Research and analysis

Businesses' views on the design and delivery of the Single Financial Account

Published 17 May 2022

Qualitative research with business customers.

HM Revenue and Customs (HMRC) Research Report 648

Research conducted by Kantar (Public Division) in August and September 2019, the findings in this report reflect the attitudes of participants at the time it was conducted. Prepared by Kantar (Public Division) (Mary Suffield, Melania Hepher-Richards and Lucy Joyce) for HMRC.

Disclaimer: The views in this report are the authors’ own and do not necessarily reflect those of HMRC.

1. Executive summary

HM Revenue and Customs (HMRC) is considering changes to the tax system to allow business customers to manage their tax affairs across several tax regimes in one place via a single financial account. HMRC commissioned Kantar (Public Division) to conduct qualitative research to explore how business customers responded to potential features of the proposed Single Financial Account, including:

• the external view, which would provide a full picture of tax affairs online and allow businesses to see their obligations at a summary and individual tax stream level

• automated set-off, which would allow HMRC to put any repayments towards outstanding tax liabilities

• retaining repayments, where if businesses consent, HMRC would be able to retain any repayments for a set period of time to put towards upcoming tax liabilities

• automated payment allocation, where businesses would make a single payment to HMRC where they had multiple debts for different taxes. HMRC would allocate businesses’ payments across these debts according to a set of published rules

The research had 2 phases:

• phase 1: 42 depth interviews with businesses with a range of tax complexities, legal structures, and sizes

• phase 2: 4 focus groups and 4 depth interviews with businesses, building on the findings from Phase 1. This involved testing the emerging benefits and concerns and a mock-up of the external view

1.1 Key findings

The external view

Businesses were largely positive about this concept. It was seen as a transparent system, clearly summarising tax information that is currently held across numerous tax portals for each liability the business owes. This was seen to give businesses more control over their tax management and reduce the complexity currently faced in navigating multiple portals.

Automated set-off

Businesses were largely neutral about this concept, as they thought that it would rarely be applicable to them. Businesses interviewed thought that it would be more relevant for those who had outstanding liabilities, had low confidence about managing their taxes or had frequent repayments from HMRC. Businesses did however raise concerns about losing control over which tax streams were linked, and the complexity of tracking payments should this concept ever be applicable for them.

Retaining repayments

Businesses recognised the benefit of this concept to HMRC but considered benefits to be more limited for them. This was because they rarely received repayments. They were concerned about additional complexities in managing cash flow should a repayment be retained. However, businesses welcomed the process of consent and some smaller businesses suggested they would opt in for smaller repayments.

Automated payment allocation

Businesses were least comfortable with this concept. They were unclear of the benefits to them as they generally made payments on time and in full. They also raised some concerns about the proposed order of allocation.

General views of the Single Financial Account

Businesses views in general on the Single Financial Account:

• businesses conceptualised their tax regimes in 2 ways: as separate obligations or as one pot. Businesses in our sample mostly viewed taxes as separate obligations and had internal processes and/or teams set up accordingly to manage these. However, small businesses who were more heavily reliant on their agent viewed their tax as one pot

• the way in which tax regimes were conceptualised impacted perceptions of the Single Financial Account. Generally, businesses that viewed their taxes as ‘one pot’ were more open to the proposed changes. Those that viewed them as separate streams more commonly had processes set up to account for this, and would need to adapt them to fit the proposed changes

• businesses did not view changes to the ways in which they managed their taxes to be a priority. They were generally confident in their existing processes

• of the 4 concepts within the Single Financial Account, businesses were most positive about the external view. This was seen as a natural progression of the tax system that brought about beneficial outcomes for customers and HMRC. It also alleviated some of the concerns raised about control, complexity, and trust as it provided transparency

• businesses required a greater understanding of tangible benefits to their business, and reassurance of effective and transparent communication about the potential changes, to alleviate key concerns. This was particularly key for automated set-off, retaining repayments and automated payment allocation

