their experience when interacting with the tax system.

2.3. The call for evidence sought views on some key issues with the current system of registering for ITSA:

• taxpayers don’t identify and understand the need to register
• taxpayers assume HMRC already knows about them
• HMRC makes insufficient use of third-party information, nudges and prompts
• taxpayers don’t always know whether they are trading or when they started or stopped trading
• the long period between starting a business and tax obligations can cause problems; poor tax habits can become established
• any future transition to MTD may be more difficult; the opportunity to integrate digital record-keeping with the way that people run their business from the outset may be lost
• lack of budgeting for the first tax bill causes cashflow and/or compliance problems
• HMRC’s knowledge about the size and make-up of the self-employed population is incomplete and out of date

3. Responses

3.1. There were 31 detailed written responses to the CfE and HMRC held six facilitated workshops to look in detail at different aspects of ITSA registration. Topics included how the process and legislation work now, planned changes for this group of taxpayers, appetite for greater use of data in the registration journey and some broad ideas for change.

3.2. Written responses included:

• 10 from professional bodies
• 11 from tax agents and accountancy firms
• 7 from individuals
• 1 from software providers
• 2 from charities

Chapter 2: Understanding ITSA registration

3.3. This chapter set out the current relevant legislation and registration process. We invited views on the way the current rules work and sought insight on taxpayers’ experiences when registering for ITSA.

Question 1: How simple and well understood are the current legislation and processes for notifying liability and registering for ITSA? What are the benefits and/or drawbacks of the current system?

3.4. Respondents told us taxpayers often do not understand their legal obligation to notify liability. Many find processes for registering for ITSA confusing. Agents understand the obligations better than the typical taxpayer.

3.5. The main concerns were grouped around 3 key issues:

• a taxpayer needs to navigate too many different processes at and around registration. They register for ITSA and receive a Unique Taxpayer Reference (UTR). They may also register for National Insurance. A taxpayer might have to apply for a government gateway ID. They can register for online services and may also appoint an agent. These processes are not experienced as joined up and respondents suggested HMRC should simplify them

• there are several thresholds that determine whether a taxpayer has a liability that results in an obligation to notify. For some taxpayers, navigating multiple thresholds complicates the decision to register. The self-employed may not recognise that they are trading. New landlords often do not understand the rules around thresholds. This leaves some taxpayers unable to form a view of whether they should be in ITSA. Respondents also find HMRC’s approach to thresholds inconsistent. HMRC uses the PAYE tax code to collect tax due on income – ‘codes out’ – for some but not all liabilities. This inconsistency, respondents said, affects perceptions of procedural fairness

• HMRC does not raise awareness about the deadline to notify liability in the same way as for the 31 January filing and payment deadline

3.6. Respondents noted some benefits of the current system of notifying liability to income tax. These include:

• a consistent obligation deadline for all taxpayers
• a consistent and fair approach to failure to notify penalties
• those whose businesses do not take off quickly do not have to enter the ITSA system until they make a profit or have a liability

Question 2: If you have experienced registration processes across different UK taxes or internationally, please tell us more about how they compare. What works well and what could be better?

3.7. Within the UK respondents found best practices in:

• VAT, where agents told us they appreciate the function that allows them to register on behalf of a client. They find automated processing of VAT registrations minimises delay. They prefer this to registering for other parts of the tax system that can need manual interventions by HMRC staff
• PAYE, where employers and payroll companies can quickly register taxpayers and adjust inaccurate data after registration
• Corporation Tax, where HMRC receives information about new companies from Companies House. This enables records to be automatically set up for Corporation Tax Self-Assessment (CTSA). Respondents encouraged HMRC to use third-party information to inform ITSA registrations (we discuss this in more detail later at paragraph 3.67). Respondents reflected that companies have the option to notify a dormant status. This acknowledges not all new company registrations will result in a tax liability. ITSA taxpayers should be able to make themselves known to HMRC without triggering the obligation to notify liability. Respondents suggested that taxpayers may be willing to register early so they can access support. But they fear being part of a formal process before they are sure of having a tax liability, for example when a hobby later becomes a profitable business
• respondents find services that use nudges, prompts and other forms of automation work well. They asked HMRC to use automation or prompts to register taxpayers for more than one tax. For example, a VAT registration could automate or create a nudge for an ITSA registration
• respondents said that it would be helpful for taxpayers to be informed about the status of a registration application in the same way you can track the status of a passport application. This could reduce low value, resource heavy, mutually burdensome contact

