The Tax Administration Framework review – information and data

Question 1

Summary

Accepted Answer

Subject of this consultation

The Tax Administration Framework Review (TAFR) was established in the government’s 10-year Tax Administration Strategy to ensure the legislation, guidance and processes surrounding tax administration are suitable to deliver the tax system the UK will require in the future. This call for evidence explores options for updating information and data powers operated by HM Revenue and Customs (HMRC).

Scope of this consultation

The government is seeking views on how HMRC’s information and data-gathering powers, which underpin administration of the tax system, could be updated to enable digital transformation of taxpayer services, improve HMRC’s compliance capabilities, and reduce administrative burdens.

Who should read this

HMRC welcomes engagement from any taxpayer or interested party with views on the efficacy and reform of HMRC’s information and data powers and taxpayer safeguards. This is likely to be of particular interest to accountants, tax agents, third parties and data-holders, legal professionals, payroll professionals, bookkeepers, insolvency practitioners, software providers, intermediaries, financial advisers, and their clients. Taxpayer representative bodies, charities, and other voluntary organisations that support people with their tax affairs will also have an interest.

We would also be interested in hearing from stakeholders with a wider interest in the government’s National Data Strategy and use of information and data to administer public services.

Duration

The call for evidence will run for 12 weeks starting on 27 April 2023 and ending on 20 July 2023.

Lead official

The lead officials for this consultation are Andrew Willis, Bethany Morris, Ahmed Ali and Stephen O’Brien of HMRC.

How to respond or enquire about this consultation

Any responses or queries about this consultation should be sent to tafrinformationdata@hmrc.gov.uk.

Respondents are not obliged to respond to all questions in this document. HMRC also welcomes partial responses, focused on the individual aspects of the framework that are most relevant to the respondent.

Additional ways to be involved

HMRC welcomes collaboration with a wide range of stakeholders and will organise stakeholder discussions to ensure that views are heard from across the range of sectors who interact with the tax system. Please contact HMRC using the details above if you would like to be involved.

After the call for evidence

Responses to this call for evidence will inform any future policy proposals to reform the tax administration framework in the aforementioned areas, which will then be subject to further consultation in accordance with the tax policy-making process.

Getting to this stage

In July 2020, the government published a 10-year strategy to build a trusted, modern tax administration system. This included a commitment to reform the Tax Administration Framework. Following this, HMRC published a call for evidence (‘The Tax Administration Framework: Supporting a 21st Century Tax System’) on 23 March 2021 and a subsequent summary of responses on 30 November 2021. The documents drew significant support for HMRC to modernise its use of information and data.

This call for evidence builds on the previous TAFR feedback and is being published at a time when modernisation of information and data use, and simplification of the tax system is a priority for the government and HMRC. The wider picture is set out in the Annex.

Building on the TAFR work on information and data, the government published a consultation on ‘Improving the data HMRC collects from its customers’ from July to October 2022. This consultation sought views on improving the range of information and data HMRC collects, uses and shares across government. The consultation gauged views across datasets to improve HMRC’s understanding of taxpayers and support an efficient modern tax system. The government will publish a summary of responses alongside this call for evidence.

Previous engagement

HMRC held preliminary discussions with several tax professional bodies and taxpayer representative groups during the 2021 TAFR call for evidence and on similar themes through the July 2022 ‘Improving the data HMRC collects from its customers’ consultation. These discussions considered the themes and opportunities set out in the government’s 10-year Tax Administration Strategy.

Question 2

1.  Overview and context

Accepted Answer

Introduction

The Tax Administration Framework (‘the framework’) is the set of policies, legislation, and guidance underpinning HMRC’s ability to effectively administer taxes and duties. The framework consists of a patchwork of rules and obligations, elements of which are over 50 years old, and were not conceived with a modern, digital, 21st century tax system in mind.

It is crucial this underlying legislation is both robust and flexible, capable of enabling HMRC’s digital ambitions, to build and deliver a modern tax administration, which protects the trust and confidence of taxpayers. Improved trust is an outcome of a clearer, simpler framework, along with improved customer experience, reduced costs to customers and HMRC and improved compliance. Retaining this trust is a key driver for this call for evidence.

TAFR is a key part of delivering the government’s 10-year Tax Administration Strategy, ‘Building a trusted, modern tax administration system’, ensuring that the framework keeps up with rapid social, economic, and technological changes to improve its resilience, effectiveness and support for taxpayers.

This is one of three TAFR documents published in spring 2023 to drive engagement with stakeholders around reforming legislation of key elements of tax administration. The other documents are ‘Tax Administration Framework Review – Creating innovative change through new legislative pilots’ which is also published today, and ‘Simplifying and modernising HMRC’s Income Tax Services through the tax administration framework’, which was published at Spring Budget 2023. Your views will help shape proposals to make our tax system simpler, easier for customers to engage with and fit for the future.

2021 Tax Administration Framework Review (TAFR) call for evidence

Responses to the 2021 TAFR call for evidence recognised the potential benefits of a tax system that operates closer to real-time and uses information and data more effectively. Specific themes from this feedback included:

support for more effective and increased use of third-party information and data to pre-populate tax returns, and endorsement of Office of Tax Simplification (OTS) recommendations on the use of third-party information and data
the importance of safeguards governing data integrity, acquisition and its use. This includes ways for agents, taxpayers and third parties to amend information and data provided to HMRC
the need for clear-cut obligations and responsibilities if tax administration will increasingly depend on a greater number of parties (including taxpayers, agents, third-party data-holders and software providers)

The government’s response noted “HMRC will consider options for reforming information powers, including to make better use of third-party data sources, as a key element of the tax administration framework review’s future programme of work”. This call for evidence is the next stage of fulfilling that commitment.