2. Introduction

2.1 Background

HM Revenue and Customs (HMRC) is considering changes to the tax system to allow business customers to manage their tax affairs across several tax regimes in one place. This is known as the Single Financial Account. The proposed changes aim to improve the experience and efficiency for business customers. There are currently 4 planned key features of the Single Financial Account which are:

• the external view: a digital platform providing businesses with a single view of their tax affairs, making it easier for them to see an overall picture of their tax position

• automated set-off: a system where a business’s repayment would be automatically set off against any outstanding liabilities to HMRC. Initially this is planned to apply to Value Added Tax (VAT) and employers’ Pay As You Earn (PAYE), and then other taxes at a later date

• retention of repayments: a process where businesses would be able to choose whether or not HMRC could retain any repayments due to them for a limited period and allocate them to upcoming liabilities, with the aim of reducing the number of tax payments businesses need to make. If businesses did not consent, the credit would be repaid to them

• automated payment allocation: businesses currently make separate payments for any debts for different taxes to HMRC. Under this new process, businesses would make a payment through a single payment system which HMRC would automatically allocate across these outstanding debts The order of allocation would be determined by a published set of rules with the general aim of minimising any penalties and interest.

2.2 Research aims

This research sought to understand business customers’ views on the proposed changes to the tax system to inform the design and delivery of the Single Financial Account. More specifically, the research aimed to:

• understand businesses’ perceptions of proposed features of the Single Financial Account, including the external view, automated set-off, retaining repayments and automated payment allocation

• identify what safeguards and guidance HMRC can build into the system to alleviate any concerns

• understand businesses’ initial views on how the new system (for example, the external view showing their overall position with HMRC) should look, and how the new system could be effectively communicated

2.3 Method

The following section outlines the methodological approach taken.

Sample

The sample included a total of 73 business customers, identified using a combination of a sample from Bureau van Dijk (a platform that captures information on registered businesses in the UK, alongside information from companies house and other sources), and free-find recruitment. To understand how the proposed changes would impact a range of businesses, participants were recruited according to the following criteria:

• tax stream complexity: all businesses were required to be liable for at least 2 of the taxes of interest, VAT, Corporation Tax, Self Assessment and PAYE. The sample included 7 businesses with moderate complexity (2 taxes) and 35 with high complexity (at least 3 taxes)

• legal structure: including limited and non-limited companies, partnerships, and sole traders

• business size: including small businesses (turnover up to £10 million and 0-20 employees), mid-sized businesses (turnover of between £10-£50 million and 20 to 250 employees) and larger mid-sized businesses (turnover of more than £50 million and 20 to 250 employees)

Businesses were also recruited based on secondary criteria including extent of agent use, sector, and location.

Fieldwork

The research took an iterative, qualitative approach. Between August and September 2019 42 depth interviews were conducted with relevant individuals within the business, including Financial Directors and Chief Finance Officers. Interviews were conducted face to face and by telephone. These interviews focused on current approaches to managing tax, responses to each of the 4 elements of the Single Financial Account, and ways to alleviate any concerns about the Single Financial Account.

Following the depth interviews, 4 focus groups were conducted in Manchester (2 groups) and London (2 groups). These aimed to build on the findings from the interviews, exploring responses to perceived benefits and concerns of the proposed processes, and a mock-up of what the external view could look like. Four depth interviews with larger mid-sized businesses using the same structure were also conducted to ensure the study engaged this group, who were more difficult to recruit for focus groups.

3. Key findings

3.1 Current approaches to managing tax obligations

Conceptualising tax

The way in which businesses thought about their taxes was explored. Businesses conceptualised their tax obligations based on key characteristics such as size, tax complexity, the structure of the business, and how closely the business was involved in tax management. The way in which tax was conceptualised influenced how they perceived the proposed Single Financial Account.

