The tax authority is looking to gain enhanced authority to prompt individuals to rectify mistakes in their tax filings. A consultation period is nearing its end on this initiative, which is part of a series of proposed changes to the existing investigation and correction powers of HMRC.
This initiative is expected to expedite the rectification of tax filings, streamlining processes and reducing administrative burdens. It will be utilized in cases where a significant number of taxpayers have committed similar minor errors, a situation exacerbated by the growing complexity of tax affairs among self-assessment taxpayers.
Currently, rectifying these errors necessitates personalized engagement from HMRC through investigations and evaluations, a method that is resource-intensive and often disproportionate to the amounts involved. Nevertheless, law firm Macfarlanes has cautioned that the new powers could inadvertently impose additional responsibilities on individuals.
They highlighted, “The potential issue with these measures arises if they are applied broadly, without targeting returns with identified errors, or in conjunction with a comprehensive investigation. In such instances, the use of these powers is likely to complicate matters for taxpayers, requiring them to fulfill additional requirements to confirm their tax status. This outcome would undermine the intended objective of the reform.”
The proposed new authority would enable HMRC to inform a taxpayer of the error and provide justifications. Subsequently, the taxpayer would be legally obligated to respond. Taxpayers might have to revise their filings or challenge the notification if they disagree, as per the new proposal. This approach is more amenable to automation in situations where many taxpayers commit the same error and would be enforced with penalties for non-compliance.
The same consultation also proposes that taxpayers seeking relief or credits should furnish additional details beforehand. Currently, most claims can be submitted in a tax return without comprehensive documentation.
The convenience and efficiency of digital repayment claims have led to a rise in claims in recent years, coinciding with an increase in the number of taxpayers. The total value of repayments reported by HMRC has surged by almost 20% to £148.8 billion in the 2023/24 tax year.
HMRC envisions that mandating additional details upfront will enable swift error identification and processing of legitimate claims. This practice has already been instituted for claims related to research and development tax relief, which were prioritized due to a high rate of errors and misuse.