What did tax day mean for payroll?
Tax Administration and Maintenance Day saw various updates that will affect payroll, including a suggestion that HMRC should consider “sandbox testing” when developing policy.
Last month’s Tax Administration and Maintenance Day (TAMD) outlined specific actions the government is taking to simplify and modernise the tax system, as well as how it aims to tackle the tax gap. Some of the updates provided will have an impact on payroll, so what will it mean for payroll professionals?
There were a variety of calls for evidence and consultations published by HMRC, however there was no indication of immediate change. This will be welcome news for payroll professionals who are already extremely busy. One key consultation launched was the Tax Administration Framework Review: Creating innovative change through new legislative pilots. This was one of two documents published around the tax administration framework review (TAFR). This consultation welcomes views on a proposed legislative approach to piloting. HMRC is exploring how to develop and improve testing prior to wider rollout of change.
Sandbox testing
A call for evidence on the legislative framework underpinning tax administration was published on 23 March 2021 and the response released on 30 November 2021. Respondents to this call for evidence suggested that HMRC could be more transparent when developing policy and adopt a more collaborative approach to delivering change. Some stakeholders suggested that HMRC should consider “sandbox testing”. This is a method of testing and refining new ideas, by piloting them in restricted environments prior to rolling them out more widely.
As part of the TAFR, this discussion is the next stage in exploring how the possible use of an HMRC sandbox piloting model could achieve change more communally. It seeks views on a bespoke piloting and testing approach, which focuses on giving HMRC the legislative capability to gather the evidence needed to make informed, innovative policy changes where needed.
Currently, testing of changes or collaboration with external stakeholders can be limited by legislative inflexibility. The consultation will study the opportunities and challenges of a prospective sandbox testing approach and what safety measures might be necessary. One of the potential benefits of this approach is reduced administrative burdens for participants, as data provided within a pilot may be reused if a new scheme goes live. Additionally, more advanced solutions to policy challenges could be explored in an array of pilots. There’s also more scope to design effective policy and processes, resulting in better outcomes for taxpayers, intermediaries and HMRC.
Halting tax rules
There have, however, been concerns raised about the method of temporarily halting tax rules for the purposes of testing on a small group of taxpayers. Taxpayers or their agents could incur additional costs associated with participation in a pilot and it could cost HMRC to run a pilot. Participation could prove to be time consuming and taxpayers in a pilot could be subject to different rules to those not in that pilot. In addition, a risk HMRC could face involves the fact that the selection method of taxpayers for participation in pilots may not be representative. Intermediaries may also face challenges in supporting customers who participate in a pilot and experience different processes.
Temporary legislation
‘‘HMRC is proposing a new piloting approach which would allow the creation of temporary legislation to suspend the usual tax administration rules for an identified section of the taxpayer population in time-limited pilot schemes,” said the tax authority. “The outcomes would then be evaluated to inform future decisions on adopting the change permanently.
“This proposed piloting model would provide opportunities to innovate and develop new tax administration policy and processes. HMRC recognises there may also be some challenges and risks to this approach.
“Our approach could support the involvement of intermediaries, agents, taxpayers and third-party experts. We want to explore where it would be appropriate to randomly select participants or to seek volunteers to ensure an accurate reflection of views and experiences.’’
HMRC is interested in hearing from those who have researched or implemented similar approaches to testing change. Is this a stepping stone in helping to shape the tax system? With consultations like these, payroll professionals, businesses, agents and taxpayers can help to create a simpler system to engage with, and one which is fit for the future.
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There's a rather substantive non sequitur in the midst of the Sandbox Testing section:
"One of the potential benefits of this approach is reduced administrative burdens for participants, as data provided within a pilot may be reused if a new scheme goes live.
Additionally, more advanced solutions to policy challenges could be explored in an array of pilots."
1. There is typically NO reduction in administration burden, for the simple reason that the ER has to run the new processes in parallel with (i.e. in addition to) the new processes ... otherwise it's like venturing out on an unknown tightrope. but without a safety-net, even though the rope may be cut.
2. Modelling (pre-pilot) multiple alternatives is an excellent approach, as is discussing the options and their pros & cons with practitioners at the planning stage ... BUT an array of concurrent pilots is a guarantee that most will fail to convert to 'live' (thereby reinforcing my point 1 above)!
HMRC need to stop listening to the blandishments of the consultancies' slogans ('agile' and now this) and realise that doing things properly means spending money, not cutting corners.