Generally, businesses thought about their taxes as separate obligations. These businesses managed at least one tax obligation without help from an agent and tended to use their Business Tax Account. They largely understood the different purposes and timings of filing returns for each tax obligation and had different methods or teams (in mid-sized businesses) to manage each of these.

Smaller businesses who considered themselves to have lower levels of financial literacy more commonly viewed taxes as ‘one pot’. These businesses were more heavily reliant on their agents and undertook actions as needed, for example making payments as instructed by their agent.

Timeliness of tax payments

The businesses interviewed generally made tax payments on time. The motivations behind making timely payments were threefold:

• business norms: paying on time was seen as a normal part of running a business. This behaviour was ingrained and seen as an unconscious decision

• effective business planning: businesses outlined the benefits of timely payments. These included the avoidance of penalties and being able to see what money they had left after taxes were paid. Smaller businesses more commonly discussed this as a key motivation

• ethical concerns: less commonly, businesses were ethically motivated. Once a payment was due, they no longer considered the money to be legally theirs. They considered timely payments to HMRC to be as essential as timely payments to suppliers

Where late payments had occurred, they tended to be a result of unexpected bills that had not been accounted for in budgeting. In these cases, businesses approached agents for advice, who then set up payment plans with HMRC.

I got a huge bill through that I just hadn’t planned for. My accountant has set up a payment plan which is making it manageable.

Small, Moderate, Wholesale

For a few small businesses, a late payment occurred when they forgot to make a Corporation Tax payment. They attributed their error to the gap between reporting how much tax was due and the deadline for payment.

Managing payments and repayments

Businesses varied in how they managed their tax obligations. Three main factors were identified that determined which payments were managed internally and which were outsourced to an agent. These were:

• confidence: where there were greater levels of internal expertise, businesses had the confidence and capacity to manage more obligations. Businesses generally felt more equipped to manage VAT internally, rather than other taxes

• time: small businesses did not generally consider themselves to be experts in tax management. They tended to outsource most of their obligations to an agent, rather than dedicate time to managing these internally, as this freed up time for them to focus on the running of the business. In contrast, mid-sized businesses had the resources to have dedicated individuals or teams managing a range of obligations

• business structure: tax management approaches in mid-sized businesses had often been in place a long time and had been established before the current Financial Director was appointed. Team structures and processes had been created around these ways of working and were assumed to be burdensome to change. As such, these businesses were unlikely to change tax management strategies. Moreover, for those sitting under parent companies, tax management strategy was commonly decided for them, leaving little room for individual decision-making

Repayments tended to be uncommon for the businesses interviewed – often around once a year – and where they did occur tended to be for insignificant amounts. As such, they had little impact on the running of the business. Businesses therefore managed repayments on an ad hoc basis.

However, some businesses experienced more frequent repayments (regular VAT repayments), or for more substantial amounts (in unusual circumstances, such as moving premises). Experiences of these tended to be smooth, timely and therefore had limited impact on the business. Where negative experiences were highlighted, they were linked to repayments taking a long time to be made, which caused subsequent cash flow issues for the business.

Perceptions of the proposed move to the Single Financial Account

Businesses had put processes in place to ensure they were able to adequately manage their tax obligations. This involved a combination of internal teams or processes as well as assistance from an agent. Because of this, businesses largely felt confident in navigating the tax system or were confident that an agent could navigate it effectively on their behalf.

Because businesses were confident in their ability to manage tax obligations and the current tax system, the proposed changes were not always perceived to be a priority.

When presented with the proposed elements of the Single Financial Account system, 4 factors emerged that determined business perceptions: relevance, control, complexity, and trust.

Relevance

Businesses were generally neutral towards the proposed changes as they were not certain how relevant these changes would be for their organisation, and were more positive when they thought the proposed concepts were relevant to them. They considered whether each element of the proposed system aligned with how they conceptualised tax and how likely it was that each element would be applicable to them, for example whether they were ever in debt to HMRC.

