Third party data – clarity needed on who carries responsibility

The OTS’s report into the use of third party data has been published as part of HMRC’s modernisation of the tax administration framework.¹ The OTS’s recommendations echo those made by LITRG in its paper, ‘A better deal for the low-income taxpayer’, published in December 2020, and in the Group’s submission to the OTS review.

LITRG says that these difficult issues need resolving before third parties are required by law to provide huge volumes of additional data on behalf of taxpayers. While it supports the OTS’s recommendation for a clear roadmap setting out how the greater use of third party data could be implemented, it cautions that the timescale for implementation should not simply be dictated by how long it would take third parties and HMRC to implement new systems to facilitate the data flow.

Victoria Todd, Head of LITRG, said:

“We recognise the benefits of HMRC receiving data directly from third parties with a view to helping taxpayers get their tax right, and we support this in principle. For example, taxpayers may find it easier to check a pre-populated figure rather than source and input that information themselves. This approach will also help taxpayers who might forget to report a source of income.

“Intelligent use of third party data might also ensure taxpayers do not miss out on certain tax reliefs, and should reduce the number of people required to fill in a tax return. These are all benefits to unrepresented taxpayers.

“However, HMRC’s existing use of third party data does not always work smoothly. For example, it can be difficult for taxpayers to correct employment information if their employer has submitted inaccurate figures to HMRC. The use of estimated bank interest in tax codes can sometimes be difficult for the taxpayer to review, leading to overpayments of tax. Also, HMRC do not always use information on a timely basis to help taxpayers get things right up front and we would prefer to see this being HMRC’s goal rather than to use data to uncover mistakes further down the line.

“HMRC’s priority should be to ensure issues with existing third party data are dealt with before they look to expand their use of third party data. If use of third party data is to increase, then it is not only critical that the data is made as reliable as possible by placing a legal responsibility on third parties to get the data-reporting right, but also that HMRC first put in place a system empowering taxpayers to easily review and adjust incorrect figures. Otherwise, the initiative could backfire and undermine taxpayers’ trust in HMRC.”

Notes for editors

1. https://www.gov.uk/government/publications/making-better-use-of-third-party-data-a-vision-for-the-future

LITRG’s submission to the OTS review is at https://www.litrg.org.uk/latest-news/submissions/210331-office-tax-simplification-third-party-data-reporting-review-call

2. LITRG’s A Better Deal for the Low-Income Taxpayer can be read here.

3. Low Incomes Tax Reform Group

The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.  

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. The CIOT’s 19,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

Contact Hamant Verma, External Relations Officer, 0207 340 2702 [email protected]