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Plans for individuals to file at least four tax returns a year as part of an ambitious digital transformation put taxpayers on a collision course with HM Revenue & Customs, accountants have warned.
The introduction of personal tax accounts from 2016-17 will give individuals and businesses real-time information on their tax liabilities, but they are expected in return to supply data and tax more often to HMRC.

Measures set out in last week’s Autumn Statement will require the self-employed and landlords earning more than £10,000 a year to report online “at least quarterly” by 2020, rather than annually. The announcement has prompted concerns that the tax authority’s “digital first” initiative will place a heavy burden on groups without providing enough support.

“For a large number of people, it’s another complexity to add to their lives,” said James Hender, head of private wealth at accountants Saffery Champness.

Richard Morley, a partner at accountants BDO, said enhanced online-based reporting would challenge swaths of taxpayers who are not digitally savvy. “It has disaster written all over it.
“You have HMRC clearly wanting to push their digital agenda [and] bringing tax payments forward, which is fine assuming people have access to online platforms.”

The self-employed are most vulnerable in the shift to more frequent online reporting, Mr Morley said, not least because so many have poor access to digital services.

Research published by HMRC this year found that three in five self-employed taxpayers are either “digitally excluded” — having no use of the internet — or need help to interact with government online.

Paul Aplin, a partner at accountants AC Mole & Sons, said the extent of digital disenfranchisement illustrated the scale of the task facing HMRC in moving tax fully online by 2020 — a “hugely ambitious” timescale, he said. “Digital has the power to transform tax administration for the better but it’s not a magic wand.”

Mr Aplin said that if the tax authority fails to provide sufficient support to vulnerable groups, particularly the self-employed, they will either face greater compliance costs by way of accountants’ fees or more errors will crop up in their returns.
HMRC faced heavy criticism early this year for long queues on its phone helplines, prompting concerns from Citizens Advice that taxpayers could be left out of pocket and with excessive phone bills.

“You’ve really got to question how support is going to be given when you can’t even get through to the helplines,” said Mr Morley. “The onus will always be on HMRC to ensure that people can comply with their rules [but] the level of responsibility [on taxpayers] to report their tax correctly is not changing.”

HMRC said it “will ensure people have access to guidance and support where needed, including access to telephone filing”.
The tax authority is optimistic that information can be reported directly from individuals via dedicated applications, or apps, that are compatible with its own software. An app for landlords could, for example, track rental income and pass on details to HMRC directly.

Mr Aplin said that while apps hold great promise to save taxpayers time and improve overall compliance — a central objective of the digital transformation — they should not be seen by HMRC as a silver bullet. “There is some really slick software out there?.?.?.?but the scale of their ambition is currently beyond the ability of the technology.”

Mr Hender said that despite the technological challenges facing both HMRC and taxpayers, the authority’s strategy is necessitated by Treasury-imposed austerity and the need to maximise tax receipts. “With more cuts coming down the line, the Revenue has to be ambitious.”

George Osborne, the chancellor, pledged last week to build “one of the most digitally advanced tax administrations in the world”, committing £1.3bn to this end.

HMRC’s digital transformation is already well under way, a process that has been accelerated by the need to cut administrative costs. The authority has the task of reducing the amount of tax that goes uncollected — the so-called “tax gap” — but has lost two in five staff over the past decade.

By making it easier for taxpayers to report their affairs correctly, and by pre-populating their information automatically, HMRC hopes to reduce the scope for errors and evasion. Limited salary details are being pre-populated for taxpayers enrolled in self-assessment from this year.

As well as making tax compliance easier, the government hopes technology will make it easier for HMRC to enforce. Since its launch in 2010, HMRC says its “Connect” system has generated over £3bn in extra tax by identifying underpayments.