Making Tax Digital: ICAEW responds to Tax administration, Voluntary pay as you go and Transforming the tax system through the better use of information

ICAEW has responded to three consultation documents which are supplementary to the main Making Tax Digital (MTD) proposals but have significant implications for businesses, landlords, individuals, and for employers and other third parties who supply information to HMRC.


The areas covered are:


  • HMRC’s powers, late submission and payment penalties
  • a voluntary pay as you go scheme. and
  • HMRC’s plans to use third party information to pre-populate digital tax accounts.


ICAEW is recommending changes on a number of the aspects of the proposals and, in particular, is suggesting further consultation on Making Tax Digital for individuals.


The key points from each response are set out below.


Our response to the main MTD consultation, Making Tax Digital: Bringing business tax into the digital age, is covered in ICAEW REP 171/16 – see the separate news item ICAEW response to Making Tax Digital: Bringing business tax into the digital age


Tax administration

The ICAEW response to the consultation Making Tax Digital: Tax administration is in ICAEW REP 175/16.


  1. We welcome the fact that HMRC is intending to retain the current familiar compliance framework during the introduction of Making Tax Digital. A further consultation on the tax administration framework and legislation would be appropriate once MTD is well established.
  2. It is not clear why the right of the taxpayer to amend returns is not also being replicated but is instead to be subject to a separate consultation.
  3. There are some important aspects of tax administration (such as notification deadlines and the general time limit for claims and returns) which are not covered in this consultation document and need to be addressed.
  4. We are in agreement with the principles that are to underpin penalties, as outlined in the consultation document, but it is not clear that the proposals for late submission penalties fully reflect these principles. The proposal is likely to result in disputes about very old penalty points, fixed penalties may not be proportionate in all cases (the levels of these will need to be set carefully) and the detailed rules will need to reflect the fact that some taxpayers have more frequent filing obligations than others. The 12 month familiarisation period proposed is too short and should be extended to 24 months after MTD has been fully introduced. Penalty points will need to be clearly communicated to taxpayers and their agents.
  5. We recommend that HMRC gives further consideration to the reasons for persistent late or non-filing (including research into the causes) and considers other approaches including the role of education and tailored taxpayer contact.
  6. We support the proposal for penalty interest rather than “cliff-edge” late payment penalties but there are two flaws in the design (the 14 day period to make a time to pay arrangement is too short and the design should allow for an incentive to make a time to pay arrangement to remain even after this period).
  7. We support the alignment of interest rules across taxes. The alignment of interest and late payment penalties is a prerequisite for voluntary pay as you go.


Voluntary pay as you go

The ICAEW response to the consultation Making Tax Digital: Voluntary pay as you go is in ICAEW REP 174/16.


  1. We welcome the fact that the government has listened to the responses to the December 2015 discussion document on simpler payments and is proposing no change to due dates or payments on account, at least for the current parliament.
  2. HMRC should take more time to get the systems and processes right and, in the meantime, promote the current budget payment plan for which take up is very low. Seeking to have voluntary PAYG systems and processes in place for income tax by April 2018 is overly ambitious.
  3. If the objective is to have businesses and landlords make payments closer to when the income is earned, changes to the payment on account regime would be a simpler way to achieve this.
  4. We are not convinced that there would be significant take up of voluntary PAYG. HMRC has indicated that it has received feedback from businesses in support of voluntary PAYG but in reality many businesses are likely to prove reluctant to pay earlier than they are obliged to. Otherwise they would initially be making voluntary payments at the same time as payments for current liabilities. Many already budget and retain funds in a separate interest earning bank account so that they are available when tax becomes due and will prefer to continue with this approach.
  5. Quarterly updates will not be sufficiently accurate to form a reliable basis for voluntary payments. Estimated liabilities based on quarterly updates are likely to differ significantly from the final liability creating queries and reconciliation activity. HMRC should not revisit payments on account to match sums being reported under MTD and we are particularly concerned that consideration is being given to making this mandatory.
  6. We are concerned that HMRC would not make repayments quickly enough if and when required. Although HMRC intends to develop a flexible system which would allow voluntary payments to be repaid quickly the necessary controls may inevitably mean that repayments could not be made as quickly as the business might require them. If that happens taxpayers will be very reluctant to use voluntary payments.


Transforming the tax system through the better use of information

The ICAEW response to the consultation Making Tax Digital: Transforming the tax system through the better use of information is in ICAEW REP 176/16.


  1. The proposals for the use of third party information will have at least as great an impact on individual taxpayers as on the third party information providers.
  2. The consultation process on MTD for individuals is lagging well behind the consultation process for businesses and landlords. ICAEW would welcome involvement in a consultation process on MTD for individuals as many of our members represent taxpayers who are not required to complete self assessment tax returns.
  3. The government has indicated that it aspires to bring about the end of the tax return. What is lacking is a clear picture of how HMRC expects to achieve this ie. how quarterly updates and data from third parties will fit together and be combined with the other pieces of information which are required to calculate the tax liability for a year. The process for crystallising and finalising liabilities for individual taxpayers (especially those who are not in self assessment) is unclear.
  4. There is a need for better and clearer communication and education about the legal responsibility of taxpayers to notify HMRC of sources of income and to check the information in their digital tax account.
  5. Agents urgently need access to Personal Tax Accounts for all their clients including those who are not in self assessment.
  6. We welcome the fact that HMRC will be making greater use of PAYE RTI data but there are a number of ongoing difficulties with HMRC’s processing of PAYE RTI data affecting employers, pension providers and individual taxpayers that need to be resolved before further use is made of this data. The impact of frequent changes to tax codes needs to be carefully considered.
  7. The rules that are used to generate tax codes need to be reviewed and be made more transparent.
  8. Quarterly reports of interest income may give a distorted view of the interest income for the full tax year.
  9. The presentation of information in the Personal Tax Account needs careful consideration. ICAEW would be pleased to assist with the design.
  10. There will be a continuing need for alternative channels for the digitally excluded.
  11. International experience demonstrates that a unique identifier is an essential element of using third party information. We are concerned that there is no mention of the use of unique identifiers.
  12. Public trust would be increased by reassurances that third party information (including that from employers) will be used only to calculate tax and NIC liabilities and the other limited statutory exceptions.
  13. The proposals for how queries about third party information should be resolved are not satisfactory. Taxpayers should have the right to amend incorrect third party information. We recommend that consideration be given to a simpler appeals or arbitration process to deal with such disputes.
  14. HMRC should give priority to using information provided by employers, pension providers, construction industry contractors, DWP and banks and building societies and should not look to use further sources of third party information until the processes for these main sources are well established.
  15. The data feed of information on taxable state benefits from DWP to HMRC is particularly unreliable and improving this should be a priority.