Farewell, ELS

ALLISON PLAGER writes an epitaph for the passing of the electronic lodgement service.

IT HAD TO come. After seemingly years of shilly-shallying, HMRC has decided to pull the plug on the electronic lodgement service on 31 March 2006. So from 1 April 2006, agents will no longer be able to submit any returns using ELS or receive self assessment statements through ELS, rather if they wish to file electronically, they will have to file by Internet (FBI).

HMRC say that their research for the current year shows that the Internet based option is used by most agents who file returns electronically. This is perhaps inevitably true. Online filing is the newer option and requires no extra software, so once having decided to file returns online, most agents would opt for the newer technology. According to their figures, HMRC say that nearly 15,000 agents are registered for online filing compared to 2,000 for ELS. Furthermore, they say that for the period from 6 April 2005 to 12 September 2005, Internet filing has doubled in terms of the number of self assessment returns received from agents with 453,203 received overall, while self assessment returns received through ELS have dropped by almost a fifth, with only 77,000 returns received. Comparing returns submitted by ELS for the full years 2003-04 (398,659) and 2004-05 (374,561) shows a dip of only around 6%, so until the final figures for 2005-06 are known, it is perhaps a bit early to cite statistics.

According to HMRC, 'due to this decrease in usage some commercial vendors of SA taxation software no longer support ELS. Others have already announced their plans not to support ELS as a format from April 2006'. In fact, a brief poll of providers' questionnaires received for the 2005 Taxation technology supplement shows that, of those which support any kind of electronic filing, only four do not support ELS at all, with two more saying that they planned to cease support from 2006, and the remaining six supporting both. It is certainly true that the technology supporting ELS is old fashioned, and HMRC say that it 'would require significant investment' to keep it going.

The death knell has sounded. ELS is dead. Long live FBI.

Wider concerns

So is everybody happy about this? Err, not exactly. Paul Aplin of AC Mole & Sons and deputy chairman of the Tax Faculty of the ICAEW filed the first ELS return and feels that the 'premature burial of ELS is uncalled for' as it more robust and reliable than online filing. The announcement seems to have taken most people by surprise, although as Nigel Power, business development manager, Digita says, 'ELS could not go on much longer, as the technology behind it was too old'.

Certainly, the timing of ELS's termination is interesting, even unfortunate, coming in the middle of Lord Carter's review of HMRC's online services. It would, perhaps, have been politic to have waited for Lord Carter's conclusions before announcing sentence on ELS. ELS users are entitled to feel shabbily treated given that they were after all the pioneers of electronic filing for HMRC, spending time and money on test-driving the, then, revolutionary system.

ELS had its own problems in the early years, but this was back in 1999 and so problems tend to be forgotten. On the other hand, the difficulties that online filing had because of the volume of returns being submitted at the end of January in 2005 are still relatively fresh in many people's memories. Given the high number of tax returns that will inevitably be filed in January, will online filing be able to cope with potentially another 375,000 returns which were formerly filed using the ELS, as well as the increase that HMRC is hoping to get over the previous year? The robustness of filing online and its ability to cope with high usage has yet to be proved. In this respect, HMRC said that they 'recognise there are some concerns over the robustness of the Internet' and that they are 'substantially increasing the capacity of our infrastructure to cope with both the increased demand on the service this year and the migration of the remaining ELS users'. Given HMRC's lamentable record in releasing services that are only half ready, this may be too much to ask for.

Other concerns of ELS aficionados relate to what cannot be sent online that can be sent using ELS. Paul Aplin said that a 'hard core of ELS users do not want to move to online filing because it has less functionality'. He is undecided whether or not to convert to online filing, but suspects that many practitioners will be reluctant to do so and will end up filing on paper. Many advisers like to send attachments with tax returns, and while this can be done using ELS, online filing does not permit this. HMRC has recognised that this is something that will affect take-up of online filing, and so they are considering making it possible to file pdf attachments when filing online. However, this is unlikely to be ready for 6 April 2006.

With regard to other plans for the Internet for 2006-07, HMRC, 'hope to introduce the following new facilities for self assessment over the next six months: first, a new online process for agents to set-up and maintain client authorisations; second, extension of real time payments and liabilities service, already available for individual taxpayers, to trusts; and third the ability to submit self assessment returns without the need for a 64-8 (though a 64-8 will still be required to access taxpayer data on [HMRC's] website).'

Another useful feature of ELS, says Jeremy Watson, product manager at IRIS is that returns from earlier years can be submitted using it. He says that during the period December 2004 to April 2005 IRIS ELS users filed 58,000 2004 returns, 800 2003 returns, and even 27 1999 returns. It is not clear when online filing will support this.

But is there more …

… to this story than initially meets the eye? FA 2002, s 135 'mandatory e-filing' did not just give the go ahead for mandatory filing of PAYE returns online, but was much less exclusive. Section 135(1) states:

'The Commissioners of Inland Revenue may make regulations requiring the use of electronic communications for the delivery by specified persons of specified information required or authorised to be delivered by or under legislation relating to a tax matter.'

It is also much cheaper for HMRC to process tax returns filed electronically than it is paper ones, indeed the savings run into millions of pounds. Add to this the fact that HMRC are planning to redesign the self assessment tax return for 2008. That is fair enough, you might say, it could do with an overhaul. However, HMRC have also suggested that they will not accept facsimile versions of the newly designed form, which means effectively, that all returns filed by agents who use software will have to be filed electronically.

The conclusion that it is tempting to reach is that the current Carter review is little more than window dressing and that HMRC already have compulsory online filing for personal tax returns, at least by agents, on their agenda. It would be presumptuous to anticipate Lord Carter's conclusions, but just suppose he were to say that compulsory online filing is the best way forward? Assuming HMRC were to accept such a recomendation, all they would have to do is write the regulations.

Furthermore, compulsory online filing fits in perfectly with HMRC's plans. It would help them meet Government targets regarding electronic communication with the public and it would save millions of pounds. A win-win situation. They already have, I hesitate to say it, the technology and expertise, and no budgetary constraints. The removal of ELS is one step towards streamlining electronic filing.

It is worrying that HMRC is relatively secretive about this towards the wider public. Paul Aplin mentions that an e-strategy document used to be on HMRC's website, but that it has been withdrawn.

Where does open government come in all this?

Issue: 4028 / Categories: Comment & Analysis