3.8. Respondents find international comparisons largely unhelpful because of structural differences. For example, some countries do not have a set tax year. Some liked the example of Singapore, where landlords must register online within 15 days of signing a tenancy agreement. Others liked the example of Ireland where there is no registration obligation, but, respondents say, still good compliance with file and pay obligations.

Question 3: What are your experiences of closing an ITSA record of self-employment or property income? Is it easy to understand and complete?

3.9. Respondents told us taxpayers lack awareness of the need to notify HMRC that self-employment has ceased. This is not set out in legislation as an obligation.

3.10. Comments about deregistration included:

• for some taxpayers, understanding when a trade has ceased is difficult. It can be unclear whether there is a liability when closing a business. Profits from the final year of trading may be below the trading allowance of £1,000
• the self-employed can find the process of de-registering complicated. They need to report a cessation separately from the tax return. The National Insurance record stays open even if the tax return has a cessation date
• respondents find the process of de-registering income from property straightforward. In the year the taxpayer stops receiving income from property they tick a box on the tax return. This removes the page from future returns
• many respondents use white space to de-register but experience inconsistent results
• over half of respondents mentioned using HMRC call centres to complete de-registration. They see this as low value for them and for HMRC

3.11. Some respondents find it frustrating when HMRC takes taxpayers out of ITSA. Many prefer to manage obligations using the ITSA system rather than the P800 process. This often affects taxpayers with variable dividend income. It is more frustrating when taxpayers are taken out of ITSA because information supplied by third parties, such as from banks, is incomplete or incorrect.

3.12. Suggestions for improvement included:

• clear guidance explaining taxpayers do not lose their UTR when they de-register. A UTR is only permanently closed in specific circumstances such as bankruptcy
• a tick-box on form SA100 (page TR8) for taxpayers to state that they no longer need to file a tax return
• better data sharing between government departments when:
  • DWP starts administering a pension for someone who used to be self-employed
  • a local authority is aware that rent is no longer being paid directly to a landlord. Nudge letters could ask if a de-registration is required

Question 4: What difficulties do taxpayers new to ITSA face in complying with their obligation to notify liability? What are the causes of these issues?

3.13. Many respondents did not understand the different definitions for trading and self-employment. They gave the following examples:

• for some landlords there is a lack of commercial intention, or expenses may match or exceed income. For example, some taxpayers inherit a property; some move home without being able to sell their former home; some co-habit after having owned individual properties. These taxpayers are often not setting out to run a property business
• for those whose hobby becomes a business, profit that generates a liability can be unintentional and go unrecorded
• there are grey areas due to the expanding gig-economy and ongoing case law on employment status. Some taxpayers who are self-employed believe they are employed and vice versa

3.14. Respondents urged the government to consider that lack of knowledge is not the same as intentional non-compliance. Tax awareness is absent from the curriculum and not very well communicated in society. The Office of Tax Simplification looked at this recently in their December 2021 evaluation update.

3.15. Respondents note that, often, taxpayers first realise they need to engage with the tax system in the run up to 31 January when they prepare to file a return and pay tax. By then, the taxpayer will already have missed the obligation to notify liability. This is also the time taxpayers tend to engage professional support. Respondents supported HMRC’s general practice of applying failure to notify penalties only for those who miss both the notification deadline and the file and pay deadlines. Respondents therefore asked why there is a need to notify liability in advance of filing and paying.

3.16. Respondents noted that fear of the tax and penalty consequences of coming forward with undisclosed income can be a barrier to registration.

