I have been an advocate
of digital forms of tax administration for nearly 20 years. The first phase, replacing paper forms with digital versions, is now very much business as usual. HMRC has also made considerable progress in exploiting data; for example, through iXBRL and through its Connect intelligence gathering and analytical tool. The next phase of HMRC’s digital strategy will see more paper communications replaced with digital contact and the phasing out of tax returns in favour of digital tax accounts.
Two significant documents were published in the first week of September.
The first, unveiled at a conference held by HMRC for the software industry, was its new application programming interface (API) strategy (see www.bit.ly/1M5F0lM). Through this, HMRC aims to work more closely with software developers, enabling them to bring more sophisticated products to the market and thereby providing greater choice for taxpayers.
This is in fact already part of HMRC’s modus operandi, with APIs currently in place for 21 services. By entrenching this strategy, though, HMRC hopes to remove entry barriers for new third party software developers and to encourage innovation. In order to further exploit the potential of software, HMRC will also share more risk rules with developers.
The new API platform will form part of HMRC’s multi-channel digital tax platform, providing a common infrastructure linking existing and new systems. There will also be a new ‘collaboration zone’ in HMRC’s Shipley Digital Centre, where HMRC can work with developers. This open, collaborative approach is to be welcomed.
The concept at the heart of the strategy was summed up by HMRC’s Jim Harra with the words: ‘We will transform our interaction with customers through the use of software … Businesses will be able to send data to us digitally, using the sorts of devices they already use.’
I am totally supportive of the direction of travel – better use of technology, better use of data, better customer focus – but I do have some reservations, in part centered on the words ‘devices they already use’.
Firstly, my experience is that some small businesses are reluctant to use technology.
Secondly, while I have seen some impressive app technology, there is a big difference between a demonstration and accurate data capture and analysis on a daily basis; and HMRC will need to address the issue of innocent error in this new app driven world.
Thirdly, I am not convinced that HMRC has fully learned the lesson that it must see the way businesses operate at first hand from the very outset of designing new processes. A number of issues with RTI could have been avoided had that approach been taken. These particularly include on or before reporting, where basic processes were not – and I fear still are not – fully understood; and the failure to provide a dashboard that showed HMRC, employers and agents the same real time information from day one.
A significant part of the issue that HMRC must tackle is digital exclusion. This was the subject of an HMRC research report published on the same day as the conference.
Digital exclusion – lack of access to the internet – was found to affect only 2% amongst micro-businesses with one to four employees; however, it affected 19% amongst the self-employed with no employees. Many of the digitally excluded self-employed said they felt that the internet was not relevant to their business. These people form a prime section of the community HMRC needs to engage with, if the full potential of digital tax accounts is to be realised.
The ‘assisted digital’ population – those needing some assistance to engage online – must also be a matter of concern, based on this research. It found that 29% of micro-businesses with one to four employees, and 42% of the self-employed with no employees, fell into this category. The research was also clear that to get this community to engage with government online would need investment in call centres to provide the necessary encouragement, advice and support.
Yes, the future is digital and while I fully support the direction of travel, HMRC needs to gain even greater insight into how businesses really operate if it is to overcome the technical and behavioural barriers to digital engagement highlighted by its recent research.
For a view from HMRC, see ‘Q&A: How HMRC is developing digital services’ (Mark Dearnley), Tax Journal, 11 September 2015.