Control

Businesses wanted to retain existing levels of control over tax management, including what transactions were made to HMRC and when. Businesses considered themselves, or their agent, best placed to make decisions based on their business-specific knowledge. Businesses welcomed the external view as a more transparent system to oversee their tax position.

Complexity

Some smaller businesses welcomed a reduced number of transactions with HMRC. However, more commonly businesses suggested the proposed system may increase admin burden. For example, businesses were less supportive of the option for repayment retention as they believed their current financial processes and systems did not align with the proposed system.

Trust

Businesses trusted HMRC as an organisation and generally had positive experiences. Those who had experienced repayments in the past usually had a smooth experience. However, those who experienced HMRC errors in the past felt less confident about the implementation of the proposed changes. Each element of the Single Financial Account is explored in more detail in the upcoming sections and is related back to the 4 determining factors.

3.2 Customer views of the external review

The external view would provide businesses with details of all their tax liabilities in one place, potentially similar to online banking where individuals or businesses can view multiple accounts held with the same institution. It would combine tax obligations into one overall total, allowing businesses to view their tax and financial position at summary level. Businesses would also be able to view their obligations for separate tax streams.

Summary of business perceptions

Businesses were positive about the external view. It was seen as a natural progression of the tax system, that brought mutually beneficial outcomes to the business and HMRC. For example, businesses recognised that it demonstrated a move towards a more comprehensive view of their tax position. All tax information would be in one place and they would not have to log into separate portals for each tax the business is liable for.

Having a more comprehensive view was important for small businesses and those who were less tax literate. These groups had the highest reliance on agents, and suggested that the external view would simplify information, which may lead to them having increased involvement with managing their tax affairs.

Businesses thought that accessing a single view of their tax liabilities would reduce the need for them to call the HMRC helpline. Businesses expected the external view would be easy to navigate, meaning they could get information online that they would usually call the helpline for.

Influences on the perceptions of the external view

Relevance

Businesses were able to see how the external view could be relevant to them because they could see how it would alleviate some issues with the current system.

Currently businesses with multiple tax liabilities have to log into different portals for each tax stream. They discussed their frustration with remembering passwords for numerous portals. For small and less tax literate businesses, this prevented engagement because having tax information spread across different portals added to the complexity of tax management. Businesses thought that the external view would ideally include historical and upcoming payments, providing them with a fuller picture of their liabilities which could save time with their end of year accounts.

Across different sizes and complexities, businesses discussed how waiting to get through to HMRC telephone helplines made accessing up-to-date information slow. They suggested that having the necessary tax information (which included upcoming liabilities, past payments, and broader tax information) readily available in close to real time would enable them to avoid engagement with slower services.

Control

Businesses consistently thought that the external view would give them more control over the management of their finances. The external view was seen as an evolution from a simple ‘dashboard’ giving a snapshot view of the business’s current financial position, towards a tool that could be engaged with in a more meaningful way. For example, businesses envisioned that they would be able to see past, current, and upcoming liabilities. They suggested that this could be useful as a tool for financial forecasting more broadly.

It’s good to have it all in one place. You are able to see what they [HMRC] have on their system.

Small, Complex, Entertainment

Small businesses also suggested that the external view could be a useful place for guidance and information on broader and sector-specific tax information to be available. For example, construction businesses suggested there could be information provided on the Construction Industry Scheme. This would give them more knowledge, and therefore control, over decision-making about how different obligations were managed.

Complexity

The external view was perceived to reduce the complexity involved in managing multiple tax obligations. Having information about all tax obligations in one place would simplify and assist current processes. Businesses, or their agents, tended to do this manually already and having this done for them would either provide a way for businesses to check the accuracy of their figures, or reduce the need for that process entirely.

Businesses recognised that there would be flexibility in how they could use the platform, for example, to provide an overall figure or a breakdown of obligations for different taxes. Having flexibility about how different obligations could be viewed was seen to empower businesses to use the platform in a way that best suited their needs. However, there were concerns expressed about providing an overall figure, which it was felt could be overwhelming for less financially engaged businesses.

