Playing in the sandbox: HMRC's flawed policy pilot

Children play in sandpits, where plastic buckets and spades can be wielded safely. Adult IT experts use sandboxes to play with new software in isolated parts of a computer system, without risk of damage to wider systems. Now, as outlined in a recent discussion document, HMRC wants to explore the possibility of introducing legislative sandboxes to test new policy ideas and processes.

What is a legislative sandbox?

Described in the discussion document as a ‘novel’ piloting approach, HMRC is looking for comments on the idea of suspending the usual tax rules for selected group of taxpayers for a limited time. The thinking is that such an approach would allow HMRC to explore the effects of changes in policies or processes before rolling them out to the wider taxpayer population.

Examples in the consultation include selecting a group of people to test changes to late filing penalty regime. In order to test a new regime, the existing rules would first need to be suspended for those people. When the trial was over, it would then be possible to see if the new process worked better than the current one.

There are limited details in the document about how this group of taxpayers might be selected. Participants might volunteer to take part in the testing, or be brought in as part of testing on specific groups or sectors.

Why does HMRC want a sandbox?

This idea has been brewing for a while, with HMRC concerned that they don’t have sufficient ability to fully test new policies or processes before they are rolled out to the general public. Problems include a lack of volunteers at key stages, difficultly testing processes completely where testing affects live systems, or taxpayers in pilots having to re-supply data once the pilot ends.

It is true that HMRC faces challenges when it comes to designing new systems and policies. In recent years, there have been problems with the introduction of the Trust Registration Service, the CGT on UK Property service and the VAT registration service. When the latter launched in August 2022, agents initially struggled to get access to the service. Once in, the service did not then make provision for all the circumstances in which VAT registration might be required. This left some businesses unable to register when they needed to.

The ATT have previously called for tax policy to be developed in parallel with the design of the underlying systems – rather than as a separate exercise once policy has been determined. We think this would help to bring focus on ensuring that policy takes account of what is both practically possible and cost effective to achieve with HMRC’s systems.

Risks for taxpayers

It is not immediately clear that the proposed sandbox approach would have removed the problems experienced by taxpayers and agents with recent system changes – at least not without inconvenience to those invited or required to take part in testing.

Anyone selected for the pilot will have to spend time familiarising themselves with their new obligations and may also incur costs if they have an agent who has to do likewise. Even if test subjects get additional, more hands on HMRC support for more complex projects, they are still being asked to spend time and energy on something that may not benefit them personally.

Where if a new process potentially is to the taxpayer’s benefit, there is the question of whether treating people differently following assignment to a pilot is in line with HMRC’s Charter standards of treating taxpayers fairly.

Turn it upside down 

Rather than seeking to exempt taxpayers from existing rules to test new systems, we think that HMRC needs to turn this idea on its head. Based on the problems with recent systems, the most useful place for a sandbox is to protect those who cannot immediately access HMRC systems on launch. Instead of a testing sandbox, this would be a shielding sandbox, giving HMRC the powers to grant exemptions or exclusions for those who can’t immediately access new systems or process.

With the best will in the world, there will always be situations which new systems can’t cope with and which were not picked up in testing. Even the online filing of Self-Assessment returns service – something which is rigorously checked and updated each year – still has a number of what are called excluded cases. If your situation falls within an exclusion, you will need to file on paper as otherwise your tax will be miscalculated. Being unable to use a system because it doesn’t cater for your needs causes a great deal of stress and anxiety, as well as time wasted trying to find a solution.

Another layer of testing

To try and reduce the problems before a service goes live, we’d also like to see an extra layer of ‘Ronseal’ testing. HMRC works hard to recruit volunteers to carry out user testing, but this is very much focused on the user experience – is it clear which box to tick or where to go next. Users don’t usually get to test whether or not the system does what it says it does on the tin. (Or in the legislation in this case.)

In both the live CGT on UK Property and Trust Registration Services there are mismatches between what the law requires and what the system allows you to input which causes confusion and inconsistency in entries. Expert user testing earlier on could have helped to eliminate those issues.

If all else fails…

Finally, if HMRC can’t find taxpayers to take part in testing when they need them, then maybe they need to think about another childhood approach to getting a willing volunteer – a little extra cash.