Independent report

Administrative Burdens Advisory Board (ABAB) 2023 annual report: Better tax for better business

Published 12 December 2023

Foreword

This year has been another extremely challenging time for smaller businesses. The on-going economic, energy and cost of living crises continue to contribute to a slow recovery from the impact of the COVID pandemic. With the political landscape remaining somewhat unsettled, this impacts further on small business confidence.

The Administrative Burdens Advisory Board (ABAB) has been listening to and supporting small businesses and their representative bodies during this period, promoting simplifications to tax systems and services which (if undelivered) can hold business back.

We expressed deep concerns about the Making Tax Digital Income Tax Self Assessment (MTD ITSA) programme in our 2022 report and set out a number of specific issues underlying those concerns. Shortly after publication of our report, the government announced a re-phasing of the programme and a review focusing on the needs of the smallest businesses.

We welcomed this and were heartened to see some of our specific concerns addressed in the review’s conclusions, announced at the recent Autumn Statement. Having felt frustrated at times that our advice here has not always been listened to or acted on, we have also been encouraged by the more collaborative approach we have witnessed over the past 12 months. There is still much to do however, and it is absolutely vital that the collaborative approach is maintained. 

Following the HMRC stakeholder conference in February, ABAB has developed a new relationship with their Individuals and Small Business Compliance (ISBC) Directorate. Our key objective has been focused on exploring how small businesses can be better supported in managing their tax obligations by the use of greater education, targeted guidance and communications. We continue to support ISBC in this work.

Our ‘Tell ABAB’ survey continued this year, with a record number of responses. I want to offer our thanks to the almost 7,500 respondents – more than double the amount we usually see. We listen carefully to what you say, and this drives our agendas and meetings and gives us a strong stance to negotiate change.

We have been impressed with changes delivered as a direct result of ABAB feedback – both in meetings and through the survey – improving HMRC online guidance products, GOV.UK content and HMRC forms.

We are gratified by high demand for ABAB engagement from HMRC teams; we look forward to seeing further tangible evidence of where our steers have made a difference.

ABAB engages directly with the Financial Secretary to the Treasury (FST). The then FST, Victoria Atkins MP, joined us in May to listen to our views. She expressed her appreciation directly to the board for its time and support to HMRC and endorsed the use of constructive and collaborative external engagement.

I and my fellow ABAB members remain committed to, and passionate about, making a noticeable difference for small business by encouraging and supporting HMRC to make tax easier, quicker, and simpler.

Our agenda is at the end of this report, and we would welcome your comments and input to help us with our work: please contact us.

Can I close by offering, on behalf of ABAB and all the survey respondents, some agenda items for HMRC:

• progress Making Tax Digital (MTD), but with care
• press forward with the Single Customer Account
• show how you are going to pursue tax simplification

Above all, listen to ABAB: we offer advice of real value. Not just because it’s free, but because it’s founded on 2 crucial pillars: the experience and expertise of our board members, supported by the practical insights from 7,500 survey respondents.

Dame Teresa Graham DBE

Chair, Administrative Burdens Advisory Board

Introduction

The Administrative Burdens Advisory Board (always known as ‘ABAB’) offers constructive challenge and support to HMRC by championing the views and concerns of the small business community. We are a group of small and medium business operators and advisers; we cover a wide range of business sectors and pride ourselves on our relevant, current knowledge and our expertise and independence.

Our quarterly board meetings, attended by senior HMRC personnel, are key, but they are only part of our work. Our members regularly comment on consultations, wider topics or take part in more detailed discussions, including at internal HMRC meetings and events. ABAB reports annually, as an independent body, to the FST.

Our primary goal is to ‘make a noticeable difference’ for small businesses, particularly in relation to the administrative burdens imposed by the tax system. We are not a statutory body; we exist by invitation of HMRC. Our approach is to operate as an independent and unpaid ‘critical friend’ to HMRC, offering constructive challenge and support.

