Consultation outcome

Simplifying and modernising HMRC’s Income Tax services through the tax administration framework review: Summary of responses

Updated 15 February 2024

1. Introduction

The government published a discussion document, Simplifying and Modernising HMRC’s Income Tax services through the tax administration framework on 15 March 2023. This document summarises the responses received and sets out the government’s next steps. The discussion document was open for comment until 7 June 2023 and covered:

• developing and promoting the use of HMRC’s digital services by implementing a digital by default approach, where possible, and reducing the number of its paper outputs. It explained that the aim was to increase the use of self-serve and digital channels, whilst making alternative provisions for digitally excluded taxpayers;
• improving Pay as You Earn (PAYE) processes, which cause frustration to taxpayers and high operational cost to HMRC;
• moving to digital registration for Income Tax Self Assessment (ITSA) and reviewing the criteria used to determine which taxpayers are required to file a tax return

The government is grateful for the time taken by respondents to engage and provide written responses. It appreciates the general support for further digitalisation. HMRC is committed to transforming its digital services, and is engaged in a significant programme of further improvements that will enable them to be used even more widely.

The improvements include:

• putting taxpayers on the correct tax code more quickly following a change of circumstances;
• the development of a digital self-serve tool that will allow taxpayers to view their Income Tax position and claim or declare income, allowances, benefits, and deductions;
• improvements to HMRC’s ‘Check if you need to send a Self Assessment tax return’ tool;
• improving and expanding digital registration services for ITSA;
• continuing to review the criteria HMRC uses to determine who needs to file an ITSA return

The government intends to make some legislative amendments to facilitate the increased use of digital channels. These include changes to:

• allow HMRC to send specified correspondence to taxpayers digitally by default, unless they elect to continue to receive paper communications
• require taxpayers to provide up to date electronic contact details to HMRC
• allow HMRC more flexibility in how it communicates tax code changes to taxpayers

HMRC will be in touch with key stakeholders soon to seek their insight on these changes.

Further details of the improvements and legislative changes can be found in chapter 3.

Summary of responses

During the consultation period HMRC held 13 roundtable engagement events, attended other meetings and discussions with interested parties, and discussed the document at relevant external forums. This approach ensured that HMRC received a good cross-section of views and ideas for improvements.

There were also 39 written responses to the discussion document from a range of stakeholders:

• 13 from professional bodies
• 12 from tax agents and accountancy firms
• 8 from individuals
• 6 from others

The government is grateful to those who submitted responses and gave their time to talk to officials during the consultation.

Background to the discussion document

The tax administration framework review is a key part of delivering on the government’s 10 year tax administration strategy, ‘Building a trusted, modern tax administration system’. The strategy sets out how HM Revenue and Customs (HMRC) will make sure tax administration keeps up with the rapid changes taking place in society, the economy and technology to deliver the flexible, resilient, and responsive tax system the UK will need in the years ahead.

As part of this strategy, a previous call for evidence on the legislative framework underpinning tax administration was published: The tax administration framework: Supporting a 21st century tax system - summary of responses. The subsequent Summary of Responses contributed a broad set of ideas on how to update the tax administration framework.

A further call for evidence and summary of responses were published on ‘Income Tax Self Assessment Registration for the Self-Employed and Landlords’, seeking views on taxpayer registration.

The following chapters provide a summary of responses to the discussion document and next steps. The government will continue to take the consultation responses into account when prioritising areas for change.

2. Responses

This chapter summarises the views expressed by respondents to the 15 questions in the discussion document. These are grouped into sections corresponding to the original chapters of the discussion document.

Developing and promoting the use of HMRC’s digital services

Reduction in paper communications from HMRC

The discussion document set out HMRC’s ambition to increase the proportion of taxpayers who can self-serve online, whilst continuing to provide support for those who are digitally excluded or need extra support. This section focused on understanding the barriers taxpayers experience when accessing digital forms and sought views about how HMRC could provide support and guidance to encourage digital take up.

Question 1: What barriers do you experience when accessing digital versions of the forms above that drive you to a paper option? Are there any particular forms/processes that cause major issues?

There were 25 responses to this question. The majority welcomed further digitalisation but cautioned against moving too quickly, stating that HMRC should take a gradual approach to the move to digital, allowing taxpayers to adjust to the changes. They added that HMRC needs to improve its current digital services before proceeding with a ‘digital by default’ approach.