Trust

Although businesses were largely positive about the concept of the external view, there was less trust in it being implemented effectively.

Businesses were sceptical about the quality of the implementation where they had a poor experience of other government digital services or HMRC helplines. Concerns focused on ease of navigation and accuracy. Accuracy of figures shown was highlighted specifically, based on a concern that update times would be slow. Businesses wanted accurate information from HMRC about how quickly their account would be updated. Between one and 3 days was considered acceptable by most.

Features of the external view

There were a number of features that were seen to be essential in ensuring that the external view was effective in communicating a business’s tax position. These included:

• a traffic light system: a clear and visual way to view the status of different liabilities was welcomed. This was spontaneously mentioned by businesses in the depth interviews who did not see a mock-up of the external view. Those in the focus groups who did see the mock up, including the traffic light system, were also positive

• pending transactions: businesses of all sizes and complexities saw pending transactions as important. It was recognised that they would be helpful with forward planning, checking assumptions and would be reassuring. It was suggested that these should be shown on the landing page to ensure visibility

• flexible access: businesses wanted the option to be flexible with who had access to different elements of their external view. While businesses were generally content with agents having access to all obligations (even those tax streams they did not manage), they were less comfortable with payroll agents having full access as they did not envision a time where they would need it

3.3 Customer views of automated set-off

Automated set-off is a system whereby a business’s repayment ^{[footnote 3]} would be automatically set off against any outstanding debt to HMRC. Once HMRC has completed the set-off action, the business would receive a notification to log into their Business Tax Account where they would be able to see the full details.

Overall summary of business perceptions

Businesses were largely neutral about the concept of automated set-off. They were able to identify the benefits of the proposed system, although they thought they were more aligned to the needs of HMRC than to businesses themselves. The benefits to HMRC were identified as improving the efficiency of tax collection and bringing parts of HMRC administering different taxes together. Businesses recognised this as a positive step but were unable to see direct benefits to them with the same level of clarity. As such, they initially remained neutral to automated set-off.

Influences on the perceptions of automated set-off

Relevance

Businesses, particularly those who viewed their tax obligations as separate streams, did not align themselves with the characteristics needed for automated set-off to be relevant to them. They thought that this concept would be more relevant for businesses who often had outstanding liabilities, lacked confidence in understanding their obligations, or had frequent repayments. The businesses interviewed rarely fell into these groups. Because automated set-off was not perceived to be relevant, businesses tended to remain neutral to it.

It may be good for some businesses. There must be some that have these repayments coming in all the time…

Mid-sized, Complex, Construction

Less commonly, businesses who conceptualised their obligations as ‘one pot’ saw a greater level of relevance in the concept. They welcomed a move to further integrate tax streams. Businesses experiencing similar types of set-off, for example under the Construction Industry Scheme ^{[footnote 4]}, were also more positive.

Control

Businesses expressed concerns about a perceived loss of control under automated set-off.

Businesses with complex structures and tax obligations noted a number of practical concerns in relation to a perceived loss of control. Most significantly, this involved removing a layer of control over doing their own calculations. They thought that this would decrease the clarity over their finances, reducing their ability to make informed decisions.

Partnerships were concerned about losing control over which tax streams could potentially be linked. They noted that partners’ Income Tax should not be so closely aligned with other tax streams, specifically VAT and Corporation Tax.

Businesses with less complex tax obligations and structural set ups were less able to provide practical examples of how the perceived loss of control might impact them but were still concerned about the loss of control this might bring. They felt able to manage their obligations without automated set-off and felt the changes effectively meant HMRC would be making decisions about their tax payments on their behalf, which they found concerning.

I don’t like the idea of them being able to make those decisions. It really puts us at the whim of HMRC.