3.17. Process issues can affect ability to comply on time. Some respondents reported issues with:

• ID verification functionality
• long delays to receive a UTR
• lost correspondence
• tax and National Insurance registration processes not being joined up; it is double the effort to register both
• HMRC separately processing 64-8 agent authorisation applications and registration applications. This results in taxpayer records that don’t include the agent authorisation
• call waiting times

Government response for Chapter 2

3.18. The government understands respondents find system and process issues frustrating. HMRC routinely works on process issues with groups that represent taxpayers. HMRC is currently working with the Admin Burden Advisory Board (ABAB) and Individual Stakeholder Forum (ISF) on a digital welcome pack for first time filers to help them prepare to meet their filing obligations. HMRC is also testing a new version of the registration letter taxpayers receive about their UTR. This will use simpler language and make it clear what further action taxpayers need to take.

3.19. HMRC data shows a steady number of registrations throughout the year with a noticeable peak in January. This supports respondent observations that taxpayers engage with the tax system when they prepare to file a return and pay their tax. The government accepts that awareness of the current deadline to notify liability could be improved. HMRC will prioritise better communication, education and guidance. HMRC will also make more effective use of data to support taxpayers to register earlier.

3.20. The government agrees that the de-registration process needs to be made simpler.

3.21. The government is progressing several initiatives to address this, including:

• investing in IT infrastructure via programmes like MTD and the SCA. In future, taxpayers and their agents will de-register through their digital account. In the meantime, we are exploring options to obtain more consistent data by including structured data fields on the self-assessment return for trading start and end dates. Knowing when a taxpayer has ceased trading will allow HMRC to remove that taxpayer from the self assessment regime if they no longer need to be there
• reviewing guidance and accessibility as part of the regular schedule of guidance improvements. This includes reviewing guidance on registration, allowances and de-registration

Chapter 3: Challenges under the existing system

3.22. This chapter outlined the challenges experienced by taxpayers and HMRC under the current rules and sought views on their impact.

Question 5: How do customers new to self-employment or property income learn about the ITSA registration process and associated tax obligations? What are the issues with this?

3.23. Respondents agreed that some taxpayers put off engaging with tax early. But those who work are aware they need to pay tax and most try to understand their obligations. Those taxpayers who choose to use an agent will receive advice at the time of engagement. Others will use the internet, friends and family.

3.24. Taxpayers who seek advice, may not do so before relevant deadlines. Respondents are concerned about misinformation. They fear that those who use informal sources may get incorrect or outdated advice. This, they say, contributes to the likelihood of missed deadlines and may lead to unnecessary penalties.

3.25. Online platforms are keen not to be seen as giving ‘tax advice’ because this might alter their relationship with platform users. Platforms noted that their own research suggests their users do not consider tax compliance to be a service the platform provides.

3.26. Some respondents report finding government guidance useful and easy to access. Others find it less accessible and confusing.

Question 6: What challenges do taxpayers experience as a result of the delay between a business starting and the deadline for notification?

3.27. Respondents noted that:

• record keeping habits form early in the business lifecycle
• evaluation of business performance and profitability is not always easy at the start of the business lifecycle
• new businesses often find it difficult to factor tax liabilities into their early business activities. Profit levels may be low, and they prioritise money for business growth
• the payment on account for the following tax year (in addition to paying, at the same time, the tax for the first year) can come as a surprise to those new to ITSA
• engaging with more than one tax can be confusing
• taxpayers can put off looking for guidance or forget to come back to it later

3.28. Respondents did not relate these challenges to the timing of the obligation to notify liability. They considered poor communication of the obligation to be a bigger issue.

3.29. Respondents noted that there are also some benefits associated with the time lag between starting trading and needing to notify liability. These included:

• time for taxpayers to concentrate on building a profitable business before needing to engage with the tax system
• the time lag allows taxpayers to consider their liability

Question 7: Are taxpayers clear on what trading is, and when they started or stopped trading? What factors about trading make it difficult to decide whether or not to register?