Several barriers to accessing digital forms were identified:

• almost half of respondents pointed to limited agent access to relevant digital services, and their client information via HMRC IT systems, as reasons for continued reliance on paper forms and letters. (Concerns around limited agent access to their clients’ PAYE and ITSA digital services were also raised repeatedly during the consultation)

• a third of respondents cited concerns with the complexity of the Government Gateway log-in and identity verification processes, which result in some taxpayers abandoning the digital route; a few flagged that the digital handshake required to obtain client authorisation for the agent services account is a complicated procedure

• some respondents highlighted that there were no digital options for some forms, and that some digital forms did not work as well as their paper counterparts, for example, unlike a paper form, there was not always a facility to save a partially completed digital form and the taxpayer could not always see which supporting information would be required from the outset

• some respondents highlighted that some taxpayers were digitally excluded, and that others could be concerned by the increased risk of scams with digitalisation

Letters and forms that HMRC will move to ‘digital by default’

There were 13 respondents who commented specifically on the forms listed.

Form/description	Comments from respondents
SA100: Self Assessment tax returns	Over half of respondents said the SA100 should remain available in a paper format.
SA316: Notice to file	This form requires action by the taxpayer and there were concerns that it might be overlooked if sent digitally, resulting in failure to file a tax return.
SA300: Statement of account	Some respondents said that this form acts as a reminder of when a tax liability is due for payment and might be missed by the taxpayer if sent digitally.
SA250: Welcome letter	Some respondents said this was an important letter, which reassures taxpayers that an SA record has been set up. It was suggested the paper letter provided a good opportunity to outline and explain the benefits of using the HMRC online tax account.
SA251: Exit letter	It was suggested that the volume of these letters did not warrant a move to digital. Some respondents said the wording could be improved to make it clearer that, if circumstances change, the taxpayer might need to notify HMRC.
R002: Repayment notification	The only comment received was that if claiming and tracking of repayments was improved, this notification would only be required by the digitally excluded.
CT603: Postal notice to deliver a company tax return	Some tax agents would be content with the CT603 moving to digital by default but said the notices should be forwarded digitally to agents (where possible) and that HMRC should make efforts to ensure that such communications do not ‘bounce’ off spam filters.
P2: Tax Code Notices	Some respondents said that online P2 services needed to be improved significantly if the paper form was to be withdrawn. There were also concerns that the notice might be missed if it was sent digitally.
P800: Tax calculation	Again, several respondents said that this form might be overlooked by taxpayers if it was sent digitally.

Question 2: How would you like HMRC to provide support and guidance to assist digitally able taxpayers with accessing digital versions of the forms above?

There were 24 responses to this question. Many reflected the need for high quality digital services that are readily accessible and easy for all taxpayers to use. Some said that taxpayers need clear, simple, accessible guidance with examples to explain complex areas.

Some respondents highlighted that taxpayers who are digitally capable but have previously managed their tax affairs using paper forms would need to adjust to a digital by default approach. They said HMRC would need to be proactive during the transitionary period to promote awareness and the benefits of HMRC online and the app.

Question 3: What would be your preferred options for the digitally excluded to access non-digital services for the forms above?

There were 24 responses to this question. Concerns were raised about how HMRC would notify taxpayers of the move to digital. The majority said there needed to be a simple means of requesting paper forms, whether by post, telephone, or through digital channels, when being supported by agents, intermediaries, or friends and family. A wider concern was the lack of a single record to recognise digitally excluded taxpayers across all taxes.

Some respondents felt that HMRC’s definition of ‘digitally excluded’ was too narrow and needed further clarification.

Reduction in payable orders

HMRC would like to enable faster more secure digital payments to taxpayers via a digital by default route and sought views on facilitating this and safeguarding the additional data that would need to be collected.

Question 4: How can HMRC encourage more PAYE taxpayers to open digital tax accounts to help automate the repayment process?

There were 20 responses to this question. Most respondents suggested that HMRC should better advertise the benefits of opening a digital tax account, such as receiving PAYE refunds quicker. It was felt that the sign-up process could be simplified, and that additional functionality would help increase take-up.

