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WE ALL LIKE 'win-win' situations; no-one likes 'lose-lose' situations. There is one significant lose-lose situation in Lord Carter of Coles' report on the future of e-filing (Review of HMRC Online services, www.hmrc.gov.uk/budget2006/carter-review.pdf) which was issued on Budget Day and it is sad that so much good sense elsewhere in the report is overshadowed by it. It will dominate the e-filing debate and frustrate rather than advance the policy objectives. The recommendation is of course that the self assessment filing date should be moved. Its presence mystifies me.
As neither HMRC nor agents appear to have recommended the change, what persuaded Lord Carter to suggest it? And why, so soon after advising him against it, did HMRC warm to the idea? I fear, like Paul Newman's character Cool Hand Luke, that 'what we've got here is a failure of communications'.
I want to highlight this failure in the sincere hope that it can be remedied before it causes real and pointless damage to the new relationship HMRC say they want to build — and which I very much want to see develop — with agents.
As Lord Carter says: 'countries with high take-up of online services attribute a large part of their success to working with agents'.
Whose idea?
On 14 November 2005, David Varney, Chairman of HMRC gave evidence to the House of Commons Public Accounts Committee. He was asked whether he would be giving evidence to Lord Carter and specifically what he would be saying on the question of an earlier filing deadline. He promised to send the chairman of the committee a copy of his evidence to Lord Carter, and in the committee's written report (www.parliament.the-stationery-office.co.uk/pa/cm200506/cmselect/cmpubacc/681/681.pdf) is a supplementary memorandum submitted by HMRC titled Evidence supplied to Lord Carter. Headed 'Differentiated Filing: Self Assessment' it says:
'This proposal is to bring forward the paper filing deadline for self assessment returns from individuals (SA100 and SA200), trusts (SA900) and partnerships (SA800), leaving the online filing deadline as 31 January' [emphasis added].
A 30 September filing date was specifically rejected on the grounds that 'it would create an un-manageable paper filing peak in September'. It appears, therefore, that HMRC did not suggest the change. From my discussions with representatives of various professional bodies, it is apparent that the idea did not come from them either.
The justification — given at paragraph 4.7 of Lord Carter's report — is that:
'The OECD told us that the average deadline for an individual's tax return is four months [whereas] in the UK it is ten months. For companies the average is five months [whereas] in the UK it is twelve months. These long deadlines have restricted the scope of HMRC to offer additional time as an incentive for online filing or to work co-operatively with agents to spread the workload'.
One interesting international comparison highlighted in the OECD report cited by Lord Carter (Tax Administration in OECD Countries, which can be found at www.oecd.org/dataoecd/28/2/33866659.pdf) is that Italy, which also has a ten-month filing time limit, has a 100% e-filing record for personal income tax returns, albeit because of mandation. The different deadlines proposed by Lord Carter for paper and electronic returns and the banning of paper facsimile returns arguably represent de facto mandation here too.
The fact that other countries have shorter periods for filing is no argument for change; people in most other countries drive on the right, but that is not seen as a reason for the UK to do so. The only acceptable reason for change must surely be that it will achieve something positive.
Facilitating filing?
Neither the HMRC news release on 22 March 2006 nor the partial regulatory impact assessment (RIA) helps in understanding the proposal. The news release suggests somewhat bizarrely that taxpayers will find it easier to file early because the information will be more readily to hand — clearly the author has never had to try and get an interest certificate out of one of the more recalcitrant building societies. For the idea to even begin to be workable, payers of interest would have to be compelled to provide certificates automatically.
The partial RIA sets out the policy objective as being:
'to maximise customer take-up of the online services offered by H M Revenue and Customs in order to … provide a better and more cost effective service for customers … [and to] … capture clean, easily processed data to help drive down costs for the department and the taxpayer'.
My prediction is that costs for represented taxpayers will increase if the filing date is changed. Reducing the tax return preparation season will increase overtime costs which will have to be absorbed or passed on to clients. The number of errors in returns will increase, as will the number of provisional returns and taxpayer repairs and amendments.
All of this will require more interventions by HMRC staff, thereby increasing HMRC's costs. As Lord Carter says, 'agents tend to prepare the more complex returns and it is clear to us that they add value and correct mistakes that HMRC would otherwise have to pick up'. There will be more mistakes and costs will increase for everyone, particularly for HMRC.
A challenge for agents and taxpayers
The partial RIA reiterates the fiction that taxpayers are less likely to have the relevant information to hand if they complete their return towards the end of the filing period and suggests that a shorter filing period, by increasing the accuracy of returns and having events clearer in taxpayers' minds, could make enquiries less stressful. It is a relief, though, to see the statement at paragraph 22.30 that 'the SA payment dates … will not change'. It is recognised that the change will pose a significant challenge for tax agents in the first year — my belief is that it will be a significant challenge every year.