3.30. Respondents said many taxpayers were not clear about when trading starts and stops and found the definition of the word ‘trade’ problematic. Many associated the start of trading with the date the taxpayer first receives a payment or sends their first invoice. Some base their understanding on the guidance about the nine badges of trade. There are particular issues when a hobby becomes a trade. In some cases, these transitions are not planned, and the lack of planning and record keeping can create fear. This may prevent engagement with the tax system. Some respondents requested a ‘checker tool’ to help taxpayers decide if they are trading.

3.31. Respondents find allowances, like the tax free allowances on property and trading, are a useful indicator of the need to register for ITSA or not. But differences in allowances can cause confusion. For example, respondents report confusing profit and income when applying the trading allowance. Also, taxpayers can trigger the trading allowance before the personal allowance.

3.32. Respondents note the level of allowances can differ and it isn’t always clear why. For example, the rent-a-room scheme lets individuals, or partners, earn up to a threshold of £7,500 per year tax free from letting out furnished accommodation in their home. Whereas the tax-free allowance on property income is £1,000.

3.33. Respondents point out some earnings can be ad hoc, such as fees for after dinner speaking or selling things at car boot sales. Annual taxation gives time at the end of the tax year to work out if there were enough ad hoc earnings for a tax liability. Respondents considered an annual review less burdensome than a system that would need more vigilance throughout the year.

3.34. Respondents noted that evolving case law relating to employment status makes it difficult to understand what ‘trading’ means, as does the growth of casual work and the rise in the number of taxpayers with many sources of income.

3.35. Some workers choose to manage their earnings via platforms and apps. There is concern among respondents that some apps can mistake net income for gross. This may lead to failures to register and/or incorrect tax calculations depending on how the information comes to the tax authority. Agents note that platforms have advised clients they are self-employed when they are, in fact, employed.

3.36. Respondents were keen for HMRC to acknowledge taxpayers may be in business for a while before they start making a taxable profit. A business can be loss-making for longer than one tax year. Businesses who register but then do not make a taxable profit may suffer late filing penalties if they do not de-register or file a return. Respondents requested that HMRC should consider an easy mechanism to deal with these situations. One idea provided was to allow early registrations that do not invoke any obligations until a later date.

Question 8: What are taxpayers’ experiences of interacting with different government departments when starting self-employment?

3.37. Some respondents observe a lack of communication between HMRC’s internal business areas. In their experience, different parts of HMRC appear to be operating in siloes, such as National Insurance, VAT and Income Tax. Taxpayers view HMRC as one and do not understand the internal structure so they expect joined up working.

3.38. Respondents suggest many taxpayers do not understand the responsibilities of different government departments. They view government as a whole. The lack of interaction between government departments is noticeable. Many taxpayers expect data sharing between Departments. This can cause frustration and confusion.

3.39. It can be confusing for the newly self-employed, as they do not understand which government departments they need to inform of what. Respondents say this may discourage them from registering altogether. Self-employed individuals who have received help through the benefits system think the government already knows about them.

3.40. Agents and professional bodies noted clients rarely asked them to interact with departments other than HMRC. To do so is not cost effective for agents or taxpayers.

3.41. The newly self-employed can feel overwhelmed by information that is not relevant to them. Many respondents view this as off-putting, ineffective and a waste of money. Relevant communications need to be clear and signposted, and it would be useful to link to HMRC guidance from other government departments’ (OGDs) websites.

3.42. Opportunities exist for data sharing between government departments. Respondents want to see such data used to inform how HMRC uses nudges and prompts to encourage ITSA registrations and de-registrations or provide tax and registration related guidance and advice:

• DWP data about benefits and pensions income
• local authority data about housing benefit claims where rents are paid directly to the landlord could inform HMRC about income from property
• local authority data about licencing and other regulatory arrangements for certain trade activities
• data about potential income from property from mandated Tenancy deposit protection schemes
• the Department for Education, OFSTED and Further education colleges could ensure guidance is shared for the purposes of educating citizens about tax obligations
• the Department for Business, Energy and Industrial Strategy (BEIS) could share tax and registration guidance when people first access their business support schemes

3.43. Respondents noted that different OGDs often do not use the same definitions for their policies. For example, the definition of self-employed is different for tax purposes and for benefits. Sometimes, HMRC has found that someone is not self-employed for tax credits purposes but are for tax purposes. The DWP add the word ‘gainful’ to their definition of self-employed for the purposes of universal credit. Also, measuring what counts as income may vary between departments. For example, rules on deductible expenses can differ for tax and benefits purposes.