Some respondents suggested that HMRC could work with employers and third parties to raise awareness of the digital tax account amongst PAYE taxpayers, for example, using wage slips to promote it.

Question 5: What safeguards should be in place for any new data HMRC collects?

There were 17 responses to this question. Most respondents highlighted 3 key areas: data security, personal privacy and HMRC compliance with the UK General Data Protection Regulation and the Data Protection Act 2018. The Single Customer Account was highlighted as an opportunity to give taxpayers access to data held by HMRC, as well as the ability to update it as necessary.

Other respondents said that repayments should only be made to bank accounts where specific consent to do so had been received and that the data should not be retained for future repayments as details may change and not be updated.

PAYE

The PAYE section of the document focused on changes of circumstance and how these could affect tax codes. It considered opportunities for reform and sought views on whether there were any viable alternatives to tax codes.

Question 6: What specific processes or data points could be simplified to speed up information flow between employers, employees and HMRC when employees have a change of circumstance, while maintaining quality of data and keeping information secure?

We received 25 responses to this question. Most respondents felt that tax codes worked well for the majority of the PAYE population. However, they said that they did not always reflect employees’ current circumstances and could sometimes fail to keep pace with changes, especially when an individual moved job part way through the month. Many respondents raised issues regarding individuals starting new jobs on incorrect tax codes, and suggested the starter checklist could be improved and should be made mandatory so all employees would have to complete it before they started their new role.

Several respondents said that the system’s inability to recognise one-off payments caused issues for tax codes and needed addressing.

Some respondents said that HMRC does not fully utilise the Real Time Information (RTI) data it collects from employers and that the system should have two-way communication, so HMRC can provide tax codes to employers more quickly.

Representative bodies and a few others felt that HMRC needed to work more closely with payroll bodies and employers to develop a better process.

It was suggested that HMRC could use RTI data to better nudge and prompt taxpayers to make them aware of their obligations, for example, the need to register for ITSA if the taxpayer earned over a certain amount.

Many respondents stated that taxpayers struggled to understand their paper Tax Code Notice (P2) as they do not provide enough information to clearly explain why a tax code has changed, and this is something HMRC needs to improve on. A few felt taxpayers did not understand how tax was collected or how Income Tax thresholds worked and that there were a number of misconceptions, so HMRC needed to better educate taxpayers. There were also comments about taxpayer lack of awareness of HMRC online accounts.

There was an appetite from some respondents for taxpayers to be able to provide information, such as changes to benefits in kind, to have their tax code amended through their HMRC online account but limited functionality did not always allow this. Respondents said that HMRC needed to add better explanations and develop more intuitive guidance to accompany this procedure.

Question 7: In what ways could advances in information technology allow for an alternative to the tax code or more real time interaction between employer, employee and HMRC to ensure that tax and employee National Insurance contributions (NICs) deductions keep pace with changes as efficiently as possible?

We received 22 responses to this question. Most respondents felt tax codes worked for the majority of taxpayers and that there was no viable alternative that could deliver everything tax codes did. However, many respondents said underlying systems needed to be improved to fully benefit taxpayers and HMRC.

One suggested alternative to tax codes was that HMRC could calculate, in real time, the amount that should be deducted from the individual on a pay-period basis. This amount would change depending on the individual’s personal circumstances.

ITSA

This section focussed on obtaining views on whether all, but digitally excluded, new taxpayers should be required to register for ITSA online. It also launched a review of the ITSA criteria.

New ITSA taxpayers: digital from registration onwards

Question 8: Would you support a change to require new ITSA registrations to be made online, with a digital by default approach to subsequent notices to file, and a requirement for annual returns to be delivered digitally?

More than half of the 22 respondents were broadly supportive of a change to require new ITSA registrations to be made online, with a digital by default approach for subsequent notices to file, and a requirement for annual returns to be delivered digitally. Many added that any new digital services would have to be fit for purpose and user-friendly before mandating. They suggested using the Online Tax Registration Service as the single online ITSA registration system.

Question 9: How much notice would taxpayers and agents need for this change, and how could HMRC best communicate it?