Small, Moderate, Retail

Complexity

Businesses were concerned that automated set-off had the potential to increase complexity should it become applicable to their circumstances. There were 3 key points at which businesses thought they could be impacted:

• managing across teams or accounts: additional complications were expected in tracking how the repayments had been set off. This was a greater concern for mid-sized businesses who commonly had separate individuals or teams overseeing each obligation. Automated set-off would require additional cross-team processes and communication to be put in place, costing the business in time and resources

• checking accuracy of calculations: businesses of all sizes suggested they would check HMRC calculations. Small businesses were more concerned about this. They raised flags about the availability and ability of existing resource to check complex cases of set-off and were reluctant to pay for additional responsibilities for their agent

• ongoing management of payments: businesses with regular VAT repayments suggested that ongoing management of finances would become more complex, as they earmarked repayments for other expenses

Trying to keep track of it, you’re going to have to move things around to the right pot, there’s potential for errors on our side. When it’s all separate, it’s much more transparent.

Mid-sized, Complex, Manufacturing

Trust

Businesses generally trusted HMRC to make accurate calculations in relation to set-off. They considered HMRC to be an authority on tax and to be reliable. Despite this, businesses suggested they would still double-check the calculation each time a transaction occurred, in the same way that they continue to check other statements such as online banking.

Where businesses were less trusting, it was largely a result of a previous negative experience. For some, these were broader HMRC errors. However, others had experience of errors in the set-off system. One mid-sized business experienced a case of Corporation Tax set-off from their business to a sister company. The length of time taken to resolve this left them feeling less trusting of the system. These businesses stated that they needed to see improvements in the set-off system before they would trust it.

Changes to business interactions

Businesses envisioned that there may be some shift in their interactions with agents under automated set-off, particularly in the short term. Business tended to think that they would need additional contact with their agent to upskill them. For small businesses, this involved asking additional questions when necessary and mid-sized businesses suggested they may request a full training session. A small number of mid-sized businesses stated that they would have additional contact with their agent to work out if they could use the system to their financial advantage.

There was a recognition that once businesses were familiar with the system, agent involvement was likely to reduce. However, businesses were concerned that agents would continue to spend more time unpicking more complex transactions.

Businesses generally had few interactions with HMRC and thought that this was likely to continue. Where there were changes envisioned, businesses suggested it would be because of increased verification of set-off activities and problem resolution.

Communicating automated set-off

Communicating cases of automated set-off in a clear and transparent way was essential in alleviating business concerns. An online platform, similar to the external view, was spontaneously referenced by businesses as their preference for communicating what transactions had occurred. It was thought ideally that the platform would provide a comprehensive view of all obligations in one place, and transparently show calculations made by HMRC and provide close to real-time updates.

Businesses suggested different methods by which HMRC could alert them to change to their online account. These included:

• email: this was the most common preference among businesses. While there were some concerns about fraudulent emails, these were minimal

• SMS: sole trader and small businesses that were ‘on the go’ welcomed the quick notifications these could provide. However, more broadly there were substantial concerns about fraud

• letter: while this was seen to be the most secure method, the longer time taken to alert businesses made this method less suitable

3.4 Customer views of retaining repayments

Retaining repayments is a process where HMRC would ask a business whether they consented to having any tax repayments retained for a limited period to be set off against upcoming liabilities, with the aim of reducing the number of tax payments businesses need to make. For example, a business receiving a VAT refund who had an employers’ PAYE payment due shortly could choose for HMRC to retain the repayment and set it off against the upcoming PAYE bill. If businesses did not consent, the credit would be repaid to them.

Summary of business perceptions

Businesses perceptions of retaining repayments largely aligned with their perceptions of automated set-off. They recognised similar benefits to HMRC, including greater efficiency and cash flow, but considered the benefits to the business to be limited. Businesses rarely received repayments from HMRC, which meant that they did not think the benefits would apply to their business.

Influences on the perceptions of retaining repayments

Relevance

Businesses who received regular VAT repayments recognised that retaining repayments would be relevant to them, with some suggesting that it could become a common occurrence depending on how long the payment was retained for. Other businesses suggested that scenarios in which this concept would be relevant to them would be rare because receiving repayments was uncommon for them. Where these did occur, they were ad hoc or unexpected.