We remain firmly committed to the goal of a simpler and easier tax system for small businesses. We think this offers a ‘win win’ situation for all involved: a simpler and easier tax system will not just save businesses administrative time and money; it will likewise save HMRC’s time and money as there will be fewer mistakes and difficulties to resolve. And it will help the tax revenues flow more smoothly into the Treasury’s coffers!

Our priority areas:

• reducing administrative burdens to enable easier, more efficient and effective tax systems
• being an independent, critical friend to HMRC who can critique and offer guidance and advice
• close consultation with HMRC, which has overall responsibility for policy changes

This report covers our work from December 2022 to November 2023. In our report last year, we set priority areas for ABAB’s attention this year as:

• management of MTD programmes
• customer experience
• culture and capability for listening
• ‘Tell ABAB’ survey
• tax simplification

We have progressed discussion on all of the above as this report will show.

In addition, we have reacted to changing circumstances and priorities, so also report on work areas around Tax Administration; HMRC’s Individuals and Small Business Compliance team (ISBC) on how can small businesses be helped further; the progress of the Single Customer Account (an innovation with huge potential); the Check Employment Status for Tax - CEST - tool (to help businesses make a secure tax status determination); and exciting Futures and Innovation work.

Making Tax Digital

The Making Tax Digital (MTD) programme remains a major area of interest for us. Since the extension of MTD for VAT to all VAT-registered businesses in April 2022, the board’s focus has been on MTD ITSA.

Last year’s report: progress

In our annual report last year, we set out our concerns about MTD ITSA and urged HMRC to delay the project in order to address them. Shortly after the publication of our report, the then FST announced a re-phasing of the MTD ITSA programme so that self-employed individuals, and landlords with income over £50,000, would be mandated to join from April 2026 and those with income over £30,000 from April 2027.  Furthermore, the government would review the needs of smaller businesses, particularly those under the £30,000 threshold and how MTD ITSA can be shaped to meet their needs. We welcomed this response.

The then Director for Making Tax Digital Transformation joined our May board meeting, which was also attended by the then FST. We shared our frustration that our views and concerns had not been heeded and that this contributed to the delay announced in December 2022. We confirmed our willingness to continue helping, but said we expected more transparent and open conversations.

ABAB also contributed evidence to the National Audit Office (NAO) study into the progress of MTD. The subsequent NAO report, published in summer, highlighted some of the challenges and recommendations highlighted by ABAB.

The review’s outcome

The results of the review were announced on 22 November 2023 alongside the Autumn Statement. These directly addressed some of the concerns we set out in our 2022 report, giving us considerable reassurance that the situation has changed and that our views have not only been heard but, to a considerable extent, acted on.

Key points:

• error correction: rather than correcting errors or omissions by re-submitting the relevant quarter’s return, quarterly returns will be cumulative within a tax year, not standalone
• landlords and jointly let property: HMRC has set out some specific measures to address our concerns
• multiple agents: HMRC has acknowledged the concern we and others expressed over the need for authorisation of multiple agents (for example where a bookkeeper makes the quarterly submissions, and an accountant handles the finalisation process) and has committed to developing a solution
• basis period reform: our specific concern regarding businesses with non-fiscal year ends has been acknowledged and HMRC is seeking solutions to mitigate the impact through engagement with software developers

We also welcome the decision to keep under review further mandation of businesses and landlords with income below £30,000 in order to allow HMRC to closely monitor users’ experience of MTD through public beta testing.

We are heartened by HMRC’s assessment that through work on the review and collaborative sessions addressing design challenges, it has strengthened and improved joint working and engagement with accountancy, business and software industry stakeholders. Working closely with stakeholders is the best – perhaps the only – way to ensure that the actual needs of taxpayers are understood and that the system addresses those needs.

The next stage: beta testing

HMRC aims to start a large-scale public beta testing programme in 2025. We repeat what we said in our 2022 report: that testing will be mission-critical for MTD ITSA, which is a far more complex proposition than MTD for VAT. There will be many different combinations of income and expense types in the mandated population, and it is vital that as many real-life scenarios as possible are thoroughly and successfully tested through the pilot. It is essential for the programme that HMRC has a thorough understanding of smaller businesses, and that this understanding is shaped by insight, research, external engagement and expertise.