We received 19 responses to this question. Most felt at least 12 months’ notice would be required to allow sufficient time for testing new systems and that the change should be communicated through:

• public awareness campaigns on social and national mainstream media
• engaging tax professional and accountancy bodies
• engaging with, and educating, digitally capable ITSA taxpayers who choose not to use HMRC’s online services

The ITSA criteria

This section explored the difficulties customers experience when navigating the criteria used to determine which taxpayers are required to file a tax return. It considered guidance, thresholds, HMRC IT systems and legislation.

Question 10: Do you agree these are the main issues? Where possible please rank in order of magnitude/impact.

We received 20 responses to this question with 13 ranking the issues:

• 6 respondents identified guidance as the main issue
• 4 said HMRC IT systems
• 3 said thresholds

Respondents said that guidance was often difficult to understand, and that HMRC should improve the ‘Check if you need to send a Self Assessment tax return’ tool, as some questions seemed ambiguous and misleading.

Some said that, as thresholds have remained static, the number of taxpayers needing to file had increased. A few said that taxpayers who only receive income from PAYE should not be required to file a tax return, and HMRC should remove the High Income Employee threshold. Others said the combination of rules and thresholds was complex, and that the criteria should clearly explain when HMRC requires a tax return.

Respondents identified the following issues with HMRC’s IT systems:

• inconsistency in HMRC’s approach when coding out income via PAYE
• complexity of ITSA deregistration, especially for those with fluctuating income
• the lack of a single registration service for all ITSA taxpayers

Respondents said there was a lack of alignment between guidance, ITSA criteria and the legislative obligation to notify chargeability, which caused confusion. Some suggested rationalising and aligning the criteria with the legislation while others said that legislation should be framed around the requirement to file, rather than a ‘requirement to notify’.

Question 11: What other difficulties do taxpayers face in understanding and navigating the ITSA criteria?

There were 21 responses to this question. Some felt there was a general lack of awareness of the need to file a return, particularly amongst PAYE taxpayers who started receiving other income, such as those with income from rent and hobbies.

Class 2 NICs were cited as a contributing factor to a poor customer experience when:

• existing ITSA taxpayers added income from a new trade, which could result in a data mismatch, and HMRC incorrectly deleted Class 2 NIC entries on returns
• taxpayers registered for ITSA, for reasons other than self-employment, became self-employed and were unaware that they needed to re-register for Class 2 NICs

Respondents explained that many taxpayers exercised the right to send a tax return because they were unsure whether they met the criteria, whilst others felt that filing a tax return was simpler than coding out via PAYE.

Question 12: What additional complexity exists for taxpayers who are navigating multiple criteria or for those whose circumstances change frequently? Where possible please give examples, including how you think HMRC can resolve the issues.

We received 18 responses to this question. Some said the overall experience should be simpler and holistic. Examples of complexity included:

• taxpayers with changing circumstances moving in and out of the criteria
• low-income taxpayers being unaware of a filing obligation, particularly where their total income was below the personal allowance
• pension annual allowance charges and student loan repayments
• the registration process for those who live outside the UK

Some said HMRC should focus on requiring returns only from those with tax liabilities that could not be collected through other routes. Others suggested the digital process should permit taxpayers or their agents to easily ‘switch SA on/off’.

Opportunities for reform

Views were sought on 4 areas:

• guidance
• thresholds
• HMRC’s IT systems
• legislation

Question 13: Are these the right changes and opportunities to be considering? Are there others?

We received 25 responses, most agreed that reviewing the areas suggested could reduce complexity. Others said that tax legislation was complex and should be simplified.

Question 14: In what way will each simplify things for taxpayers?

We received 18 responses to this question. Some said including accessible, interactive guidance within digital forms could help taxpayers. Others said that better guidance may encourage the use of self-serve digital channels.

Some respondents suggested that thresholds should be reviewed, and the rationale behind them clearly explained to taxpayers. A few suggested mirroring the VAT model where there is only one turnover threshold.

Most agreed that IT systems required significant improvement to make them intuitive, reliable and joined-up across the taxes. A few respondents said that HMRC should make it easier for taxpayers living abroad, particularly those without National Insurance numbers, to access digital services.

There were differing views on whether codifying the criteria into legislation would make it easier but most agreed that codifying was not the main priority at this stage.

Question 15: Which are better? Could you rank in order of preference or greatest improvement?