VAT is end of July and tax [ITSA] is going in end of January that would literally be of no use to me whatsoever.

Small, Moderate, Construction

Businesses expressed a range of views about whether they would opt in to have their repayment retained. There were a small number of less complex businesses that suggested they may opt in where the repayment was small and retained for a short period of time.

More commonly, businesses suggested they would not opt in as they were concerned retained payments would increase administrative burden. For example, having to put additional resources and processes in place to ensure they were able to effectively update accounts and manage cash flow. Because retained repayments were considered to be a rare occurrence, creating new processes to account for this was seen as an ineffective use of resource.

Where repayments were more common, the income was commonly earmarked for other payments, meaning that opting for a repayment to be retained would disrupt the business’s finances.

Control

Despite needing to opt in to have a repayment retained, businesses still perceived this as a loss of control over their own finances. Retaining repayments was seen as a ‘slippery slope’ towards further government involvement in business finances in the future. More financially literate participants were defensive about their right to make their own business decisions and wanted to ensure they were in a financially advantageous position. These participants mentioned they would be more accepting of repayment retention if the money would accrue interest at the same rate as if it was held in the businesses’ bank account.

The ability for businesses to consent to having their repayments retained alleviated some of the concerns about control. There were consistent principles that were raised, including:

• having a clear opt-in: participants views aligned with the proposal that an explicit opt-in process, using clear and simple language was considered essential. This would ensure businesses had to proactively engage with the concept, rather than realising what had happened after the event took place

• allowing consent to be changeable: businesses were largely happy to consent each time, provided it was a simple process. This was perceived to be necessary as business circumstances continually change. While others wanted the option for ‘blanket consent’, they still required the flexibility to change this in given circumstances (for example, for an unusually large retained repayment)

Complexity

Businesses identified similar complexities with retaining repayments as they did with automated set-off, including the need for additional internal communication and further updates to their accounts and ledger (see Section 5.2).

Businesses thought deciding whether to consent may be complex. Smaller businesses suggested they may need to make calculations to work out whether they needed the repayment for cash flow purposes. However, where repayments were small and would have limited impact on cashflow, these businesses did accept the benefits of HMRC retaining the repayment. Mid-sized businesses highlighted that further communication between different individuals or teams dealing with different taxes would be needed to make decisions on how that repayment would be handled, and ensure financial records were accurate.

This system would be creating a new stream, where we have a liability and a receivable and it all has to match up on the ledger, that’s unlike any other transaction that’s being processed.

Mid-sized, Complex, Manufacturing

Businesses also recognised that they would need to amend the amount of, or cancel, payments set up in advance. There were concerns this may be forgotten, and double payments would be made, impacting on their cash flow.

Trust

Businesses trusted their money would be secure with HMRC as previously noted. However, they were less trusting of how effectively HMRC would implement the necessary processes. As with automated set-off, businesses said they would check the calculations undertaken by HMRC to provide reassurance.

Sole traders and small businesses with lower levels of confidence in tax management had less trust in the effectiveness of the communication they may receive from HMRC. To be confident in amending payments, they suggested they would need notification of whether the retained repayment covered the full amount of the upcoming liability, or whether there was still money owed. Businesses also stressed the importance of notifications being timely, to ensure that they would avoid incurring penalties.

3.5 Customer views of automated payment allocation

Automated payment allocation would be a process where, instead of businesses needing to make separate payments for any tax debts as at present, businesses would make a payment through a single system, which HMRC would automatically allocate across their outstanding debts. The order would be determined by appropriation rules published by HMRC. Currently, VAT liabilities are paid first, and then payments are allocated to the oldest liabilities for other taxes to minimise the risk of penalties or interest. These rules could potentially change in future and where required or justified, there could be exemptions to these rules.