This call for evidence

The areas for reform outlined in this document present an opportunity to strengthen taxpayer trust and confidence in HMRC by demonstrating enhanced competence, including in how we collect and handle information and data, and improve customer experience.

Tax administration needs to keep pace with modern life and business practices and take advantages of opportunities presented by new technology. As tax administration evolves, the ways in which information and data are requested, provided, and used may also need to change. This could support easier and smoother processes, making effective use of third-party information and data that HMRC currently holds, currently collects, or may acquire in future.

These proposals also present opportunities to improve services to taxpayers and reduce the need for people to supply information and data, where HMRC already holds it, reducing scope for error, and helping people to get their taxes right first time.

Many international tax authorities have recently introduced information and data-based reforms to improve tax administration and provide a more positive experience for the taxpayers they serve. In most cases, the aim of these reforms was to simplify tax administration for all parties in the tax system and support tailored services to promote compliance and make paying tax easier. Chapter 3 provides a brief overview of some of these changes and how they compare with the UK’s current approach.

Schedule 23 Finance Act 2011 provides HMRC’s third-party information and data-gathering powers and safeguards. These enable HMRC to gather specific information from certain third parties about a group of taxpayers, generally for risk assessment purposes. Chapter 4 discusses some of the opportunities to update these powers and safeguards to support a better experience for taxpayers and third parties.

More effective use of information and data can provide many benefits to taxpayers and government alike. Better use of information and data can help provide a smoother customer experience by reducing the volume and complexity of information and data taxpayers must provide to support their tax returns. Better use of information and data can also improve HMRC’s compliance functions, both upstream and during investigations, and enable greater use of nudges and prompts to help taxpayers get their tax right first time.

Furthermore, it can potentially reduce costs and administrative burdens for all. This is an important step towards greater pre-population of tax returns (‘pre-filling’ fields in a return using information and data HMRC already holds). HMRC is currently only able to pre-populate returns on a limited basis, and this will remain the case without reform of information and data-gathering powers, and safeguards. Fuller pre-population of returns presents opportunities to support fairness, allowing HMRC to deliver more proactive, targeted support and guidance to help people and organisations navigate the tax system, making it easier for taxpayers to get tax right.

Chapter 5 considers HMRC’s powers and taxpayer safeguards under Schedule 36 Finance Act 2008. This legislation provides for the issuance of information notices, which require a taxpayer or third-party to provide information, data, and documents, which allow HMRC to check an individual’s tax position. This chapter considers approaches to improve this process and make it smoother in future.

This call for evidence should be considered as one component of a range of related initiatives that are driving forward improvements in the collection, use and exchange of information and data in tax administration. The Annex provides an overview of some of these initiatives.

Any reform of HMRC’s information and data-gathering powers and safeguards must observe citizen protections set out within domestic law, including the Data Protection Act 2018 and UK General Data Protection Regulation (UK GDPR) and comparable international protections and agreements (for example, the International Data Transfer Agreement).

HMRC also has a statutory duty of confidentiality, and other data protection obligations set out primarily within its governing statute (the Commissioners for Revenue and Customs Act 2005). Any reforms subsequently explored as a result of this call for evidence will continue to observe those statutory obligations and commitments.

More broadly, this work supports the existing principles that govern the role of HMRC within the UK tax system set out under HMRC’s Charter, and also, HMRC’s digital transformational ambitions, encompassing Making Tax Digital, Single Customer Account and pre-population. These ambitions are in line with the UK’s National Data Strategy, which aims to use the opportunities information and data presents to drive efficient delivery of public services across government.

Question 3

2.  Overview of international practice

Accepted Answer

Introduction

Responses to the 2021 TAFR call for evidence supported HMRC drawing from international best practice to simplify and modernise tax administration. Many international tax authorities have introduced digital and data-based reforms to simplify tax administration and deliver tailored services to promote compliance and make paying tax easier. These have included reform of information and data-gathering powers and safeguards to modernise tax administration, alongside developing tools such as extensive pre-population of tax returns and a unique taxpayer identifier to enable effective data-matching. As the UK has not yet modernised legislation in a similar manner or utilised pre-population to the same extent, its information and data powers are more prescriptive and have not been designed with these innovations in mind. HMRC will learn from other tax authorities’ information and data power reforms, both as part of planned transformation programmes, and as part of the government’s 10-year Tax Administration Strategy.

Table 1 includes specific examples, illustrating legislative, digitalised and data-based reforms that have taken place in other countries, or formed part of cross-government cooperation, and where information and data have been used to improve the taxpayer experience.

