Who’s in charge of UK tax, the Government or Financial Tech?

Technology is one of the cornerstones of how we operate in the 21st century. It spans the breadth of our lives from everyday things like smart speakers and doorbells, to the unusual things that seem like something out of science fiction, such as AI powered contact lenses. With the multitude of advancements happening across the world every single day, it can come as no surprise that our society runs off data.  

Chris Thompson, Partner at Wellers, assesses if UK Government reliance on technology could threaten Parliamentary authority.

The data collected by all the technology infiltrating our lives is being used to build a picture of the world and those who live in it. This includes our habits and preferences - where we like to shop, how we handle our finances, and who we communicate with. 

This is powerful because that data can then be used to make assumptions about us. No doubt you have been served up a targeted advert when searching through Google. In the not-too-distant future this data will, likely be leveraged to determine how likely a person is to commit bank fraud or go bankrupt. 

Now, when it comes to tax, the UK tax system is the longest in the world, sitting at 22,000 pages. In fact, it’s so long, it contains more words (at over 10 million) than the average human will read in their entire lifetime. 

The reason for our incredibly long tax system stems from a history of clauses being added by successive Governments to suit their needs at the time. This result is a mass of complexity and potential loopholes that can be exploited by some.  

Furthermore, our tax system was largely written in an analogue era. So, it’s behind the times when we consider how our society has evolved to today, with the rise of the internet and cryptocurrency becoming increasingly prominent. To help keep up with the pace of change in the modern age, the Government has created yet more rules to try and protect the system. 

However, it could be argued that this simply places additional burden on the civil service with an extra layer of laws, on top of a base of existing, complicated ones. Do they have the resources and sufficient knowledge in-house to enforce this legislation?  

This new, modern, digital world means that the government can no longer just rely on our civil service to uphold our laws. It has been forced to adopt software provided by fintech developers in order to help them police the system. 

In potentially improving taxpayer adherence and compliance, this also creates other potential challenges. It could pose a significant risk to Parliamentary authority! The reason being it will be the code, that makes up the software, that determines what businesses and individuals will be allowed to do. 

The more reliant we become on software and technology, so we venture down a path where there is no going back to how things were done. Our current law and justice system works as a deterrent. If you commit a crime, there is a punishment in the form of fines or even, incarceration. Such a top-down approach is changing because technology is developing in a manner where crime is designed out.  

In our current tax system, there is room for human error, it can also be legally manipulated to work in a client’s favour, or even exposed to fraud. That won’t likely be an option in the future for the technology will monitor you. The software you use for your accounts, for example, won’t allow you to break the law. You won’t be able to file your accounts, then declare your profits and Corporation Tax liability on those earnings to HMRC, if the code that the software is built upon deems you to be non-compliant.

The challenge of this is that it will place a huge amount of power in the hands of the coders and developers of the software, potentially at the expense of the government and civil service. Consequently, IT businesses, far more than MPs, will oversee the coding and rules in the software that regulates taxpayers. Don’t forget, these businesses answer to their shareholders first and foremost, not Parliament, or the UK electorate.

Tech isn’t just being used by our government; eBay has been successful in creating a digital dispute resolution centre which now resolves on average 60 million disagreements per year. This is three times more than the US court system can achieve in a year. When you consider this, it’s easy to understand why Governments are embracing tech to deliver public services. 

The elephant in the room is who in the future will hold the power? Governments or the coders? For now, Governments give tech companies legitimacy, but this balance could turn in the future.