The timescale is also too short. One of the best ways to help spread the load for agents may be to encourage the use of 30 April year ends. As the new deadlines are scheduled for 2008, that means that we are looking at a change as early as 30 April 2007, an accounting period that starts a few days from now.
While I completely understand the rationale for suggesting different deadlines for paper and electronic returns so that there is an incentive to e-file, I can see absolutely no sensible argument for advancing the e-filing deadline from 31 January to 30 November. In the evidence given to Lord Carter as disclosed to the Public Accounts Committee, HMRC couldn't either. In short, I completely disagree that 'the proposal will result in cost savings to both taxpayers and Government' — it will do quite the reverse and sour relations between HMRC and agents into the bargain. I would urge ministers and HMRC to reconsider their acceptance of this deeply flawed proposal.
At this point I feel the need for some light relief. It disappointed me that the review did not recommend the incentive that has worked so well in Singapore. There, the authorities entered all electronic filers in a lucky draw with more chances of winning given to early filers. The incentive was so successful that it has now been withdrawn!
The 'plus points'
And so to where I really wanted to start this piece: Lord Carter conducted a thorough review, listened to the representations made to him and deferred the delivery of his report until he had seen evidence that things really were changing. I gave evidence on behalf of the Tax Faculty and came away impressed by his willingness to listen and to put difficult questions to the HMRC team there and then. He has taken up many of the points made in the Tax Faculty's submission and in those of other representative bodies.
He has, for example, accepted the idea of an enquiry window geared to the date a return is submitted rather than the statutory filing date. That should avoid stockpiling of completed returns for submission on 31 January and is a sensible way to help spread the load. He has also encouraged HMRC to consult more effectively with agents, software suppliers and other intermediaries. He has accepted — and states very clearly in his report — that e-services must be robust, fit for purpose, have sufficient capacity and be adequately tested before launch. He advises that the launch of new services should be delayed if they will not meet the standard necessary and recommends full 'end to end' testing.
And there is more. Lord Carter has listened to the profession's plea for the ability to attach accounts and computations to FBI ('filing by Internet') self-assessment tax returns, something we have been requesting for years. It is sad though that ELS, which had this very facility,
was withdrawn on 31 March some months before the
new functionality will be available in FBI. He has also listened to our plea for a more effective agent authorisation
process and — even though it was technically outside his remit — recorded the dissatisfaction of taxpayers with HMRC's call centres.
The proposed timescale for implementation appears reasonable. Each stage is preceded by a period of testing and is subject to the overriding condition that the service will not be launched until it is ready. I would find it hard to argue with the proposals for the move to e-filing of VAT, corporation tax, and in-year PAYE returns.
On the other hand …
I am pleased by the number of suggestions Lord Carter accepted. However, there are five key recommendations in the Tax Faculty's submission that he did not take up.
- The first was that HMRC's e-strategy should be published on their website.
- The second was that the Tax Faculty found that the idea of moving the design team for an application to a different task on the day of launch illogical and recommended that they should stay on the case until the application was running properly.
- The third — the proposal that an independent monitoring body modelled on the Electronic Tax Administration Advisory Committee in the United States should be introduced — this was the subject of an article in Taxation, 'Snoop dog, e-dog' on 3 November 2005, page 111.
- The fourth was, of course, e-mail and the apparent resistance of HMRC to using this method of communication, which the rest of UK plc now regards as routine.
- The fifth was the potential quick win in reducing HMRC's costs that the introduction of an electronic R40 could have yielded.
The suggestion that HMRC should offer an agent registration scheme was not completely unexpected. Lord Carter's rationale is that it could enable potential clients to identify agents that are registered for, and are using, HMRC's online services.
A requirement that agents who apply could be required to abide by a code of practice is posited. This makes me wonder whether this is the first step towards the US model which incorporates not only authorised e-filers, but an Office of Professional Responsibility (OPR) to enforce standards of practice for those who represent taxpayers before the IRS.
Believers in coincidence may like to ponder on the fact that the head of the OPR, Cono Namorato, visited the UK late last year.
In the USA, e-filing agents are rewarded with benefits not granted to others. Perhaps if we are to have such a system in the UK I could make a request for a very useful benefit for accredited e-filers: e-mail communications
with HMRC.
Quis custodiet …?
And if agents are to be accredited for e-filing, would it not be reasonable — as a counterbalance — for there to be an independent body to monitor HMRC's delivery of e-services? While I think that the Carter review has effectively set the scene for the next few years, and while I think that HMRC's e-delivery under David Varney and Steve Lamey has already shown signs that they have learned many of the lessons of the past, there is a requirement for someone to monitor the actual delivery of the Carter review's suggestions. There is still, in my view, a need for that friendly, but independent, snoop dog.
Paul Aplin is a tax partner with A C Mole & Sons in Taunton and deputy chairman of the ICAEW Tax Faculty. He can be contacted by e-mail at paulaplin@acmole.co.uk. The views expressed in this article are his own.