3.44. There are data protection and confidentiality concerns about data sharing and the type of data shared. Respondents said obtaining and renewing permission before using and sharing data is key for transparency.

Question 9: Do you agree that chapter 3 sets out the challenges presented by the current registration system? Are there others?

3.45. Respondents agreed with the list of drivers in chapter 3 of the CfE. But they did not equate these issues with the obligation to notify liability or registration. They did not consider the challenges as a universal experience for ITSA taxpayers. HMRC systems and processes and communications received more criticism. Changes to registration processes and not changes to legislation are most pressing. They cited difficulties and delays in getting a UTR as a key area of poor taxpayer experience.

3.46. Respondents do not agree there is a link between late notification and poor record keeping. If the government sees better record keeping in early registrants, this is more correlation than causation. Organised people engage early; they did not become organised because they registered early. Respondents want more evidence to prove the link between later registration and poor record keeping. They cited HMRC’s 2012 Business Records Check as evidence that businesses were keeping adequate records.

3.47. If taxpayers do not understand their employment status, they may not know to register for ITSA. Respondents say the rise of the gig economy and zero hours contracts has changed the landscape for taxpayers. Many now have more than one source of self-employment or property income or a mixture of self-employment and PAYE employment.

3.48. The IT platform for ITSA, CESA, does not work well with the National Insurance and PAYE Service (NPS) system. Respondents say they need to be better integrated.

3.49. The unrepresented face more challenges than taxpayers who use an agent according to respondents. Smaller unrepresented businesses have fewer resources compared to larger businesses. They can spend up to 52 hours per year fulfilling their tax obligations at an average cost of £4,100 (source: A Duty to Reform, The Federation for Small Businesses, page 6).

3.50. The digitally excluded will not access online guidance or digital bookkeeping tools. Respondents think this may prevent registration.

Government response for Chapter 3

3.51. The government shares stakeholder concerns about the potential for misinformation. Reaching the taxpayers least likely to interact with the tax authority is a challenge.

3.52. New businesses prioritise time and resources on building their business over managing tax obligations. The government wants businesses to see registering earlier as helpful. Early access to tax guidance and products can support rather than detract from the process of building a robust and profitable business.

3.53. The government thanks respondents for sharing how difficult it can be to decide if you are trading and need to register for tax. There are some circumstances where it is easier to take a view at the end of a tax year, for example, when a hobby becomes a business or where someone has ad hoc earnings.

3.54. To address the areas highlighted government will:

• conduct further research with new self-employed and landlord taxpayers to better understand the experiences of unrepresented taxpayers at ITSA registration
• consider what we can do to better publicise the date of the current notification obligation
• encourage taxpayers to check additional income on gov.uk. The tool will help most taxpayers and may be especially helpful to workers with more than one source of income. The HMRC Business Income Manual is also available to view on gov.uk and section BIM20205 discusses the nine badges of trade
• work on options to provide platforms and other intermediaries with guidance products that they can use or share with platform workers. This will help them make decisions about tax and registration

3.55. Respondents cited the 2012 business records check as evidence of adequate record keeping habits. While acknowledging respondent views in this area, HMRC has published more research since 2012 about record keeping in support of digital quarterly reporting. Most recently on 26 May 2022 when HMRC published a report on Income Tax Self Assessment: Readiness for Making Tax Digital.

Chapter 4: Exploring the future of ITSA registration

3.56. This chapter sought views on how to reform ITSA registration to improve the long-term relationship between HMRC and the taxpayer. Suggestions to explore included:

• reform the current obligation to notify liability by bringing forward the current deadline
• create a new obligation to register triggered by the start of new self-employment or property income
• explore new roles for intermediaries and third-party information in the registration journey

Question 10: Are these the right options for changing the obligation? Which is better? Are there others?