The 18 respondents agreed that the listed options were good opportunities for reform. 10 ranked the options as follows:

• IT Systems (4 respondents)
• HMRC guidance (3 respondents)
• thresholds (2 respondents)
• first legislative option (1 respondent)

3. Government response and next steps

HMRC is transforming its digital services. It will eventually provide taxpayers with the ability to interact with all of their information in one place online or via the HMRC app.

HMRC is committed to providing services to all taxpayers. It will continue to help those who need extra support and guidance to manage their tax affairs digitally and will always ensure that there are non-digital alternatives for those who are digitally excluded.

HMRC’s initial focus is on developing and improving its online services for individual customers. It has commenced transforming PAYE processes with the aim of ensuring that more taxpayers are on the right tax code from the first pay-period, and that any incorrect data can be quickly corrected via digital services.

HMRC’s ambition is for a more real-time, integrated, and accurate data-led service for Income Tax and NICs by 2030. For example, where HMRC is unable to collect NICs alongside a submission or return, its ambition is for customers to have access to digital services to manage their NICs position, including a service for customers to start making Class 3 NICs part way through the tax year, for pension purposes.

The government acknowledges the call, from many respondents, to improve agent access to relevant HMRC digital services and their client information. HMRC is committed to enhancing digital services for agents, in line with its Charter and Tax Administration Strategy, and recognises that agents should be able to see and do whatever their clients want them to.

HMRC will ensure that agents are considered from the outset in the design and development of new services, as it is doing for Making Tax Digital (MTD) for ITSA, which is designed to make it as easy as possible for agents to act on behalf of their clients. Agents who have registered for an agent services account will be able to sign up their clients to MTD and submit updates and returns on their behalf directly from their software. A similar service is already available for MTD for VAT.

HMRC is also working to enhance agent digital authorisation services to make the process simpler and more secure.

Developing and promoting the use of HMRC’s digital services

HMRC is introducing and further developing a range of changes to provide easy to access digital services, with relevant service support, to ensure that customers experience a convenient, streamlined and personalised service. HMRC has already improved and expanded its digital services, including:

• introducing a new service to claim Child Benefit online
• adopting a ‘digital first’ approach for the highly rated service for customers to get evidence of their employment history, and
• allowing customers to access and view their National Insurance number and save it to their digital wallet

In 2023, the HMRC app had 1.2 million monthly users and was opened over 80 million times. The app has a 4.8/5 rating on the Apple App Store.

HMRC will continue to make service improvements through HMRC online and the app.

HMRC acknowledges the clear feedback on the quality of its current digital services. It is working to improve the range and accessibility of its digital service offering and will not require digital interaction until a service is of a suitable standard. Overall HMRC online channels received an 83.7% satisfaction rating in 2022-23 but there is more to be done. Changes will be implemented gradually and adequate guidance will be provided to enable taxpayers and agents to adapt.

For those times when customers need extra support, the Digital Assistant can be accessed from HMRC online and the app. The Digital Assistant is there to help customers find the answers they need online and, where more support is needed, it can escalate calls to an HMRC webchat adviser. It has been used more than 3.5 million times in 2023-24 and 62% of those interactions did not require any input from an HMRC adviser.

The government recognises respondents’ concerns about the definition of digital exclusion. Digital exclusion is a broad term and there is no single definition that applies across all government departments. HMRC generally considers someone to be digitally excluded if for any reason (including age, disability, religion, or location) it is not reasonably practicable for the person to use electronic communications or to keep electronic records.

As it transforms its services, HMRC will ensure that all taxpayer accounts and data are held securely and that it complies with all customer protection requirements relating to the data it collects, including the UK General Data Protection Regulation and Data Protection Act 2018. From February 2024, HMRC will make it easier for customers to view all activity on their account and report anything suspicious.

The government acknowledges concerns raised about the Government Gateway log-in process and identity verification. It has launched One Login to simplify how customers access government services. Customers will eventually be able to access online government services and prove their identity using a single username and password. Some customers are already using the One Login App to prove their identity. This year, HMRC will start asking some individuals to use GOV.UK One Login to access its online services, instead of the Government Gateway. It is expected to roll out to some businesses and organisations after that.

HMRC is introducing service improvements that will allow customers to move seamlessly from the app to HMRC online, including mid-transaction. HMRC will send a mix of SMS and push notifications to remind the customer to complete a task and provide assurance it has been successfully completed, all without having to call HMRC.

