"Making Tax Digital" stands for a drive by the UK tax authority, HMRC, to move to digital records and returns. The stated aim is to make tax compliance easier, with the by-product of narrowing the tax gap through online record keeping. That tax authorities harness tech to enhance tax takings is not suprising.
But can there by other roles for tech in the relationship between taxpayers and tax authorities?
I found myself asking this question in the context of the upcoming changes to the IR35 rules. From April 2020, the application of the IR35 rules which may effectively deem a client to be their contractor's employer for tax purposes is extended from the public to the private sector. In determining whether the IR35 rules apply, a range of facts and circumstances has to be considered, making the determination inherently uncertain.
HMRC guidance may reduce uncertainty, but cannot completely remove it. In theory, HMRC could give clearances, but doing this manually on a case-by-case basis would be overly resource-intensive. It appears that HMRC's solution is its Check Employment Status for Tax (CEST) tool. After guiding the user through a number of factual questions, the tool determines whether or not IR35 applies. The final page displays the result, stating that:
"HMRC will stand by the result given unless a compliance check finds the information provided is not accurate [or the] result [is] achieved through contrived arrangements designed to get a particular outcome from the service."
The following grey box requires certain confirmations to be given before the user can "rely on this result". Once the confirmation is given, the user may click to the next screen and enter additional information to "customise this result record" before printing it for their records (HMRC warns that it will not keep a record).
The CEST tool promises an easy way of rapidly getting an opinion from HMRC on the treatment of particular circumstances for IR35 purposes on which the taxpayer can rely. Whether it holds that promise depends on the underlying algorithm and how it behaves in borderline cases. Are the questions sufficient granular? Is there a slant towards pulling cases into IR35?
A natural scepticism suggests that taxpayers may wish to consult their advisers on the implications of using the tool before so doing.