Table 1: Examples of information and data reforms

Country/group	Information and data reforms
Organisation for Economic Coordination and Development (OECD)	The OECD highlighted in Tax Administration 2022 that data and analytics are now a key element of 90% of its members’ approaches to tax administration. Data and analytics are used regularly for analysis, risking and pre-population of returns. The main benefits in compliance work are enabling tax authorities to identify issues more accurately, closer to real-time, and providing the ability to develop more tailored solutions for taxpayers. This allows problems to be rectified more quickly and effectively, benefiting both the taxpayer and tax administration. An earlier OECD report, Tax Administration 2021, stated a country’s legislative framework must be comprehensive enough to enable effective use of real-time data.
Estonia	Estonia has simplified its tax administration through extensive use of information and data, and digitalisation, underpinned by modern, flexible legislation. The Taxation Act (2015) covers record-keeping requirements for taxpayers and obligations to provide information and data to the Estonian tax authority, for the purpose of checking a tax position. In contrast with the UK’s comparable legislation in this area, the Act is drafted in a flexible manner to ensure the simple provision of information and data to the Estonian tax authority, while setting out clear taxpayer/data-holder safeguards. Estonia uses pre-population as part of administering Income Tax, the process for which, is set out in Chapter 9 of its Income Tax Act. As highlighted in the 2019 ICAEW report ‘Digitalisation of tax: international perspectives’, the use of information and data means it takes a taxpayer only five minutes to fill out a tax return.
France	While HMRC utilises specific and prescriptive legislation for information and data-gathering, France’s General Tax Code sets out obligations for third parties to submit specific data to the French tax authority, including how they should report. France introduced pre-population for Income Tax Self-Assessment. Taxpayers have a responsibility to change or raise any issues regarding incorrect information and data in the pre-filled sections of their personal tax return before it is officially submitted. This illustrates one approach to establishing clear roles for different parties in the tax system (particularly where both first and third-party information and data are combined in one process), along with the need for mechanisms to challenge information and data which is pre-populated. These changes were introduced as part of a move to a more digitalised, information and data driven taxation process, aimed at simplifying the tax system and helping to build trust in the tax authorities.
Australia	The Australian Taxation Office (ATO) has a broad set of information, data and inspection powers. This represents a different approach to the UK’s information and data-gathering powers, which are prescriptively defined, and therefore comparably much less flexible than the powers available to the ATO. The ATO website sets out the legislation that underpins third-party information and data reporting; how it is stored and emphasises the ATO Data Ethics Principles, building trust through transparency. A study by Deloitte in 2017 found Australians view filing their annual tax return as a non-burdensome task, making paying tax easier. As a result, they plan to expand pre-population capabilities in 2024. The Australian tax gap has been reducing since 2016, partly as a result of their information and data-gathering reforms.
Ireland	Ireland’s tax authority has a broad set of information and data-gathering powers, which obliges a wide range of third parties, including merchant acquirers, government bodies, financial institutions, and certain types of intermediaries, to provide information and data. The tax authority encourages trust and transparency by publishing a list of exactly what information/data is collected from which third parties in its Annual Report. Its powers are broader than HMRC’s powers, and more flexibly defined. This allows the authority to inspect premises and documents simply and in a timely manner. Ireland has developed its information and data pre-population capability for income tax and corporation tax, together with digitalisation and more timely payments. Its aim was to make paying tax simple and to reduce the risk of accidental non-compliance. A survey of taxpayer attitudes in 2019 highlighted a high level of taxpayer satisfaction, resulting in continuous development of pre-population.
Portugal	Portugal uses information and data extensively in its tax administration, while the UK limits its use to mostly compliance work. The General Tax Law covers all tax affairs and gives exact provisions for third-party reporting and inspection powers. Portugal’s information, data and inspection powers bear similarity, in their flexibility, to those available to the ATO. Article 63 of the Portuguese Code provides that its tax authority may ‘in accordance with the law, develop all the necessary steps to discharge the tax situation of taxpayers’. In contrast to HMRC’s powers, the legislation is drafted widely enough to be adaptable to differing cases of non-compliance.
Slovenia	The Slovenian Tax Procedure Act (2019) applies obligations on third-party data-holders to its tax authority. Chapter VII specifies record keeping and reporting obligations for all parties in the tax system, rather than the UK’s method of requiring separate updates to legislation each time a new party must be added. These obligations have been structured in such a way that they can be applicable to many types of businesses and situations. In 2007, Slovenia joined other OECD countries and introduced limited pre-population and, following initial success, has since rolled it out to most tax returns. Alongside this, Slovenia has undertaken a simplification of its tax related processes and legislative powers to further modernise them.

Question 1: Do you have any other examples of international approaches to data-gathering, information and inspection powers you think it would be helpful for HMRC to explore? Are you aware of any drawbacks or advantages in the international approaches mentioned within the examples that you would like to draw our attention to?

Question 4

3.  Third-party information and data-gathering powers and taxpayer safeguards

Accepted Answer

Introduction

The proposals in this chapter focus primarily on Schedule 23 Finance Act 2011. They build on feedback received during the 2021 TAFR call for evidence and set out possible methods of modernising and simplifying information and data-gathering from third parties. These changes would improve HMRC’s ability to build a richer and more accurate picture of taxpayers’ circumstances and obligations as they occur and allow taxpayers to manage their affairs in real-time.

Accountability

In some OECD countries tax authorities centrally pre-populate taxpayer returns and provide these directly to taxpayers. This approach means the relevant tax authority is the originator of the return(s), rather than the taxpayer. Taxpayers in these countries are responsible for reviewing the pre-populated information and data in their return(s), approval of its accuracy and submitting changes to, or advising the relevant tax authority of any amendments they believe should be made to pre-populated content. Ability to amend is crucial for accuracy, trust and confidence for pre-populated returns.