Legislative changes to facilitate the move to digital channels

Some areas of reform will require legislative change to support the move to digital.

1: Changes to consent arrangements to enable digital by default

The government is grateful for respondents’ comments on the high-volume correspondence HMRC intends to send digitally. To facilitate this, the government intends to make changes to legislation that will allow specified correspondence to be sent to taxpayers digitally by default. This means taxpayers will automatically receive the correspondence into their HMRC online account, unless they elect to continue to receive paper communications. In developing the digital by default approach for the specified correspondence, HMRC will consider carefully how best to implement the changes and communicate them to affected taxpayers.

2: Acquisition of taxpayer electronic contact details

As a further enabler for digital channel shift, the government intends to make changes to legislation to give it the authority to require taxpayers to provide and update electronic contact details, where they have them, when transacting with HMRC. This will enable HMRC to notify taxpayers that correspondence has arrived in their secure HMRC online account. HMRC will explore how this information can best be collected at points when taxpayers are already transacting with HMRC, such as when submitting Income Tax returns, claims, or notifications of changes of circumstance.

3: Tax Code Notices (‘P2’)

HMRC issues around 24 million P2 notices every year to notify customers of changes to their tax code. Many customers find them confusing. The government is exploring options, including legislative change, that will give HMRC more flexibility to tailor how and when it provides taxpayers with the information they need. Some of the options being considered include further enhancing HMRC’s digital services, further changes to guidance, and stopping sending paper P2s and instead providing information about tax code changes in the digital account, with links to the guidance that will help taxpayers understand what their code means.

The earliest HMRC will seek to make these legislative changes is later in 2024. HMRC will provide adequate notice to those affected before implementing the changes in relation to specified correspondence, returns, etc. and will be in touch with stakeholders soon to seek their input.

Reduction in payable orders

The government is encouraged by the support received in relation to modernising the repayment process. HMRC is making changes to move away from payable orders and will offer customers a choice between receiving a digital payment or requesting a payable order. This will help prevent payable orders being sent to incorrect addresses and allow taxpayers to get their repayments more quickly.

PAYE

Tax codes

The government wants taxpayers to be able to easily access information that helps them understand deductions of tax from their pay or pension. The amount of any tax deductions is determined by a person’s tax code, and so helping people understand their tax code is a key area to improve. HMRC is re-designing the guidance explaining how a tax code is generated. The new guidance will be based around life events such as starting a first job, having multiple jobs, or changing jobs.

Two of the main reasons taxpayers contact HMRC are that they are worried their pay is more or less than expected because of their tax deductions, and because they do not understand their tax code. HMRC is making improvements to update tax codes more quickly, to reflect a change of job or change of circumstance.

HMRC has already started delivering this by:

• making corrections in time for people’s second payday in a new job, with the aspiration of providing more accurate tax codes in time for their first payday where possible;
• working closely with employers and providers to help fix tax code errors at source

Non PAYE income

The Financial Secretary to the Treasury announced on 16 January 2024 that to simplify the process for many employees claiming tax relief on their expenses, and for HMRC to automatically process claims, the government is designing a new, online service for employees to claim tax relief on all of their expenses in one place, meaning employees will get relief sooner.

The Financial Secretary to the Treasury also announced the mandation of payrolling of Income Tax and Class 1A NICs on benefits in kind via payroll software from April 2026. Mandation will simplify the tax affairs of 3 million people and reduce the need for them to contact HMRC. This will also reduce administrative burdens for thousands of employers and remove the need for 4 million end of year returns to be submitted to HMRC. 

HMRC’s ambition is to build services that allow employees to notify HMRC digitally of any non-PAYE income and new employment benefits, and to claim expenses and allowances. It is likely that the digital self-serve tool will allow taxpayers to declare dividend income and have the tax collected via PAYE, subject to coding restrictions.

ITSA

New ITSA taxpayers: digital from registration onwards

The government welcomes the support from most respondents for changes to require new ITSA registrations to be made online. HMRC will improve and expand its digital registration services, in order to make it the norm for new ITSA taxpayers. Non-digital routes will remain in place for digitally excluded taxpayers.

