Resources

HMRC plans to increase the use of artificial intelligence and machine learning to target tax evaders and non compliant taxpayers

The latest three-year IT and digital strategy has set out priorities for the tax authority's £1bn plus annual budget, including investment in artificial intelligence (AI) and improvements to customer services, a

HMRC plans to increase the use of artificial intelligence and machine learning to target tax evaders and non compliant taxpayers

The latest three-year IT and digital strategy has set out priorities for the tax authority's £1bn plus annual budget, including investment in artificial intelligence (AI) and improvements to customer services, acknowledging that the ‘existing virtual assistant platform was not able to meet all our customers’ needs’.

The use of AI to detect tax fraud or digital identity to make it easier for taxpayers to engage with HMRC, are seen as key to the importance of ‘getting technology right’ for HMRC as an organisation.

It plans to invest further in automating data insight ‘to improve tax yield and provide simple means to interact with HMRC digitally, delivering a total experience approach for customers, agents and businesses’.

HMRC’s technology team will enable data insight-led decision-making for tax and customs administration through the use of quality, consolidated data with robust controls to govern and manage it. This will be augmented with the ethical use of artificial intelligence and machine learning.

HMRC confirmed that the central IT team was working to ensure ‘we were getting the best out of our technology to improve customer engagement and omnichannel experience’.

The latest 2021-22 annual accounts for HMRC showed that expenditure on IT contracts was split between IT public private partnership contract (PPP) payments of £137.7m with a further £896.5m on IT services and consumables, bringing total costs of £1.03bn.

HMRC has introduced voice-based communication for all taxpayers, driving more than £5m cost avoidance on COVID-19 schemes and improving customer satisfaction scores. HMRC said it was investigating capabilities to scale further across the enterprise.

The Chief Digital and Information Officer’s Group, which is responsible for IT development, is changing the way it is organised internally in HMRC and how it works with taxpayers, businesses and agents.

The tax authority is focusing on giving HMRC teams more control over its digital service offerings to taxpayers, making them easier to adapt and evolve, and base decisions on real-time data. This will also allow HMRC staff to have more influence over how digital services are developed.

 ‘We will be customer-centric by design and collaborate with our teams across the organisation to deliver faster and more efficient services that meet these customers’ needs, at a lower cost to the taxpayer,’ the CDIO report said.

‘By providing ‘evergreen as a service’ platforms, with IT software and hardware that’s always up-to-date, we will enable new solutions and products to be built rapidly, created without a dependency on highly technical niche skills. We are putting teams in the driving seat to make decisions on products. We will become more agile and more impactful to serve our customers’ needs, whilst driving scale and efficiencies.’

Tom Skalycz, chief technology officer (CTO), HMRC, said: ‘We are working closely with policy and operational colleagues across HMRC to build strategic roadmaps for our critical enterprise platforms and co-create capabilities that HMRC needs for the future.

‘We are transforming the way in which we work and collaborate across our internal and external supply chain, to be more agile to business needs while being resilient to macroeconomic and technological change.

‘My team and I are committed to enabling technology as the beating heart of HMRC – Making Tax Digital, administering our taxation and customs regime efficiently, and delivering a seamless experience for our customers and colleagues.’

Corporate report, HMRC IT strategy: 2022 to 2025

 With the Bank of England base rate steadily increasing over the last year to 4.25%, employees and directors in receipt of loans from their companies may have been expecting a similar hike in the interest rate payable on them. They may however be in for an unexpected benefit.

When an employee or director receives a loan from their employer

 With the Bank of England base rate steadily increasing over the last year to 4.25%, employees and directors in receipt of loans from their companies may have been expecting a similar hike in the interest rate payable on them. They may however be in for an unexpected benefit.

When an employee or director receives a loan from their employer, this can represent a taxable benefit if it is considered a cheap or interest-free loan. Cheap for this purpose means that the interest rate charged by the employer on the loan is below the official rate of interest set by government.

In the 2022/23 tax year, HMRC’s official rate of interest on such ‘beneficial loans’ was 2.0%. This is the rate that applies to beneficial loans in order to calculate the taxable benefit being provided to the employee or director.

So, for example, where a loan (in excess of £10,000) is provided by a company to an employee or director, a taxable benefit arises if the interest rate charged is less than the official rate of interest.

If the director paid interest at a rate of 2.0% for the 2022-23 tax year, no benefit or associated tax liability would ordinarily have arisen for that tax year. Where the loan is provided interest-free they would have a taxable benefit calculated as an annual tax charge on 2.0% of the loan for the 2022-23 tax year.  

Given that the Bank of England’s base rate increased to 4.25% in March 2023, those with outstanding beneficial loans may have been worried about the potential hike in HMRC’s official rate of interest from 6 April.

Many should however be able to rest easy as from 6 April 2023, HMRC’s official rate of interest increases by a modest 0.25%, from 2.0% to 2.25% per annum.

The current standard £100 fine for late filing of self assessment tax returns is due to be changed to a points-based system from 2026

HMRC has confirmed that the penalty system will be reformed in a bid to curb abuse of the self assessment system and support taxpayers who make occasional mistakes.

The planned penalty reforms for paying tax

The current standard £100 fine for late filing of self assessment tax returns is due to be changed to a points-based system from 2026

HMRC has confirmed that the penalty system will be reformed in a bid to curb abuse of the self assessment system and support taxpayers who make occasional mistakes.

The planned penalty reforms for paying tax late will be based on the length of time the tax is outstanding but will only affect the 5% of non-compliant taxpayers.

The earlier an overdue tax payment is made, the lower the penalty charge will be.

An HMRC spokesperson said: ‘We are reforming penalties so taxpayers who occasionally miss the filing deadline will not face financial penalties. Instead we will focus on those who persistently miss filing and payment deadlines.’

The planned penalty reforms for sending in a tax return late will be based on points. Taxpayers who miss a filing deadline will initially be given a point, with a financial penalty being charged only once a set number of points is reached.

This approach recognises that taxpayers who occasionally miss deadlines should be encouraged to comply with filing obligations, rather than immediately being charged a penalty.

For example, a payment made within 30 days will have a lower penalty charge than one made after 30 days. This design encourages those that can pay to do so, while taking appropriate action against persistent non-compliance.

The rule change is expected to raise £155m in penalties according to the Budget Red Book calculations issued in March 2023.

The new penalty regime will penalise the minority who persistently do not comply by missing filing and payment deadlines, while being more lenient on those who make the occasional slip-up.

‘We support all taxpayers to get their tax right, and through HMRC’s extensive advertising and supportive approach 95% of customers now pay their tax on time,’ said the HMRC spokesperson.

These reforms already apply for VAT. However, in December 2022 the government announced businesses within scope of Making Tax Digital (MTD) for Income Tax would have more time to prepare for its introduction, with MTD to be phased in from April 2026.

It was also announced that the reforms to penalties would come into effect for these taxpayers when they become mandated to join MTD (instead of in 2024).

Some income tax taxpayers will remain within the existing late filing and late payment penalty rules for longer, which was reflected in the spring Budget estimate.