Increased use of third-party data desirable but correcting errors must be simple, Institute warns

Updating HMRC’s powers to collect data from third parties will simplify the process of filling in tax returns, but it must be easy for taxpayers to correct errors if they are to remain responsible for the accuracy of their own returns, the Chartered Institute of Taxation (CIOT) has warned.


Responding to HMRC’s recent consultation document about “Information and Data”,the CIOT said2 it supports HMRC making better use of third party data, such as from banks, financial institutions and digital platforms, which can be used to pre-populate parts of a return and save taxpayers time.


However, the Institute says that it is essential that taxpayers should be able easily to correct inaccurate data that has been pre-populated, for example by overtyping the incorrect figure.


Margaret Curran, CIOT technical officer, said:


“As we move towards increased digitalisation of the tax system and the economy in general, it makes no sense to require taxpayers to provide information to HMRC that they already have in their possession from other sources. This could be potentially useful in the future for schemes such as Making Tax Digital (MTD). However, robust practices will need to be in place to ensure that data provided to HMRC by third parties is accurate, and scope for error is minimised.


“We also agree that taxpayers must remain ultimately responsible for the overall accuracy of their own tax returns. This includes supporting information and data, some of which may have been gathered by HMRC from third parties. Clear guidance will need to be provided by HMRC so taxpayers know that they need to check any data pre-populated on their returns and understand how to correct this data if it is inaccurate.”


The CIOT said any changes to HMRC’s data-gathering and information powers should also fulfil the Government’s aims of simplifying and modernising the tax system and be directed at specific needs, also warning that it should not be used simply as an opportunity to widen these powers in general.


Margaret Curran added:


“We do not agree that the increasing use of data is a reason to broaden HMRC’s information powers as a whole, as suggested in the consultation document.  A more flexible approach may be suitable for their third party bulk data gathering powers3, but we believe a more prescriptive approach is best for their more ad hoc information powers4 to allow sufficient parliamentary oversight while maintaining safeguards for taxpayers and third parties.


“Any changes to HMRC’s information and data-gathering powers should adhere to the principles of simplification and modernisation of the tax regime. As one of our key objectives as an organisation, the CIOT shares the Government’s desire to see simplification embedded in the UK’s tax policy process and administrative design.”