HMRC has been upfront about its desire to grow the market for software products as well as encourage new entrants into the marketplace. So will its so-called ‘API strategy’ be the answer that software developers have been waiting for?
The inexorable advance of HMRC’s digital strategy shows no signs of slowing. We have always acknowledged that there is a valuable prize here for everybody – taxpayer, adviser and HMRC alike – if the transition works smoothly. Pushing round endless pieces of paper or getting stuck in telephone queues is a complete waste of everybody’s time and if this can be eliminated in a digital environment, then so much the better.
The question is of course whether the transition will be smooth. Elsewhere in this issue I have looked at the problem of digital inclusion, but here I want to consider HMRC’s latest publication – ‘HMRC third party tax software and application programming interface (API) strategy’.
Now until recently I had no idea what API stood for, and struggled to understand what an API actually does – the best I can do is that it is something which allows one piece of software to talk to another. So what is this all about?
HMRC wants to encourage software developers to produce niche products to enable people to manage elements of their tax affairs. So, for example, a developer might produce an app which enables someone with a portfolio of rental properties to keep track of income and expenditure in a way which talks directly to that individual’s personal tax account and automatically makes the necessary tax adjustments – for example the new restrictions on interest relief. So there would be no need for the individual to re-enter the information into a tax return, or indeed engage an accountant to do it for him or her.
HMRC is quite explicit in wanting to grow the market for software products and encourage new entrants into the marketplace, as well as wanting to stimulate demand for these new products. HMRC intervening in the market so overtly is something very new in the UK. In reality this amounts to something like privatisation of large parts of the tax compliance system.
Whatever your view of the politics of all this, there is no doubt that we are at the start of a profound change to the fundamentals of the tax system.