Scottish devolution sparks concern about taxpayer confidentiality

At first glance, it looked innocent enough. HMRC was recently reported to have sought access to NHS records so they could confirm who would be liable to Scottish, as opposed to mainstream UK, income tax. According to staff working in tax services, some people are already cottoning on to the fact that they might be able to pay less tax pretending to live and work in Scotland when they are actually domiciled south of the border. However, the tax services arm of leading accountants, Baker Tilly, warns that this first blatant attempt at inter-departmental data sharing threatens to drive a stake right into the heart of HMRC’s code of conduct and the accepted rules of the tax system.

Those experienced in tax services stress the fact that, in its own words, “HMRC has a legal duty to protect the confidentiality of taxpayer information”. This legal guarantee stems from the days when income tax was first introduced and there was, according to tax services experts, general disquiet about the prospect of tax authorities holding what was regarded as personal financial information relating to each citizen. Initially, a compromise was reached whereby individuals would provide all the information that was required but not to the same section of what we now recognise as HMRC. Specialists in tax services remind us that, in days long before computerisation, property income would be declared to one section of the tax authorities and investment income to another. The idea was that no single tax official was seen to have access to all information relating to each taxpayer.

As yet, there are no concrete proposals to change any of the current safeguards about data protection but those working in tax services are alert to the danger of inter-departmental data sharing which is growing by the day. The very suggestion that HMRC might be trying to access information from the health department is a stark reminder of the temptations that offer themselves in today’s digital age. Specialists in tax services worry that, if the tax authorities deem it acceptable for the health department to release details to them, how sure can we be that they don’t find anything wrong with personal data moving in the opposite direction?

Tax services professionals suggest that HMRC staff at all levels should be imbued with the black and white principles laid down in the early days of income tax so that they do not inadvertently drift into grey areas in between. Those working in the tax services industry see no harm in HMRC using its database for its own internal purposes like making participants in a particular business activity aware of a specific new development that affects them. It would obviously be wholly unacceptable to release details of a particular industry grouping to, say, a local authority or to another central government department.

Should you have any concerns about any personal tax matter, members of Baker Tilly’s private client tax services team would be delighted to hear from you.

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