Countries that extensively use pre-population utilise various methods to allow taxpayers to have final accountability for their tax return. For example, Ireland, Norway and Denmark use ‘deemed acceptance’, where a pre-populated return is perceived as automatically correct, unless a taxpayer raises a concern during the opportunity to review.

Most other tax authorities place a responsibility on the taxpayer to confirm a return is correct, by requiring them to review information and data pre-populated in their return, and agree accuracy of the return, or either, make the necessary amendments themselves, or provide these to the relevant tax authority. For example, Estonian taxpayers are responsible for confirming pre-populated information and data in their tax return is correct and are expected to amend their return if required so that it is accurate.

This contrasts with the UK approach. In the UK, taxpayer return(s) originate from the taxpayer. Taxpayers are responsible for final sign-off of their return(s) under Sections 8(1) and (2) Taxes Management Act 1970. This includes taxpayer responsibility for provision and accuracy of supporting information and data, and documentation. It is the UK position that final taxpayer responsibility should be retained to underpin trust and confidence in HMRC, however, HMRC is open to considering the balance of responsibilities for ensuring accuracy of information and data, and how disputes are resolved as it progresses towards pre-population of returns.

The OTS sets out in its report on using third-party information and data, under recommendation 4: ‘The government should initiate a broad-based consultation about the balance of responsibilities between data/software providers, agents, taxpayers and HMRC, and the extent to which it is reasonable for taxpayers to rely on data provided’.

The OTS recommended HMRC should consider whether final responsibility for a return should remain vested in the taxpayer, although did not recommend alternative models. The ability to amend underpins the UK’s approach to taxpayer responsibility for return(s), and declaration of their tax position to HMRC – it is also relevant to consider this for both transparency and compliance purposes.

Question 2: UK taxpayers are responsible for overall accuracy of their return(s), including supporting information and data. This reflects practice in OECD partner countries, which pre-populate taxpayer return(s):

A. What are your views on retaining the principle that taxpayers are responsible for accuracy of their return(s)?

B. What process(es) should be available for challenging and resolving discrepancies in information and data pre-populated in taxpayer return(s)?

C. Are there any specific alternative approaches to accountability HMRC should consider?

Scope of HMRC’s information and data-gathering powers and taxpayer safeguards

HMRC has a range of information and data-gathering powers. These include third-party information and data-gathering powers – primarily Schedule 23 Finance Act 2011 (Schedule 23) – and taxpayer safeguards. These enable the collection of specific information and data from certain third parties about a group of taxpayers. These powers broadly operate as follows:

data-holders are set out in primary legislation and expressed by functions, rather than the type of holder (for example, a ‘person who pays interest’ rather than a ‘bank’ or ‘building society’)
the types of information and data that can be required from each data-holder are separately specified in the Data-gathering Powers (Relevant Data) Regulations 2012. This includes information and data about income, transactions and assets, as well as names and addresses to identify taxpayers. This supports HMRC in matching the information and data with individual taxpayers. Typically, HMRC will issue a data-holder with a notice to provide information and data by a certain date and in a particular format. Schedule 23 allows HMRC to request any information and data up to four years old
these third-party powers allow administration across a range of tax regimes (including relevant non-UK tax) and can be used for all HMRC functions

Under Schedule 23, a data-holder can appeal against a notice to provide information and data if it is unduly burdensome, they are not a data-holder, or the request does not satisfy the requirement of being ‘relevant data’ under the Regulations. HMRC can only require information and data that is within the data-holder’s possession or power. HMRC will usually work closely with a data-holder before a notice is served to help ensure the notice is met and is not unduly burdensome. A data-holder can be charged penalties if they fail to comply with a notice and have a corresponding right of appeal.

HMRC has a responsibility to ensure the security of taxpayers’ information and data, including that provided by third parties. Taxpayers also expect their information and data to be handled appropriately and safeguarded in accordance with the law.

HMRC routinely compares information and data provided by taxpayers with third-party information and data relevant to their tax position, helping to simplify tax administration and identify potential non-compliance. For example, information and data currently collected on bank and building society interest can be used to ‘pre-populate’ an individual’s tax return (where data-matching is possible). Information and data on savings income can also be used to collect tax due through the PAYE system, removing the need for some people to provide a tax return.

Third parties also use a range of different systems to compile and provide information and data to HMRC. Differences in information and data collection, presentation and formatting can affect HMRC’s ability to match information and data to a taxpayer’s customer record, making matching more difficult and creating processing delays.

Developing technology provides greater opportunities to improve information and data quality, expand use of pre-population, and reduce administrative burdens on data-holders in complying with notices. This chapter explores some potential areas for reform.

Different legislative approaches

There may also be opportunities to explore different legislative approaches and build a simplified and more flexible information and data-gathering framework. Australia and Estonia, for example (Table 1, Chapter 3 above), set out generalised information and data-gathering powers in primary legislation, supported by secondary legislation and guidance (Section 353-10 Commissioner’s Power – CCH iKnow). If the UK adopted a similar approach this would improve the resilience and flexibility of UK tax administration by removing the need to update legislation, as is required, to incorporate new information and data from data-holders (as the government has done on three occasions in the last decade). Another alternative model HMRC could draw from is that used by the Slovenian tax authority, which rather than focus on separate categories of data-holders, instead specifies record-keeping and reporting obligations for all parties within its tax system.

