Can we trust HMRC pre-populating tax returns?


Not a “new” news article as such, but more of a comment on a known move by HMRC. However, it will become more relevant going forward.

One of the promises made by Chancellor George Osborne in March 2015, when he announced HMRC’s digital transformation, was that taxpayers would no longer need to tell HMRC information the tax authority already possessed. The speech was billed as ‘the end of the tax return’.

Pre-population of data is an integral part of this vision. This means that HMRC would seek information from data providers and automatically add the details into a taxpayer’s records. Instead of filling in every number in a tax return, the taxpayer would be asked to check the data in the pre-filled return and make any necessary changes. She or he would not start with a blank screen; it would include data sent to HMRC by employers and pension providers through PAYE.

It would also include tax credit data and interest income. In due course, it would make sense for HMRC to gather more data centrally, such as details of pension contributions, public company dividends and perhaps even large Gift Aid payments.

Oddly, HMRC has not got around to setting a data roadmap, so that providers can start to make sure their own systems can supply what might be needed and also start seeking details from their customers. Extending pre-population is currently on hold, though, as HMRC needs to devote its IT resources to Brexit.

One of the open questions on pre-population is whether putting figures in front of taxpayers would lead to more inaccuracy. Would taxpayers actually check the figures, or simply assume anything on a computer screen had to be correct?

HMRC has taken forward a range of analytical case studies, exploring how compliance behaviour is influenced by particular aspects of customer service. One study explored whether pre-populating customers online returns with employment income and benefits data affected the accuracy of income reporting.

HMRC’s findings showed that pre-population actually led to improved accuracy of income reporting in self assessment returns. Over 685,000 self assessment taxpayers who accessed their 2015/16 return via their personal tax account between August 2016 and March 2017 had their returns pre-populated. The study looked at a representative sample. Some 17% overwrote a pre-populated income figure and 15% overwrote an employment benefit figure.

HMRC’s conclusion was that pre-population ‘led to improved accuracy of income reporting in self assessment returns, with some taxpayers over-writing pre-populated figures with higher amounts and some with lower amounts’. At the same time, overall tax receipts were reduced, due to improved accuracy of returns. ‘Decreases in overpayments outweighed the reductions in small underpayments’, HMRC added.

This of itself is an interesting conclusion; that on average taxpayers may well over-pay initially, such that accurate returns are needed to end up paying the right amount of tax. The study gives support for making tax returns easier; but perhaps the next question to ask is whether taxpayers actually understand their tax affairs.



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