There are currently many ways to register, and each process captures different information from taxpayers. The government’s ambition is to have a consolidated registration process, which improves the overall customer experience.

As a first step HMRC will streamline current routes for registration by extending and enhancing its digital services to enable the majority of ITSA taxpayers to register online in one place. This should also allow taxpayers with changing circumstances to move out of ITSA more easily when they no longer need to file a return.

ITSA criteria

The government is grateful for the detailed comments supplied by respondents. The feedback broadly endorses HMRC’s plan to complete its review of the ITSA criteria, and associated guidance, before considering any legislative change.

HMRC is using the feedback provided to test whether the criteria ensure that the right people file a tax return:

• those who have a tax liability that is not managed through PAYE or another withholding regime
• those who have complex tax affairs or are in a group where HMRC needs more information
• those who need to file a return to make a claim or election

HMRC’s review is testing whether changes to the criteria could make them easier to understand, and better target the relevant groups, and whether monetary thresholds could be better aligned, rationalised, simplified, or grouped.

The government acknowledges views that, for some taxpayers, reporting and paying tax through ITSA can be a better customer experience than other methods, such as coding out through PAYE (though HMRC is making improvements to PAYE coding as described earlier).

However, sometimes the customer experience can be improved by finding routes other than ITSA, and the government is already taking action in this area:

• in a written ministerial statement on 18 July 2023, the Financial Secretary to the Treasury said: ‘The government wants to simplify the process for customers who become liable to the High Income Child Benefit Charge, particularly for those who currently need to register for Self Assessment to pay the charge. The government will provide details in due course on how it will enable employed customers to pay through their tax code, without the need to register for Self Assessment’

• at Autumn Statement 2023, the government announced that from tax year 2024 to 2025 it will abolish the requirement for taxpayers with income above £150,000, which is taxed through PAYE, to submit a tax return if they have no other reason to do so. This is a simplification to the tax system and is in addition to the increase of this threshold from £100,000 to £150,000, which took effect this tax year (2023 to 2024). These changes remove the requirement for an estimated 338,000 taxpayers to file a tax return.

Whilst these changes are being implemented, HMRC will continue its wider review of the ITSA criteria.

The government acknowledges the view of some respondents that taxpayers ought not to be required to complete tax returns if they have no tax liability. HMRC understands this viewpoint and does not want taxpayers to submit returns if there is no value in them doing so. However, as part of its function to manage the tax system effectively, it is important that HMRC receives information about taxable income that is not reported elsewhere, such as income from the self-employed, to establish whether any tax is due.

The government is committed to making it easier for taxpayers to understand when they need to file an ITSA return, and to raising awareness of ITSA obligations in other ways:

• HMRC has recently improved its ‘Check if you need to send a Self Assessment tax return’ tool, and has updated and improved associated guidance
• in August 2023, HMRC sent 9.2 million emails, as part of its annual ITSA communications campaign, to highlight the 5 October deadline for notifying chargeability or advising that the filing criteria no longer apply
• HMRC has created a new online guidance page and form for taxpayers who no longer need to file a return

When HMRC is further on with its review of the ITSA criteria it will provide an update on progress, including whether any further consultation is required. It will give adequate notice of any changes.

Annex: List of stakeholders

The government is grateful to the 8 individuals and following organisations who responded to this discussion document:

• Association of Accounting Technicians
• Association of Chartered Certified Accountants
• Association of Taxation Technicians
• AW Tax Service Ltd
• Azets
• Capgemini
• Ceridian
• Chartered Accountants Ireland
• Chartered Institute of Payroll Professionals
• Chartered Institute of Taxation
• Country Land and Business Association
• Crowe UK LLP
• D. Freeman and Co
• Deloitte
• Harold Smith Chartered Accountants and Registered Auditors
• Institute of Chartered Accountants in England and Wales
• Institute of Chartered Accountants of Scotland
• Institute of Financial Accountants
• Johnston Carmichael
• KPMG
• London Society of Chartered Accountants
• Low Income Tax Reform Group
• Pearl Lily and Co Accountants
• Peter Chandler CCA Ltd
• PricewaterhouseCoopers
• RSM UK Tax and Accounting Limited
• Singletons
• Tax Aid/Tax Help for Older People
• Untied
• Vialto
• Zellis