Question 3: In considering potential reforms by HMRC’s of its information and data-gathering powers, and applicable safeguards:

A. What are your views on the prescriptive framing of HMRC’s current information and data powers?

B. What are your views on HMRC adopting a flexible approach to its powers, such as that used by Australia and Estonia?

C. What are your views on alternative approaches, such as the Slovenian approach set out above?

D. Would it be beneficial to taxpayers for HMRC’s current, and/or reformed powers to be consolidated into a single piece of legislation?

Standardisation of regulations governing data-holders

HMRC’s information and data-gathering powers have evolved piecemeal, and in tandem with the evolution of data protection and UK GDPR rights that have been required to protect use of information and data. There is potential scope to adopt a more harmonised approach, standardising requirements for groups of information and data-holders and making legislation simpler for data-holders to comply with.

Since Schedule 23 was introduced in 2011, data-holder regulations have evolved to reflect the changing information and data landscape: namely, greater digitisation and the role of identifiers becoming increasingly important within information and data management.

Question 4: What are your views on aligning data-holder requirements and considering a mandatory requirement for data-holders to collect and provide HMRC with common information and data fields to support better matching?

Unique identifiers

Alongside the need to evolve its information and data powers, discussed by this document, HMRC has also had to respond reactively to changes in the technology sphere to better utilise information and data for tax administration. This document therefore complements a range of IT and process transformation activity across HMRC, designed to remediate the piecemeal development of systems, and enable better use of information and data across its IT estate.

One of the recommendations from the OTS report on making better use of third-party information and data advised the government and HMRC to consider a unique taxpayer identifier to enable matching of third-party information and data with a taxpayer’s Single Customer Account.

The OTS suggested National Insurance Numbers (NINOs) as a potential unique identifier. However, NINOs are not a robust unique identifier for tax administration, as not every taxpayer has a NINO, and there are instances of NINO duplication. Similarly, names and addresses are not robust identifiers, as these can be changeable, incomplete, or incorrect. A robust method for identification and matching therefore needs to be identified or developed to enable valuable ingestion of third-party information and data for taxpayers.

HMRC recognises information and data quality is a key issue and that a robust method for identification and matching taxpayer information and data is required. As such, one of HMRC’s key transformation programmes, the Unique Customer Record (UCR), will seek to improve its ability to match taxpayer information and data.

The UCR programme will make use of a range of identifiers that HMRC already holds or will obtain from taxpayers, to cross-reference and identify, and then remove or merge, unconnected or duplicate taxpayer records. In delivering this capability, UCR will allow HMRC to bring together and match all relevant information and data items collected from a range of sources, including third parties, into one single record, unique to each individual taxpayer, across HMRC systems.

Many OECD countries that utilise information and data effectively in tax administration, or which effectively pre-populate taxpayer returns, utilise unique taxpayer identifiers. These enable efficient matching of data to the correct individual, reducing opportunities for errors, and complexity. There are two main approaches used by international tax authorities:

an identification number for use exclusively in tax affairs. These are used by tax authorities in France, Portugal, Australia, New Zealand and Slovenia, and are generally allocated when registering to pay tax for the first time. Their use is solely for tax administration, with no wider government use, and they are used for matching a taxpayer with correct accounts, records, information and data related to completion of their tax return
a cross-government identity number/code to be used in most interactions with civilian and government systems (similar to the UK’s NINO). Countries that use these for information and data use in tax administration, include Estonia, Finland, Sweden, Denmark, Belgium, Norway, Ireland, Canada, Singapore and the Netherlands

There are also cases where data-holders, operating in a similar field or industry, collect different pieces of information and data on their customers, despite having a common business purpose. This can make it more difficult for HMRC to match this disparate information and data with taxpayers.

Collecting a common piece of information or data, using common input fields across different data-holders, could make a positive difference with information and data-matching. This could save time and resources for both HMRC and data-holders. We see scope here for aligning information and data collection and seek views on whether such provision should be mandatory.

Question 5: What are your views on:

A. The advantages, disadvantages, or any specific considerations of HMRC introducing unique taxpayer identifier(s) to enable more accurate information and data-matching to improve tax administration, including fuller pre-population of taxpayer returns?

B. Similar approaches used by partner OECD countries?

C. Alternative unique identifier(s), or data-matching mechanisms which could be utilised to improve tax administration, including fuller pre-population of taxpayer returns?

Standardisation of information and data provision

The format in which HMRC receives information and data has been mostly unchanged for 30 years and the process can be resource intensive. The lack of a standard reporting mechanism can lead to errors and discrepancies, some of which subsequently need to be followed-up between HMRC and the data-holder. This process of reconciling the information and data can be very time-consuming, involve numerous queries and contact between HMRC and the third-party, and adding to the administrative burden of complying with such requests.

HMRC would like to explore the merits of standardising reporting of third-party information and data in the UK: for example, through the use of a ‘schema’. A schema is a structure used for holding and transmitting information and data in bulk.

The OTS report, ‘Making better use of third-party data: a vision for the future’ (July 2021), regarded the Common Reporting Standard (CRS) as an effective and secure information and data reporting model. The OECD’s CRS rules, incorporated into UK law under the International Tax Compliance Regulations 2015 (as amended), prescribe a schema that financial institutions must use when submitting information and data to HMRC. Banks and building societies already submit information and data in relation to foreign owned accounts to HMRC annually under the CRS. A common schema approach is also being adapted to update information and data provision to HMRC from digital platforms from 1 January 2024, following a consultation that concluded in October 2021.