3.57. Respondents said there is not a strong case for changing the timing to bring forward ITSA registration. Early registration is possible (though not mandatory) under the current system. Most taxpayers have registered before they need to file a return and pay tax. Changes to registration timing are unlikely to improve awareness among taxpayers who do not know they have an obligation.

3.58. Respondents agreed that early interaction with the tax system helps taxpayers understand obligations. They also agreed some taxpayers need earlier support, for example, to help them avoid problems with the first tax bill and payments on account. They see value in building pension entitlement early and access to tax-free childcare.

3.59. Taxpayers often need time at the end of the tax year to finalise their liability. Respondents worry that tighter timing could lead to more errors. It could be especially difficult for those who start trading close to the end of the tax year as they would have a shorter window to comply. Earlier registration could inflate the ITSA population beyond the number of taxpayers who have a liability.

3.60. Income tax is an annual tax so having a registration obligation linked to the end of the tax year makes sense to respondents. They say it is easier for low income taxpayers to register when they know what income or profits were made over the whole year.

3.61. Respondents suggest moving the deadline to the start of trading or income from property could be confusing. There would no longer be a fixed date for all taxpayers to comply. This would make it difficult to deal with non-compliant taxpayers. It would be burdensome to evidence when trading starts and ends. Such complexity goes against the desire for tax simplification.

3.62. Respondents see the 5 October deadline for notifying liability as historical. They can see how it would help a paper process that demanded HMRC send out a physical return by post to large numbers of the population. This required time and resource to achieve. Most taxpayers now file returns online so respondents questioned the need for a notification deadline at all.

3.63. Respondents suggested new options for the government to consider:

• reviewing the obligation for ITSA taxpayers to notify HMRC of a tax liability and considering whether it could be merged with the more familiar filing and payment obligations around 31 January
• a review of the circumstances in which HMRC requires taxpayers to make and file a self-assessment tax return
• better communication of the current deadlines and opportunities to look for innovative ways to educate new and potential future taxpayers
• enabling taxpayers to make themselves known to HMRC sooner to access products, services and guidance in a process that is separate from registering for ITSA

Question 11: What is the right period after the start of the new self-employment or property income for the obligation to be triggered?

3.64. Many did not reply as they had answered this elsewhere. HMRC’s target population for earlier registration are the least likely to be aware of, or engage with, the date, regardless of deadline. So, increased awareness around the deadline is more important than the chosen deadline itself.

3.65. There was no consensus about a ‘right’ period to trigger the obligation. Some suggested:

• aligning the obligation with the £1,000 trading and property income allowance
• aligning it with the £10,000 turnover threshold for digital quarterly reporting. Registration would be required before the due date for the first quarterly update
• registration 3 months after self-employment starts

3.66. There were many clear responses that do not support the introduction of a new registration obligation shortly after activity starting or income being received. A few wanted to notify at the same time as filing a return and paying tax.

Question 12: Do these ideas for using intermediaries and third-party data to improve tax registration merit further exploration? Are there others?

3.67. Respondents say there is merit in exploring new roles for intermediaries and third parties in the registration process. There was support for using data from non-HMRC sources. This could include prepopulating a registration or sending letters to prompt registration. It would be efficient at reducing administrative burdens for both taxpayers and the tax authority.

3.68. Respondents noted opportunities for better use of third party information and for working with:

• HM Land Registry and letting agents to obtain information about property and income from property, and also that there will soon be a register of let properties from the Department for Levelling Up, Housing and Communities
• Local authorities and other licencing authorities. If conditionality works well, the government should use it more widely
• Banks and building societies
• Software and app providers, who could build tax registration into their digital offering

3.69. Software developers would welcome more Application Programming Interfaces (APIs) to allow taxpayers to register with HMRC through their software products.

3.70. Using third-party information for tax registration needs an emphasis on confidentiality, data security and privacy. Many respondents want the government to seek permission from the person to whom the data relates before it is shared. Only accurate data that can be directly linked to a taxpayer should be used in tax calculations. There should be more specific rules about the format in which data must be provided and it should be clear who is responsible for keeping it up-to-date.

