In another move to keep tax-payers on their toes, the Office of Tax Simplification is recommending that financial institutions should start sharing client information such as account interest with HMRC to speed up the data population process for the new single customer account.
What is the Office of Tax Simplification?
The Office of Tax Simplification (OTS) is the independent adviser to government on simplifying the tax system, its latest report focuses on the reporting of data by third parties (in particular banks and building societies) to help ease the tax reporting of individuals’ savings and investment income, and the way individuals claim tax relief for pensions contributions or gift aided charity donations.
Although there are already some mechanisms in place for reporting bank and building society interest and pensions, there’s currently no such mechanism for third parties to report dividends and other investment income to HMRC.
How will the proposed changes work?
In an ideal world, the OTS would like to see this be mandated, but the practicalities are that HMRC and the third parties would need to create new systems for this to happen effectively, meaning that any changes are likely to take years to take effect.
Once third-party data is linked to HMRC’s systems, it would make it easier and more accurate to update tax codes and prepopulate individuals’ tax returns, improving the accuracy of tax reporting, according to the OTS. In the longer term it could also reduce the number of people required to complete a self-assessment return, although HMRC was unable to confirm how many taxpayers would benefit from the change.
Of course, there are several areas of the recommendations that are not yet confirmed, and it’s not clear where else HMRC could check, as part of any new process. For example if you had a rental property – could they check that you had recorded rental income on a tax return? Or disposals of property or shares that are left unrecorded? Or gifts from family or friends that may have an inheritance tax consequences?
We will of course keep you updated on this – and any further recommendations from the OTS. If you would like advice, please do get in touch and our specialist tax team will be happy to help you.