HMRC also uses Extensible Markup Language (XML) schemas for merchant acquirers and international exchanges, alongside guidance on exactly what a data-holder should send to HMRC, and the format in which they should provide that information and data when they receive a notice under Schedule 23 Finance Act 2011, or Schedule 36 Finance Act 2008 ^{[footnote 1]}. This guidance helps to prescribe the format of information and data. However, despite the guidance being reviewed regularly, HMRC receives information and data of inconsistent quality in the absence of a mandated schema.

Specific data issues HMRC encounters include:

Merchant Acquirers – several different organisations supply HMRC with this information and data. Each organisation utilises a differing format. The lack of schema cohesion presents challenges in reconciling these information and data sets and matching them with taxpayer records
Automated Teller Machines (ATMs) – many different companies make ATMs. Each records the information and data they gather in differing formats and with disparate levels of detail. Again, the absence of schema standardisation causes issues with matching and using this information and data

The use of a set schema would improve the quality and consistency of information and data HMRC receives. These changes would enable consistent and timely information and data-matching and improved pre-population of taxpayer returns.

Consideration would need to be given as to how to utilise a schema while allowing HMRC to request any additional information and data items it requires outside that schema, without presenting an undue administrative burden on data-holders.

Requiring data-holders to submit information and data in a set format could impose initial administrative costs on businesses, though it should reduce the quantity of follow-up requests and make compliance easier in the longer-run. Data-holders would also need sufficient time to transition to a new approach and clarity on its requirements. Further work will be needed to consider these impacts, as well as the appropriate way to design any new obligations of this type.

Question 6: What are your views on the advantages and disadvantages of adopting a set of ‘schema’ like the OECD model, to standardise information and data reporting from third parties? If HMRC were to explore this further, how should any new obligations in this area be structured?

Simplifying the current information and data-holder notice regime

HMRC is required to serve a data-holder a notice under Schedule 23 to obtain third-party information and data. This process is repeated if the information and data is needed on a regular basis. This is a manual and resource-intensive process that creates unnecessary burdens for HMRC and the data-holder.

Before a notice is served, HMRC must speak to the data-holder to find out what information and data it holds and in what format, to ensure it can comply with the notice. The data-holder may also be uncertain whether a notice will be one-off, or repeated over time, and the overall process can result in delays in sending out notices.

The UK and other tax authorities also have standing obligations that require third parties to provide information and data on a regular basis. In the case of the UK, regular reporting is required to enable PAYE and the UK’s implementation of the CRS – provisions for real-time information have been added to Pay As You Earn via amending statutory instruments, such as the Income Tax (Pay As You Earn) (Amendment) Regulations 2012.

Internationally, Section 2 of the Spanish General Tax Act (1997) sets out reporting obligations for third parties; and the Slovenian Tax Procedure Act (2019) details taxpayer and third-party obligations, provision of documents, electronic transfer of information and data, costs and record-keeping obligations.

The increasingly real-time nature of tax administration could put further demands on the number of notices HMRC has to issue, and that data-holders will be required to comply with. There may be opportunities to improve the efficiency of the notice regime for both HMRC and data-holders, reducing administrative burdens for all parties, and ensuring obligations are clear, timely and effective.

HMRC is interested in views on the merits of adopting a different approach for data-holders who already submit third-party information and data on a regular basis, as an alternative to manually issuing notices. This could include, for example:

standing reporting obligations for some third parties, to provide specified information and data on a regular basis
multi-period or indefinite data-holder notices in other cases, possibly supplemented by the use of one-off data-holder notices where the value of the information and data is yet to be assessed

Question 7: What are your views on adopting a different approach for submitting information and data on a regular basis to HMRC, including alternatives to the current notice regime?

Question 8: What are your views on the frequency with which information and data should be reported to HMRC, particularly with a view towards the increasingly real-time nature of tax reporting, and other taxpayer services?

Question 5

4.  Information and data powers and taxpayer safeguards

Accepted Answer

Introduction

This chapter focuses on Schedule 36 Finance Act 2008 (Schedule 36). HMRC sometimes requires additional information and data to check a taxpayer’s position or establish if they have the means, or require support, to pay their tax. This is usually obtained voluntarily from the taxpayer, but in some cases HMRC needs to use its powers to obtain that information and data from the taxpayer, or a third-party data-holder (such as the taxpayer’s bank or building society).

HMRC issues information notices in these cases, requiring the recipient to provide specified information and data within a given period. There are restrictions as to how and when these powers can be used. With a few exceptions, recipients of these notices can appeal against them.

As tax administration and technology continue to evolve, the ways in which information and data are requested, provided, and used may also need to change. There may also be opportunities to create easier and smoother processes for the taxpayers and third parties who receive such information notices.

Scope of HMRC’s information and data powers and taxpayer safeguards

Within HMRC’s suite of information and data powers, Finance Act 2008 (Schedule 36) provides HMRC with powers to obtain information and documents and contains associated safeguards for taxpayers. These powers enable the gathering of information and data, including examination of documents, which form part of a person’s statutory records.