The programme must have the flexibility to support all individual taxpayers with self-employment or property income above the mandation threshold. Many will seek an end-to-end service that allows them to manage all their personal tax obligations. For others, potentially with more complicated business and tax affairs and possibly using an agent, software that simply records and reports each relevant source within scope of MTD ITSA will be best.

It’s in HMRC’s interests for there to be a range of viable software options, so that people can meet their needs through a choice of complete personal tax products, MTD embedded in other services, bridging software and an extension by MTD VAT providers to include MTD ITSA filing.

We remain firmly of the view that digitalisation can improve tax administration both for HMRC and for taxpayers. Digital technology can also help businesses to operate more efficiently, helping to drive productivity and growth.

We are fully supportive of MTD’s core aim of improving the quality of business records. However, as we have said in previous reports, change must be implemented in the right way and at the right pace: tax is not and should never be the only driver for change. This must be kept in mind as the situation for those with income below £30,000 is considered and an open-minded approach to the right solution for these customers maintained. Given the reliance on software, we hope that HMRC is able to share its own research with those designing tax products.

We remain concerned though, that at this stage of the IT build, changes and adaptions may not always be possible, and that time – even with the two-year delay to 2026 and phasing – is short. Many challenges remain.

Culture and capability for listening

Tax Administration Directorate (TAD)

Frequent engagement with HMRCs Tax Administration Directorate (TAD) has taken place this year. TAD is responsible for the legislation, policy and guidance that enables the effective administration of all the taxes for which HMRC is responsible.

ABAB provided detailed input following the publication of TADs discussion documents on ‘Simplifying and Modernising HMRCs Income Tax Services’ and on ‘Information and Data Powers’. We also provided views following Tax Administration and Maintenance (TAM) Day announcements in April.

The operation of correct tax codes and risks associated with incorrect codes is another area we have steered on. 

Whilst recognising that the shift to digital services can present both opportunities and challenges, and that a digital approach does not in itself guarantee simplification, we have been clear about the need to improve digital services and think about agent access and use. The use of Application Programming Interface (API) technology is key to this but is something currently under-used by HMRC.   

ABAB is concerned about the emerging climate and messaging used by HMRC this year which discourages customers from calling HMRC helplines. We have some sympathy with HMRC in trying to encourage taxpayers to do some basic research and checking themselves, rather than always calling HMRC helplines. But restrictions on helplines need to be carefully considered and designed when there is so much that customers (and HMRC) can still find difficult and make mistakes with during tax administration activities. HMRC need to work towards a system where helpline support is there for genuine difficulties - which in turn means improving guidance.’

We are keen to continue exploring where there is further scope to simplify and modernise the tax system.

Individuals and Small Business Compliance

The Individuals and Small Business Compliance (ISBC) directorate at HMRC supports a large and diverse group of customers, approximately 32 million individuals and 5.5 million small businesses, and is responsible for managing compliance risks across all the main taxes and duties.

At the start of the year, ABAB were pleased to jointly facilitate a session with ISBC at HMRC’s stakeholder conference, in particular, focusing on ‘Working together to help small businesses thrive and get their tax affairs right’. This explored how HMRC and industry can co-design and co-deliver with small businesses, agent and representative bodies to better support them thrive whilst meeting their tax obligations. It has led to an enduring engagement relationship where ISBC colleagues are listening to ABAB views on where efforts should be focused to help achieve this goal, and help contribute towards reducing the growing tax gap, whilst balancing the need to reduce customer admin burdens.

We are also keen to see customer experience at the heart of the customer journey when customers engage with the tax system, and more consideration being given to the burdens associated with tax compliance. We know these aims are shared by ISBC.