Summary of business perceptions

Automated payment allocation was generally the concept that businesses were least comfortable with. As businesses interviewed generally made their payments for different taxes on time, they were less able to see the benefits that this would bring to them.

Influences on the perceptions of automated payment allocation

Relevance

Automated payment allocation represented a shift away from how some businesses generally conceptualised tax.

As discussed in Section 3.1, businesses tended to think about their taxes as separate obligations and had systems and processes set up to fit with this. Automated payment allocation represented a shift away from this, towards a ‘one pot’ system that did not align with most businesses’ current thinking, processes, and business structures. However, for those businesses already thinking about their tax liabilities as ‘one pot’, this system represented a positive shift towards a simplified system, with reduced admin burden.

Businesses also raised concerns about the distinction between different tax years under the proposed system. While businesses’ annual accounts were currently treated as discrete, there were questions raised over whether payments could be allocated across different tax years under a new system. This had potential to create confusion in company accounts.

Businesses had a culture of paying all bills in full and on time, whether it be a supplier or HMRC. The proposed concept was therefore not considered relevant to them. Beyond this, there were some concerns raised that the proposed system reframed these expectations, instead suggesting that HMRC would support businesses that were not paying their full liabilities at the required date. This was seen to legitimise bad tax management. Some went further, suggesting that businesses that were not meeting their tax obligations in full and on time may then do the same in other business transactions.

Smaller businesses with less complex tax obligations recognised the convenience that automated payment allocation would bring, if they had more than one outstanding debt at one time. They were positive about not having to log onto different systems to pay each outstanding liability.

Control

Businesses considered automated payment allocation to be a shift in control of finances from businesses towards HMRC. Mid-sized businesses and those with complex structures were most concerned about the perceived loss of control. Businesses did not think that HMRC would have in-depth understanding of individual businesses and would therefore be unable to prioritise payments as effectively as the businesses themselves.

Generally, businesses welcomed the suggestion that disputed payments would be outside of the scope of the proposed system. This made them feel more in control. However, businesses with experiences of error by HMRC in the past were more sceptical about HMRC’s motivations for automated payment allocation. They thought that they would be less able to dispute payments under the system and saw it as a step towards disputes being included in the process.

Complexity

As with automated set-off and retaining repayments, businesses were concerned about the added complexities they would experience trying to understand the calculations undertaken by HMRC, as well as the speed and detail of the communications outlining the steps that HMRC had taken. There were some further concerns about additional complexities, specific to automated payment allocation, including:

• challenges in accounting: businesses were uncertain how they would account for this process in their software. While the transparency of the external view was perceived to be essential in alleviating these concerns for smaller businesses with more consistent tax liabilities, others remained concerned that they would need to invest in further software or create additional processes

• error resolution: businesses suggested that errors in allocation may be difficult to resolve. The transactions were considered complex, and there were concerns raised about how feasible it would be to comprehensively explain the error to an HMRC employee via the helpline

Trust

Automated payment allocation was the concept that businesses were least trustful of. Initial concerns emerged from a level of distrust in whether HMRC was acting in the best interests of the business. Businesses questioned the order of the proposed published rules (these could be subject to change in future), particularly VAT being allocated first. They highlighted the need for a detailed, clear justification of the order to demonstrate that HMRC were acting in a way that would benefit them.

I don’t understand why VAT comes first. I’d need to know what good that was doing me.

Small, Moderate, Construction

The relationships that businesses had with their agents were generally long-term and stable unless a significant error had occurred. Because of this relationship, agents were commonly seen as trusted advisors. Businesses that were in debt to HMRC therefore suggested that they would prefer their agent to advise and allocate payments on their behalf as they trusted them to do this more effectively than an automated system that they had no experience with.

1. The term ‘repayment’ refers to VAT repayments, as well as other overpayments or credits that may occur from different taxes (Corporation Tax, Self Assessment and PAYE). ↩

2. A company with Construction Industry Scheme deductions taken from its income as a subcontractor should set these off against its monthly or quarterly payments to HMRC. ↩