HMRC uses five different types of information notices. These are:

taxpayer notices: HMRC can issue a notice to a person, requiring them to provide information and data or produce documents reasonably required for the purpose of checking their own tax position
third-party notices: to obtain information and data about an identified taxpayer. Third-party notices require approval from a Tribunal or consent from the identified taxpayer. The third-party can appeal to a Tribunal if the notice is ‘unduly onerous’ to comply with (except where the requested information and data or document form part of the taxpayer’s statutory records)
identity unknown notices: third-party notices can be issued when the identity of a taxpayer is unknown. This normally requires Tribunal approval, though there are some exceptions, such as when HMRC is seeking information and data about a subsidiary company from its parent or another partner in a partnership
identification notices: these can only be issued where HMRC or another tax authority holds information and data from which the identity of a person, or class of persons, can be ascertained. The notice is limited to obtaining basic ‘identifying’ information (specifically their name, last known address and date of birth) to supplement that already held by HMRC for the purpose of checking the tax position of a person. These notices must be issued by an authorised HMRC officer and do not require Tribunal approval
financial institution notices: HMRC can issue notices to a financial institution (such as a bank or building society) requiring information and data or documents for the purpose of checking a person’s tax position. This must be approved by an authorised HMRC officer and does not require prior approval from the taxpayer or a Tribunal (except where the requirement to notify the taxpayer is disapplied)

A taxpayer can appeal a taxpayer notice by writing to HMRC within 30 days of the notice being issued, unless the notice is for statutory records, or is a Tribunal-approved notice.

Penalties may be applied if a taxpayer or third-party fails to comply with an information notice, and further penalties can also be applied for each subsequent date on which the failure to comply continues. Taxpayers can appeal against any penalties issued.

Information and data powers and taxpayer safeguards: challenges

The obligations and safeguards provided by the notice regime are well established. These powers enable HMRC to clarify and address potential non-compliance, protecting the Exchequer and wider UK public against those who inadvertently, or deliberately understate their tax position. This supports the government and HMRC’s shared efforts to reduce the tax gap, improve fairness in the tax system, and ensure continued funding of vital UK public services.

However, there are a number of challenges with the current Schedule 36 process:

responses to the 2021 TAFR call for evidence reported that some stakeholders see an imbalance between HMRC’s ability to request information and data within a set timeframe from a recipient, who must then wait for extended periods for HMRC to process the information and data provided and respond
the current approach has not always kept pace with modern technology, including the advent of digital record-keeping. Requests can sometimes involve multiple resource-intensive exchanges of correspondence, and delay issue resolution
penalties may not incentivise compliance, often being relatively small compared to the size of the tax under dispute and/or the size of the taxpayer/business
there are occasions when non-compliant individuals and businesses appear to actively seek to delay providing requested information and data for as long as possible. This includes exploiting safeguards such as reviews and appeals to the Tribunal, only to withdraw appeals at the last moment. This generates unnecessary costs, puts pressure on the Tribunal system and is unfair to other taxpayers who try to get things right first time
as technology evolves HMRC may in future be able to better verify a customer’s tax position by using information and data from third-party sources, which may mean the role of information and data powers changes

Question 9: Do you agree that these are the main challenges with the information notice process as set out in Schedule 36 Finance Act 2008? In your view, are there any additional challenges HMRC should consider?

Alternative approaches

Given some of the challenges outlined above, HMRC is interested in exploring if there are alternative approaches to gathering information and data that could streamline the provision of additional information and data and reduce administrative burdens for taxpayers, HMRC and/or Tribunals, HMRC would welcome early views on this.

One such alternative approach could be introducing a more graded power. It could operate with the aim of simplifying the process, making it less burdensome for taxpayers and supporting a more collaborative relationship. This would allow HMRC more scope to tackle or use other means to reduce delay for those thought to be displaying, more seriously non-complaint behaviour.

This could include differentiated information and data powers depending on a taxpayer’s circumstances. For example, HMRC could deploy greater flexibility in the timescales, scope and format of the information and data it requests, where taxpayers engage in a collaborative way.

Conversely, HMRC could apply a different set of penalties, or bypass the internal review process, before an appeal to a Tribunal, in instances where the taxpayer has a history of non-compliance with previous information notices, or there is evidence of deliberate non-compliance.

Question 10: What are your views on HMRC exploring the introduction of a more graded information and data power to reduce administrative burdens and delays for taxpayers and HMRC? Do you have any suggested alternative approaches that could help to improve the process for taxpayers and HMRC?

A coordinated approach to notices

Notices are currently issued on an individual basis (to a specific taxpayer, business or third-party). Each taxpayer must be treated separately under this approach.

There are circumstances where a multi-user approach – issuing a single notice to a class or group of taxpayers who share common attributes – may help simplify the process of obtaining information, reduce costs and risk to the Exchequer. For example, a blanket notice could be issued to all users of the same avoidance arrangements (for example, the same Disclosure of Tax Avoidance Schemes reference number). That notice could cover the promoter, all users, and beneficiaries, rather than HMRC needing to issue separate, individual notices to all parties linked to the scheme.

This could save significant time and resources for the courts; for example, only requiring one hearing at the First-tier Tribunal to gain consent before a notice is issued, rather than many, and could reduce delays for taxpayers. This would need to be considered alongside the need to retain appropriate safeguards for taxpayers.

Question 11: Are there cases where a more coordinated approach to issuing information notices (for example, issuing one notice to a class of taxpayer and/or to a third-party about a class of taxpayers) could improve the experience for taxpayers and third parties? What challenges could this present and how could taxpayer safeguards mitigate these challenges?