In line with other Organisation for Economic Co-operation and Development (OECD) tax authorities, ISBC are looking at what HMRC could do to better support small businesses in meeting their tax obligations at key stages: entrants at the start of their tax journey; then once they’re in the system and growing; and when facing difficulties and addressing non-compliance. Continued engagement with ABAB and with other representative groups will provide insight to ISBC on compliance issues and opportunities to improve outcomes for both the customer and HMRC.

ABAB were pleased to link ISBC with the UK banking sector, to work collaboratively on exploring the potential for banks to offer tax and compliance signposting in their interactions with small businesses. Good progress is being made partnering with HMRC Customer Strategy & Tax Design Guidance Team, the Department for Business and Trade and large banking sector to provide improved guidance and education to new start-ups, to address common errors resulting in small business tax gap increases, whilst reducing customer admin burdens.  This includes developing ISBC’s external engagement with small business trade forums to better understand their customer’s pain points and improve HMRC’s customer segmentation approach. These activities encapsulate a progressive relationship between HMRC and ABAB to support ABAB in its admin burden reduction agenda to ensure small businesses thrive. 

We will continue to support ISBC in their work and look forward to updates on progress in 2024.

The Single Customer Account

The Single Customer Account (SCA) is one of HMRC’s most important developments and should eventually be available to all UK individual taxpayers (over 45 million people), becoming the hub for all exchange of information between taxpayers and HMRC.

The account goes beyond the current digital offering in Personal or Business Tax Accounts to provide a much more personalised, task-based interaction through both mobile app and web. The SCA aims to draw together all of a taxpayer’s tax affairs – a seemingly obvious idea but fraught with complexity because of HMRC’s legacy systems. 

Work has started on digital identity and authentication, together with adding child benefit, so that the account can now be used to make and modify child benefit claims. However, there is no public timetable on when the data from the business tax account (mainly income from self-employment and property) will be added in to give individuals a full picture of their tax affairs.

The SCA should also be developed to help taxpayers to give information to HMRC. This is especially important as HMRC expects that over 1 million additional taxpayers will pay tax on interest income in the current tax year. The reduced allowances for dividends and capital gains will also bring in additional taxpayers needing to report to HMRC.

Ultimately, the project has the potential to reduce the numbers needing to file personal tax returns, by collecting data from the taxpayer in a simple way and showing taxpayers the data collected on their affairs and asking for confirmation rather than repetition. This would reduce errors – and HMRC’s workload – as well.

ABAB recognises the progress made this year with a number of different SCA services. We understand the impact that has already had, including a decrease in telephone calls from customers, a digital service which reduces manual effort and growing numbers who are engaging with the product.

However, there are still some fundamental issues. Despite significant reductions in phone calls, customers are unable to get through on the telephone when the digital offering doesn’t serve. This may be an end-to-end journey for HMRC, but many customers may not experience that.

Also, the value of an agent supporting a taxpayer, being able to see the same information as the taxpayer they are supporting, is an issue ABAB would welcome being addressed, in terms of the SCA.

We continue to push for extended co-creation, and the development of a Steering Group to help HMRC manage SCA developments. In-depth consultation with a wide range of external bodies – such as Citizens Advice, the Low Incomes Tax Reform Group, professional bodies, and software experts will help deliver a fit-for-purpose product.

Check Employment Status for Tax (CEST)

Deciding whether (or not) a worker should be classed as employed or self-employed for tax purposes can be difficult. The CEST tool is an online facility to help determine that very thing - the employment status of a role.

In our last report, we told HMRC that the CEST tool was not sufficiently robust. This was leading to much confusion, with additional costs incurred by businesses who had to seek the further tax advice that this tool was designed to eliminate/minimise. We were assured that we had been listened to and that HMRC was working hard to improve CEST so that businesses could feel confident in making a secure tax status determination.

As the year progressed, it was good to learn that the CEST tool has moved to a new platform, which provides greater scope to make amendments and embeds links to some sections of guidance, as suggested by ABAB. We are pleased that customer satisfaction scores have already improved as a result of this work.

Futures and Innovation Team

ABAB welcomed engagement this year with the Futures and Innovation Team at HMRC.

