Taxpayers in policy pilots must not be disadvantaged, Institute urges

Taxpayers who take part in small-scale pilots of new policies should not be disadvantaged compared to the general population, the Chartered Institute of Taxation (CIOT) has urged.

Responding to HMRC’s recent consultation on “Creating innovative change through new legislative pilots”,¹ the CIOT said² it supports “innovative approaches” to developing new tax policy, but has some concerns about trialling new processes in a temporary “sandbox”.

It said participation in these trials must not be compulsory, and participants must be protected so they do not end up worse off than if they had not taken part.

Margaret Curran, CIOT Technical Officer, said:

“While we support in principle the idea of HMRC developing an innovative approach to the development of new tax policy, we are concerned that the “legislative sandbox” piloting approach described in the consultation document could give rise to problems, particularly if it were to be run as a parallel tax or penalty system rather than as a trial involving a small number of taxpayers.

“We strongly believe participation in any pilot should be voluntary, no-one should end up in a worse position than if they had not participated in it, and any adverse tax, interest and penalty position should be promptly corrected by HMRC, while any costs should also be reimbursed. It is essential that existing taxpayer safeguards are protected within the sandbox environment. Equally, one of HMRC’s Charter commitments is to treat all taxpayers fairly, therefore those participating in sandboxes should also not have an advantage over other taxpayers.

“Our members and agents have also raised concerns over the challenges pilots could lead to in potentially needing to train staff to use multiple systems, all running at the same time.”

The CIOT also warned that pilots should not be used to introduce new tax policies as a “short cut”, and successful pilots must continue to go through the proper consultation process before they are enacted more widely.

Margaret Curran added:

“If the results of a pilot indicate to HMRC that legislative change is desirable in a particular area of the tax code, that change should be consulted on through the usual consultation process, and scrutinised by Parliament during the legislative process.

“Equally, sandbox testing could be undertaken as part of the consultation process itself. But a sandbox should not be a short cut to enacting or introducing new rules without any external scrutiny, nor should it remove the need for proper piloting where there is a large scale system change. Its value potentially lies in exposing issues in the early stages of policy development and thereby helping HMRC to assess whether a policy idea is workable and likely to have the desired effect before it becomes ‘baked in’ and consequently harder to deviate from”.