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Electronic Filing
The Quiet Revolution
NIGEL POWELL urges advisers to bite the bullet and file online.
Electronic Filing
The Quiet Revolution
NIGEL POWELL urges advisers to bite the bullet and file online.
IT IS THE current fashion to bash the Revenue for just about everything, possibly including global warming. As regards online tax return filing at least, I can report that the promised improvement in service and the reality are fairly closely matched and the future is looking good for all e-filers.
This article has to do with filing online in general but, more specifically, agent filing. In the latter part of the 2003 tax compliance filing season, the Revenue increased the level of functionality of its self assessment online Internet filing service for agents, by allowing the submission of forms SA800 (partnership returns) and SA900 (trust and estate forms), in addition to the SA100, and also by removing most of the previous inhibitions to online filing.
Up to that point, only users of the electronic lodgement service (ELS) had been able to file all three form types and there had been some inhibitors placed upon the actual data which could be transmitted over the Internet. The improved filing online service has, since April 2004, been quietly overtaking its older brother, ELS, and looks certain to show impressive numbers of returns filed by end of season in January 2005.
Translating the numbers
It is interesting to look briefly at the statistics. According to the Revenue, there are just over 8.5 million returns submitted each year and of those approximately four million are submitted via agents. I will leave to one side the unrepresented group. The urging on television and radio to 'do it online' or 'file now and we will calculate your tax' seems to be getting the message across to them. For the 2003 season, online filing over the Internet by both unrepresented and represented taxpayers accounted for over 700,000 returns with the majority coming in via the Revenue's own filing online product for individuals. The take-up of online agent filing over the Internet, while growing, remained relatively low with 180,000 returns (or less than five per cent of agent filed returns) for 2003, while the ELS boasted nearly 390,000 filed returns.
A revolution is quietly occurring, however. Today, the position is vastly different: the numbers of online agent Internet filed returns is over 300% greater than at the same time last year and is now racing ahead of its older brother. There are some very good reasons why. It cannot be those ELS users switching to the Internet, since the ELS numbers have pretty much remained stable with less than 1% change in filed returns to now. This is a good reason for the Revenue not to pull the plug yet on ELS.
Bottom line cost savings
Why then has filing online become so popular so quickly? Examine the plus side of electronic filing:
* Elimination of postage costs — standard postage will cost a minimum of 56 pence: 28 pence to the client for approval and 28 pence for submission to the Revenue. However, in most cases the volume and thus weight of paper being moved around will increase the costs to well over £1.50 each return.
* Elimination of paper and printing costs — consumables plus wear and tear can work out at six pence a sheet and with the average tax return plus client schedules coming out at over 12 pages that is a cost of 72 pence. Since it is the norm to send the client an extra copy to retain, that increases the cost to £1.44. Also it is accepted practice to photocopy and retain the signed copy of the return, so making the total around £2.16 per return. This example is for a return with a single employment; a more complicated return would incur even greater expense.
* Elimination of the human collation costs — given hundreds of similar tax returns, gathering the paperwork from printers, making sure all is complete and correct and presentable and then storing copies on a paper file takes time. An agent's time is valuable and likely to be worth at least a chargeable rate of £60 an hour. With a time figure of around 10 to 15 minutes for each client, that is a saving of around £15 for each return.
To summarise the total of the above, direct cost savings per tax return can be around £18.66 and some agents claim even more. Most tax software now allows for the tax return to be printed to an Adobe portable document format file (pdf) which allows the agent to send the return to the client as an e-mail attachment wherever they may be around the world. The client can then print the return as required to meet the necessary 'hard copy' requirement.
Other benefits
The benefits do not stop at direct costs. They also include the following:
* Peace of mind — as the filer receives an online acknowledgement, there is no need to check if the return sent has arrived in good time, only then to be told that the return has not yet been processed or worse still lost in the post. Also, by electronic filing, you can avoid the last minute dash to hand deliver tax returns or the high cost of recorded delivery.
* Timely and accurate advice — by getting virtually instantaneous acknowledgment that the return has arrived and been agreed, an agent is in a position to give better advice to his client.
* Efficiency — it is much easier to retain and locate an electronic version of the tax return, and time savings are clear and well established.
* Avoidance of possible error — all paper based tax returns have to be keyed into the Revenue's own systems. What you file online is automatically entered into the Revenue's system with no re-keying.
* White space disclosure — whatever is typed into the white space areas as additional information on the online filing is available to the Inspector on screen. This differs from paper based returns where white space information is not keyed in by the Revenue but is held pending possible review.
* Tax repayments take days — agents say that repayments have been made in two days, compared to weeks or longer following paper based submissions.
* Registration as an agent electronically means that the agent can gain access to other online services from the Inland Revenue, such as tax payments records.
So is there a negative side to filing online? There does not seem to be, as only positive reports have emerged from those who have been filing for the first time this year. Earlier complaints about difficulties with the agent registration process and missing forms 64-8 are being cleared. Equally impressive has been the continuing co-operation between the Revenue and commercial tax software providers to deliver a practical and effective technology solution.
Misunderstandings dispelled
Quite apart from the technical issues, many agents are labouring under misunderstandings which need to be dispelled:
* It is not secure enough — online filing uses 128-bit encryption included with most Internet browsers, making data transmission more secure than a posted tax return.
* My client will not know that the return he approved is what the Revenue sees — in fact the Revenue instructs all software suppliers to use a system called the IR mark. This provides for a unique number to be generated and held with the electronic file to be submitted. The same number appears on every page of the hard copy version of an electronic tax return: the one seen by the client for approval.
* If I have to send a paper return to my client for approval, then I might as well submit it thereafter by post