Their role involves working with emerging technology and concepts to understand their implications and applications for HMRC; building HMRC’s innovation capability, driving a portfolio of high value projects; and delivering foresight and horizon scanning to inform and test HMRC strategies and plans.​

With new technology emerging quickly, we have been keen to understand how their development and potential is explored by HMRC to support a more trusted and modern tax system. We have long been concerned that HMRC has many legacy systems which may hinder transition to modern systems. However, ABAB recognises that the current HMRC approach aligns with the vision for digital transformation of tax administration set out in the OECD discussion paper published in 2020.

We share the OECD aim of making taxation a more seamless and frictionless process over time, and we welcome more co-creation with HMRC on how new systems are developed to help achieve this.

Tell ABAB survey and report

Our ‘Tell ABAB’ survey facility allows us to engage directly with small businesses. It helps us understand the issues faced during interactions and engagement in administering tax and is one of the keyways ABAB and HMRC gain insight from small businesses.

This year’s survey was conducted between 19 April 2023 to 2 May 2023. We achieved a record number of responses – almost 7,500 (usual average rate 3,000) representing a 146% increase from last year and making our survey findings even more representative of small business. The record number of responses this year indicates a strength of feeling from small businesses to let us know about the critical issues as they see them.

Of the responses, 86.9% came from businesses and 13.1% identifying themselves as tax agents.

Analysis of responses was completed during the summer. Findings are developed into the Tell ABAB Report, which is published on GOV.UK and shared with the FST.

The survey focused on 7 main themes: 

• Making Tax Digital (MTD)
• customs: importing and exporting
• off-payroll working
• Basis period reform
• simplifying forms
• working from home and nomadic workers
• Time to Pay

We wanted to assess progress with the findings of previous Tell ABAB surveys and so also included:

• communications with HMRC
• changes to legislative and administrative burdens

The key findings from our survey reveal that burdens on business remain a significant concern and they continue to increase year on year. Off-payroll working rules, MTD and changes in importing and exporting procedures have contributed to increasing burdens during the survey period. Additionally, businesses state that they have not witnessed any real benefits of digitalisation yet.

The shift to nomadic working poses challenges. According to this survey, 59.5% of those who worked from home or had employees working from home or as nomadic workers, were familiar with HMRC’s working from home guidance. Whilst this percentage might look relatively high, these workers now form a significant part of the workforce, with over 63% of respondents stating that they were working from home or as nomadic workers.

There is definite evidence from the survey that guidance to business is improving. Many respondents rated highly the ease of understanding written correspondence and the information on YouTube videos. Whilst there are still some problematic HMRC forms, the numbers here are relatively low and although there are remaining frustrations with GOV.UK, these are also relatively small.

Another important message is that respondents continue to express a strong desire to speak to a human adviser. Satisfaction levels on response times for telephone calls remains low, with respondents being dissatisfied with this service for that reason.

We have shared findings from survey responses with the then FST and HMRC. Once again, we have been assured by HMRC that this insight will lead to change. Survey insight last year was used to help shape and direct activities to improve HMRC guidance. It also helped identify HMRC forms that customers were struggling with, so that improvements could be made. We will continue to work closely with HMRC to understand where this happens from our latest survey results and plan to retest the issue with our next survey.  

You can read the full Tell ABAB Report 2023 which was published on GOV.UK in September.

Customer experience

This is a theme which flows through much of our work. ABAB’s Customer Experience Working Group (CEWG) sees a small selection of ABAB Members engage with teams in HMRC to bring external perspectives to their work and give feedback on initiatives. It differs from the full ABAB by deep diving into areas of specific interest and concern.

Its focus is to ensure that HMRC teams appreciate the impact of their work on businesses – and how these customers will experience the compliance burdens imposed.

CEWG holds a quarterly scheduled pattern of meetings with HMRC. In between meetings, momentum is maintained (and progress made) through specific project work. This approach helps deliver tangible results.

