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HMRC ramps up digital tax plans

HM Revenue and Customs launches six consultations on its plans to digitise the tax system and promises free software to small businesses

HM Revenue & Customs (HMRC) is working with industry to offer free software to small businesses as the department prepares to fully digitise the UK tax system.

The department has launched a series of public consultations on various strands of digital tax, such as tax administration, the use of third-party information and ensuring businesses are ready for a digital shift.

The consultations include advice on how digital record keeping should operate and where exemptions might be put in place.  

As part of the work, HMRC is collaborating with software developers to offer free software to small businesses that are not using digital systems and may not be able to afford buying a system.

Bridgid McBride, HMRC’s interim digital director, told Computer Weekly that the department won’t be building or offering its own product, but that there is a “clear commitment that free software will be available”.

“We have worked with industry through our digital advisory group and come up with a proposal of the definition of an organisation that would qualify for free software,” she said.

“We don’t want the software to be a barrier for startups or small businesses, and we are working with developers on how to make the option of offering free software commercially viable for them.”

One model would be where a supplier can offer a free payroll product, but charge for costs of printing and customer support. Another model emerging, according to McBride, is where simple applications will be free to use, but linking up to more complex ones – such as with tax agents – will cost money.

“Some might not want a more complex application and just want the free software, which will then be available to them,” she said.

Read more about digital tax

While HMRC won’t recommend a specific list of software providers, it will be transparent on what a “best in class application” looks like. Businesses will then be able to see which software providers would work for them, said McBride, adding that it will give industry a benchmark.

In September 2015, HMRC launched its application programming interfaces (API) strategy, with its API developer hub following on a few months later. The developer hub, which is still in beta, is the backbone to much of HMRC’s new offerings, and signals a strong partnership with industry.

McBride said 18 software developers have signed up to the private beta and HMRC is actively working with these, looking at their products, sharing user research with them and collaborating to create software.

The hub, which is used for a range of HMRC services, allows developers to register themselves as HMRC developers, create apps to be tested in a sandbox environment, review guidance and documentations and upgrade their applications.

“Part of our offering on the developer hub will be to get a set of products that meet the business needs. The work we’re doing with the developer hub is building the underlying technology that will allow them to test the software well ahead of the launch date,” said McBride.  

Open to open source

HMRC is a firm believer in open source suppliers and making it easier for small and medium-sized suppliers to gain foothold, according to McBride.  

“We’re committed to opening up the market to new suppliers and removing the cost for them to develop apps and software,” she said.  

“Big software organisations are like big government organsiations in that they need to cover a whole range, and smaller suppliers and open source providers can be more bespoke.”  

For instance, if you support smaller and open source providers, you can get software tailored to self-employed farmers.

HMRC received £1.3bn as part of 2015’s spending review towards making tax digital.

While the roll-out of digital tax accounts for businesses isn’t due to be fully completed until 2020, HMRC is beginning private beta testing with a small group of customers in December 2016.

“It’ll be very controlled access before we go into public beta in April 2017 for a wider group of volunteers,” McBride said, giving the department time to “wring out the creases and make sure it all works” before April 2018, when the majority of businesses will switch to the digital system.

As part of the consultations launch, HMRC confirmed that small businesses won’t need to update HMRC quarterly, but will be able to make voluntary payments through a pay-as-you-go system.

The government is also considering deferring digital record-keeping and quarterly updating for a further group of small businesses, the threshold of which is yet to be decided, until April 2019. The end goal is that, by 2020, all eligable businesses will use digital tax accounts.

Offering a helping hand 

Government, and HMRC specifically, is currently working towards having an assisted digital offering, as HMRC did with the roll-out of personal digital tax accounts that went live in 2015.

HMRC will offer help getting online through call centres, web chats, webinars, instant messaging and the trusted helper service.

“The trusted helper service means a family member or a friend can help up to five people with their tax. It’s not a one size fits all. Some might turn to family members, while others prefer calling our call centre, using a web chat or a tax agent,” said McBride.

The consultations on digital tax accounts for businesses will run until November 2016.

Commenting on the launch of the consultations, Jane Ellison, financial secretary to the treasury, said: “By replacing the annual tax return with simple, digital updates, businesses will be able to concentrate on putting people and profit, not paperwork, first.” 

In July 2016, the National Audit Office (NAO) called on HMRC to assess how moving to a digital tax system would affect customers. NAO said the department had failed to estimate “the costs for individual taxpayers or businesses of making the transition to online services, or sought to quantify the benefits they can expect”.

“Most business customers will have to update HMRC quarterly, rather than annually, about their tax affairs. They may need to buy software that works with the systems. The business community is sceptical of HMRC’s evaluations of the costs and benefits of previous changes to the tax system,” the report said. 

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