Helen Thornley
Technical Officer, Association of Taxation Technicians
As technology advances, it has become easier for HMRC to locate and use third-party data to calculate individuals’ tax bills — but there are pitfalls to watch out for.
When it comes to your tax affairs, unless you are one of the 12 million people required to submit a tax return, you will probably be relying on HMRC to calculate your taxes. HMRC does this automatically, based on information it has received from third parties like employers, banks and pension providers.
Tax reconciliation issues
Each year, employers give HMRC details of their employees’ salaries and benefits; banks provide interest figures; and pension providers share pension payments. HMRC uses this information to reconcile millions of taxpayers’ records — an exercise which takes many months to complete — and then issues refunds or demands for extra tax as appropriate.
Without this use of third-party data, many more of us would need to file an annual tax return. Yet, can we always rely on this approach? HMRC does not generally receive details of common items that might affect your tax such as pension contributions, gift aid donations, dividends or capital gains and, outside of self-assessment, there are few, simple online ways to report these items. Furthermore, the automated matching of bank accounts and interest information to taxpayer records is not infallible. Data used for savings and benefits in tax codes can often be out of date or estimated.
The responsibility for paying the correct
tax remains with you: the taxpayer.
What should you do?
While it’s easy and tempting to rely on HMRC to get things right, if something does go wrong, the responsibility for paying the correct tax remains with you: the taxpayer. That can be challenging if, for example, you can’t easily see or understand the figures that HMRC is using.
Automation has a lot of benefits for both HMRC and taxpayers but, under current law, taxpayers need to know that this doesn’t absolve them of their responsibilities to get their tax right. It’s essential that HMRC does more to provide information that taxpayers and their agents can easily check and correct — and that taxpayers are aware of gaps and potential errors in the information that HMRC holds.