Effective and appropriate safeguards for information notices

The process of issuing Schedule 36 third-party information notices incorporates vital safeguards for taxpayers. When HMRC issues a third-party notice to obtain information and data about an identified taxpayer, this must be approved by a Tribunal, or receive consent from the taxpayer (except for Financial Institution Notices).

There may be some discrete areas where the requirement to obtain consent from a Tribunal could be relaxed to simplify the process. Equally, there may be cases where safeguards could be strengthened for all parties.

In some cases, the affairs of the ‘taxpayer’ and the ‘third-party’ are closely intertwined. For example, in the case of an owner-managed business the tax affairs of the director and the company are closely linked, even though they are considered separate legal entities. The requirement to obtain taxpayer or Tribunal consent to ask the director for information and data about their company (or vice-versa) may be unnecessary and complicate the process, adding delay and increasing costs for all involved.

Question 12: What are your views on creating a category of information notice that covers connected persons or third parties (this could cover the ‘person with significant control’, in the case of a company)?

Updating Section 114 Finance Act 2008: Computer records

As information and data plays an increasingly important role in modern, digital tax administration, and as its use and application evolves, legislation will need to keep pace with technological change and reflect evolving practices.

As well as considering the scope and function of legislation, there may be areas where language could be updated in the context of current and future applications of information and data. One example of this is around changes in the way information and data are stored, processed and generated. For example, Section 114 (3) of the Finance Act 2008 refers to HMRC’s ability to:

obtain access to, and inspect and check the operation of, any computer and any associated apparatus or material which is or has been used in connection with a relevant document.

This provision reflects thinking under previous legislation, specifically Section 127 Finance Act 1988 and Section 10 Finance Act 1985, which sought to grant HMRC the same access to records held on computer, or in any other modern form, as was then possible with hard-copy records. This narrow definition does not reflect the more transient and fluid nature of modern information and data flows, and prevents HMRC from obtaining software information from third parties and intermediaries.

Technological developments over the last few decades have led to information and data being held online and digitally, especially on the cloud, with third parties and intermediaries having more control over that information and data. Current legislation prevents the higher-level ability for HMRC to request the disclosure of the workings of that information and data, which may influence the material held on the personal computers of taxpayers.

This is particularly relevant to computer software (meaning a set of instructions, data or programmes used to operate computers and execute specific tasks). Current legislation allows HMRC to check the operation of a computer system in prescriptively specific circumstances, but not to have any influence on how the system operates.

As part of its efforts to help taxpayers to get things right first time, HMRC would like to analyse and investigate the software of third-party and intermediary software providers. The aim is to work with these providers to identify any flaws in their software in terms of compliance. This would enable remedial action to fix any issues at source, and ultimately to provide assurance that it can be relied upon to generate accurate data, on which taxpayer returns are based. This feedback from HMRC could benefit taxpayers and software providers alike.

More fundamentally, the technological landscape has changed over the last 20 years and continues to evolve beyond the scope envisaged when existing legislation was drafted. It is increasingly rare for information and data to be held only on a personal computer, at a single, physical location, within desktop applications. With the advent of cloud and server technology, information and data, including software is more dispersed away from the end user’s personal computer (or smartphone or tablet), with much of it now being held online (often outside the UK by a third-party).

Furthermore, the marketplace for taxation has moved onto digital technology platforms. This includes the fast-developing use of machine-learning and artificial intelligence tools, as well as highly mechanised commercial shared service centres that turn taxpayers’ information and data into tax returns at low cost.

To address this issue, HMRC would like to explore options to expand the scope of current legislation to encompass a broader set of powers that enable HMRC to obtain and access any type of information and data (including software) from any system that stores or processes information or data relevant to UK tax administration.

These legislative changes would also cover information from third parties and intermediaries, by extending the mandatory principle in current legislation. Effective and appropriate safeguards would be a crucial element of any reform in this area, and HMRC welcomes views on how these could be structured.

Question 13: What are your views on updating Section 114 Finance Act 2008 to take into account the issues set out above?

Question 6

5.  Assessment of impacts

Accepted Answer

Summary of impacts

Year	2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028
Exchequer impact (£m)	Nil	Nil	Nil	Nil	Nil	Nil

Exchequer Impact Assessment

Impacts	Comment
Economic impact	This measure is not expected to have significant economic impacts.
Impact on individuals, households and families	This call for evidence discusses how reform of the HMRC’s information and data powers has the potential to improve the taxpayer experience but does not propose specific measures at this time. This measure therefore has no direct impact on individuals at present. Any future impacts on individuals will be fully examined and detailed. The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts	This submission has no impact on groups sharing protected characteristics. The government will, however, consider any issues raised as part of any future consultations leading from this review.
Impact on businesses and Civil Society Organisations	This call for evidence discusses how reform of the HMRC’s information and data powers has the potential to improve taxpayer experience, but does not propose specific changes at this time. This measure therefore has no direct impact on businesses or civil society organisations at present. Any future impacts on businesses or civil society organisations will be fully examined and detailed.
Impact on HMRC or other public sector delivery organisations	There are no financial consequences for HMRC linked with this call for evidence. Any future policies taken forward which affect the tax administration framework, subsequent to this call for evidence, could have longer-term impacts on the tribunal and courts system. The government will assess those impacts as part of any future consultations on specific changes.
Other impacts	No other impacts have been identified.

Question 7

6.  Summary of consultation questions

Accepted Answer