Advisers warned about switch to automated tax

Advisers warned about switch to automated tax

A change being introduced by the government will allow HM Revenue & Customs to use automated tax calculations as a legitimate way of claiming unpaid tax, which could have implications for any outstanding appeals.

A written ministerial statement laid down by the financial secretary to the Treasury, Jesse Norman, on October 31 showed the government intends to introduce legislation that will mean that a tax calculation performed by a computer will have the same power in law as one calculated by a human.

This comes after a series of tax tribunal defeats for HMRC, after individuals complained that the tax judgement they received was not valid because it was calculated by a computer.

Article continues after advert

The government is currently subject to purdah rules ahead of the December 12 general election but FTAdviser understands should it be elected it will put the plan forward in the next Finance Bill.

It is a long standing principle of UK tax law that any demand for tax must be calculated by a human, but in recent years HMRC has increasingly used technology to read, scan and assess the tax records of individuals and to issue tax demands.

What's more, the new legislation will apply retrospectively, that is, it will act as though it has always been the law.

This means that any taxpayer presently appealing a ruling because it was based on a verdict issued by a computer, will have their appeal scrapped. 

George Bull, senior tax partner at RSM, said: “Much of the legislation relating to the management of our tax system goes back to 1970.

"As a result, many important pieces of tax legislation are framed in terms requiring decisions to be made by a real person who is an employee of HMRC.

"No one disputes that this new law is needed and welcome, but applying it retrospectively is something I would be cautious about.

"We have seen with the loan charge, which many people believe has been applied retrospectively, the impact that this can have.

"I would say to MPs that they should scrutinise this legislation very carefully before it becomes law.

"The unilateral statement from the government means this legislation would be drafted without the benefit of the advice of experts and industry professionals.”