For example, we have been working closely with the Guidance Team at HMRC this year. Their aim is to improve operational guidance used by HMRC staff when helping to support customers. They drive improvements to GOV.UK to increase customer satisfaction, helping reduce the need for customers to contact HMRC.

We have been delighted to see the willingness of this team to engage frequently with us, and to use insight from our Tell ABAB Survey, to help achieve their goals. They have genuinely wanted to hear our views and have acted on them to achieve some notable successes. These include:

HMRC forms

Where we asked the team to review forms that small businesses find troublesome, and which increase costs and burdens experienced. The Guidance Team has committed resources to this issue, developing interactive guidance forms to help build a solution. The new PAYE Change of Employment Starter Checklist was shaped by ABAB input. It has achieved an 86% Customer Satisfaction (CSAT) score – a 25% increase from the old form.

First time filers

New interactive guidance has been developed in partnership with ABAB to help those filing a tax return for the first time to understand what to do. It was launched in July to support 500,000 first time filers.

Tax coding

Tax coding is a complex topic for many and one of the main reasons for customer contact at HMRC. ABAB has been helping the Guidance Team to amend tax coding guidance, which helps customers understand why their tax code may have changed. Customer satisfaction with this new guidance has doubled since our joint work with HMRC, now standing at nearly 60% satisfaction.

All of these examples show once again the value of external engagement. We urge other teams at HMRC to seek our help, so that more outputs can be significantly improved simply by HMRC listening!

Tax Simplification

Last year, ABAB regretted the government’s decision to close the Office of Tax Simplification (OTS), which closed in December 2022 and was formally abolished in Finance (No 2) Act 2023. We note the government’s intention to embed simplification in the policy making process, both in HM Treasury (HMT) and in HMRC. We met the HMRC/HMT teams to discuss measures of simplification, which will help their policy teams consider their approaches and support the annual report on progress from the FST to the Treasury Select Committee.

Some of the initiatives covered in this report, such as progress on interactive guidance and the development of the single customer account, have the ability to simplify interaction between taxpayers and HMRC. We encourage HMRC to continue investing in these major projects.

One of the continuing challenges for HMRC will be how to access taxpayer and professional feedback on policy development and administration, where the OTS filled a unique role, separate from general responses to HMRC consultations.

What’s planned for 2024

The ABAB will continue to focus their work on key administrative issues impacting small businesses, particularly:

• MTD
• tax simplification
• customer experience
• basis period reform
• ‘Tell ABAB’ survey

We want to see HMRC take the opportunity presented by the extension to MTD ITSA mandation for genuine co-creation. There is another chance to make things work here, and ABAB are still willing to help offset the negative implications and potential burdens for small businesses, whilst protecting HMRC reputation.

Simplification of the tax system will continue to be an important theme for ABAB, following the closure of the OTS earlier this year.  We are keen to understand more about plans to “embed simplification” into HMRC and HM Treasury, and how insight will be gathered from the real experiences of taxpayers to inform improved tax administration. We will challenge HMRC on how this can be achieved.

Basis Period Reform will affect approximately 580k customers. We want to understand how the problem of customers misinterpreting the reform and mis-declaring their Overlap Relief figure or taxable profit will be tackled.  

We also look forward to working with the new FST, Nigel Huddleston MP, to continue our scrutiny and reporting role which his predecessors have so greatly valued.

Conclusions

Our relationship with HMRC has continued to provide us with regular engagement opportunities to work together and bring constructive challenges. Underpinning all our work is a constant focus on improving customer experience with the tax system.

Our role is to be a critical friend to HMRC. This report must therefore highlight issues that require attention. We need to stress, however, that there has been real progress in some areas of our focus, as we have reported. We always recognise when progress has been made, as this can help inform future ways of working and indeed how improvements can be achieved.

The HMRC staff that we meet deserve great credit for their hard work and desire to improve tax systems, but ABAB is an Oliver Twist-like entity, with a likely response of ‘please can I have some more’.

We look forward to another year of effective engagement, using our small business experience and insight to directly influence departmental activities and help HMRC deliver the better tax system that better businesses deserve.