Government response for Chapter 4

3.71. The government has listened to views about bringing forward the date of the current obligation to notify liability. We acknowledge that:

• the current legal obligation to notify already enables (though doesn’t require) taxpayers to register early
• changing the date of the obligation to notify will not improve taxpayer awareness on its own
• there are administrative benefits to having enough time after the tax year end to work out your tax position

3.72. The government has also understood taxpayer concerns about creating a new ITSA registration obligation. We acknowledge that it risks adding complexity, cost and burdens for taxpayers and HMRC that may outweigh any benefits.

3.73. The government will continue to reflect on the evidence provided and will not move ahead with changes to the ITSA notification obligation now. However, identifying new businesses earlier is still an important goal for the government. During the COVID-19 pandemic some of the newly self-employed could not access support as they had not yet registered for tax or filed any tax returns.

3.74. The government is modernising by using technology to make it easier for customers to get tax right first time. As our strategic transformation programmes develop, the justification for earlier registration may strengthen. We may also find evidence that changes to registration can have a positive impact on the tax gap. We will return with detailed proposals in those circumstances.

3.75. The government is keen to use data better and will explore how to improve registrations using good quality data from third parties. The quality of data entering government systems is key to good customer experience. Allowing inaccurate data at registration may ease entry to the system but cause poor experience later. We agree with respondent views on using data for targeted nudges and prompts particularly if they help promote good compliance up front rather than pointing out failures after the fact.

3.76. We understand the concerns expressed about the need for data protection and confidentiality. The HMRC Privacy Notice works as a charter. It governs the circumstances in which HMRC delivers services in partnership with other parts of government. It will guide the next stages of policy development in this area.

3.77. The government appreciates the time taken by respondents to share alternative options for change and will further explore:

• better communication of the current deadlines and opportunities to look for innovative ways to educate new and potential future taxpayers earlier
• reviewing the obligation for ITSA taxpayers to notify HMRC of a tax liability and considering whether it could be merged with the more familiar filing and payment obligations around 31st January
• a review of the circumstances in which HMRC requires taxpayers to file a self-assessment tax return
• enabling taxpayers to make themselves known to HMRC sooner to access products, services and guidance in a process that is separate from registering for ITSA

4. Next steps

4.1. The government is very grateful for the time taken by stakeholders to engage during the CfE period and to provide written responses. We will take account of the evidence provided as we explore the new ideas suggested at paragraph 3.77.

4.2. Recognising the wide range of affected taxpayers, HMRC will continue to work closely with taxpayers, their representatives and intermediaries, continuing to consult them as policy is developed. We will also complete external research into the experiences of unrepresented taxpayers to build on the evidence provided by respondents.

4.3. The government will continue to consider the appropriate timing of changes, including for better guidance provision and process improvement, alongside its existing strategic programmes – MTD, SCA and Timely Payment and work to tackle the tax gap.

4.4. The government will consult further at a future fiscal event before any changes are implemented.

4.5. HMRC is committed to building a trusted, modern tax administration system and changes to ITSA registration play an important part of this. As the broader tax administration framework review develops, we welcome ongoing feedback and engagement.

Annex A: List of stakeholders consulted

The government is grateful to the 7 individuals and following organisations who responded to the call for evidence:

Association of Accounting Technicians

Association of Taxation Technicians

AW Tax

Chartered Accountants Ireland

Chartered Institute of Taxation

Deloitte LLP

Excel Accountants Ltd / TaxAssist Accountants

Federation of Small Businesses’

Hart Accounting

Institute of Certified Bookkeepers

Institute of Chartered Accountants in England and Wales

Institute of Chartered Accountants of Scotland

Institute of Financial Accountants

Landlords Tax Services Ltd

LCB Limited

London Society of Chartered Accountants’ Taxation Committee

Low Incomes Tax Reform Group

Moore Kingston Smith LLP

Pearl Lily Wills & Estate Management Limited

RSM UK Tax and Accounting Limited

Sapphire Business Services (Banbury) Ltd

TaxAid & Tax Help for Older People

The Swansborough Family Partnership Ltd

Untied