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EARLIER THIS YEAR, those of us in the tax profession who deal mainly with personal tax affairs became a little distracted by the proposals of Lord Carter to advance the filing deadlines for self assessment tax returns. The recommendation that the deadlines should be brought forward to September and November for paper and electronic returns respectively resulted in an outpouring of opposition, some of which was channelled through our 'No to November' campaign. With much credit to him, Lord Carter subsequently announced that he had reconsidered these proposals and was recommending that the present 31 January deadline should remain unchanged. Whilst this may have given us some satisfaction that tax professionals could influence the operation of the tax system, it may also have had the unfortunate side effect of distracting us from the rest of the review and it seems generally accepted that there is a lot of 'good stuff' in there once we get past the filing deadline smokescreen.
Tax Faculty deputy chair, Paul Aplin, in 'Road ending?' (Taxation, 20 July 2006, page 423) summarised the lead up to the latest Carter Review and what he foresaw as the next steps. He emphasised that 'the Carter principle' should be stringently adhered to. The Carter Principle is set out at paragraph 5.5 of Lord Carter's report.
'As a principle HMRC should only require use of an online service where the particular service meets the needs of the main users and it has been tested to show that it can meet demand and provide a good customer experience at peak times.'
Following practitioners' success in ensuring that the present deadlines stay, Paul thinks there is a danger of complacency regarding the other e-filing issues.
'The deadline issue attracted so much attention that only now is the ambitious scale of the Carter proposals being appreciated. If we are to see the kind of services we actually want to use, it is critical that we engage with HMRC at every level. The Working Together e-group is ideally placed to pass on the views of practitioners at the coalface and to keep practical issues in sharp focus.'
The e-group
The Working Together e-group was set up about two years ago to work alongside HMRC; however, its job was rather sidelined by the start of Lord Carter's work around the same time. AAT president Brian Palmer — active in the group as its chairman — explained that it therefore seemed sensible for the e-group to effectively put itself on ice pending publication of the Carter Review recommendations. This, and the need to appoint HMRC officers to it, meant that the group only made a real start to its activities in early summer. It is anticipated that the group will have quarterly meetings with HMRC interspersed with regular telephone conferences between its representative members, who are a mix of tax practitioners and salaried officers from the professional bodies. Paul Aplin noted the importance of such a group:
'In his report, Lord Carter said that “many countries attach great importance to working in partnership with agents and intermediaries and this has been a key to driving online take-up”. He is absolutely right and if the level of openness and cooperation seen in some countries could be replicated here we would see a future for HMRC's
e-services very different from the past.'
The e-group is now gearing itself up to take an active part in monitoring the implementation of the next stage of HMRC's e-filing program. The immediately visible part of this will be an Internet survey of the views of accountants and tax professionals, which should help to focus the group on the areas of practical concern as HMRC's e-filing strategy is taken forwards. The member organisations (see below) will be publicising the existence of the online survey in their own publications, etc, but Taxation magazine is also happy to play a part in bringing this to the attention of as many practitioners as possible. Tax advisers who are not members of any institute are also invited to take part.
Although all member organisations have equal participation in the group, the Institute of Chartered Accountants in Ireland (ICAI) is taking the lead role in this initial project as they are setting up the web-based survey. Director of Taxation, Brian Keegan, explained that the ICAI was a 32-county organisation and, in addition to its membership in the Republic of Ireland, it had a significant number of members in England and Wales, as well of course many in Northern Ireland. Brian says that:
'the ICAI is very keen to see e-filing develop and wants to be involved in the e-filing initiative, but there needs to be flexibility and adequate service levels to support it'.
The ICAI has previously worked closely with the Irish tax authorities and the majority of tax returns in Eire are now filed electronically. Consequently, Brian feels, with some justification, that the ICAI can bring a certain level of experience to the Working Together e-group. Although its first formal meeting only took place in the past few weeks, he believes that there has been considerable additional momentum in the e-group since the publication of the Carter Review and points out that Carter wants consultation and is predicated on the system not being released until it has been reliably tested. The survey, pulling together the wider views of the members of the representative organisations on the group and others should help to speed the implementation process.
The e-survey
The survey is now about to go live and the e-group welcomes contributions from members of the organisations involved as well as non-members. To facilitate analysis of the concerns and requirements of those contributing to it, the survey consists of closed questions, which either have a 'yes' or 'no' answer or a tick list of possible answers. The questions were being finalised as we went to print and the latest version is reproduced on the final page of this article. Practitioners might like to pass this around their tax departments for comments from those 'coalface' workers who are dealing with tax returns on a daily basis, before they compile their reply.
The e-survey itself can be found on the Internet at http://websurveyor.net/wsb.dll/16440/carterreport.htm and in addition to the questions featured, it asks that any other comments outside of its parameters should be sent to the representative bodies by e-mail.
In the words of Brian Palmer, 'the survey should be an early warning system for HMRC of potential problems'. In addition, the e-group will be a means of disseminating information on e-filing initiatives to its members as well as 'holding HMRC to account' under the Working Together initiative.
Picking up on perhaps one of the most important of Lord Carter's recommendations, Brian emphasised that 'the group should ensure that e-filing measures are not implemented until they are “ready to roll”', and they reserve the right to say what they think and to oppose HMRC if they believe that proposals will lead to problems.
The use of 'e' — electronic services — in the wider context is a 'means to an end'. Thus, the e-group does not owe its existence to Carter, but is an integral part of the wider e-filing program and once that has been successfully implemented, its job will be done. Brian Palmer is sure that HMRC are sincerely committed to the e-group and its work and once the survey results are in, 'the group should then have something to get its teeth into' and be able to press ahead with its reviews, suggestions and advice, in the light of the survey results.
What's 'hot'?
The foreshortening of the filing deadlines was only one element of Carter's recommendations, (see the introduction of the review at www.hmrc.gov.uk/budget2006/carter-review.pdf), but as Paul says, it overshadowed the others. Having 'solved' the filing deadline issue (well at least for the present), it is important that the profession does not 'rest on its laurels'; it must now seriously consider the other recommendations and its responses to these. It will be interesting to see the results of the survey and additional comments. Without wishing to prejudge matters, 'hot' issues are likely to be the end of 'substitute' self assessment tax returns and the electronic payment facility.
The end of substitute forms will force those practitioners who currently 'do not trust' or do not have access to filing by Internet ('FBI') to 'get wired'. To avoid the necessity of an agent having to complete and send an 'official' return rather than a computer copy to the client, HMRC will have to close some of the current 'holes' in the FBI system whereby certain types of tax return (excessive number of pages, multiple employments, Members of Parliament, for example) are not accepted. An electronic payment facility, while it will no doubt be welcomed by many, will not be able to afford the luxury of mistakes and will need rigorous testing before it is implemented.
The commercial imperative
Brian Keegan believes that 'the use of substitute returns is a crucial issue'.
'Accountants will file by Internet if it makes commercial sense for them to do so. This has been the experience in the Republic of Ireland where last year there was a 65% voluntary take-up, and we anticipate 75% this year. However they will also need a fallback position for a variety of reasons — they could need a client's signature on something approving the full content of the tax return, FBI might not cater for all types of return, FBI might fall over, or they may need to make a prior year return not covered by e-filing methods. This is where we see the role of substitute returns. If e-filing goes well, the substitute return issue will disappear, for exactly the same reasons as e-mail is replacing fax, which itself replaced telex! Forcing withdrawal of substitute returns is premature, and it isn't necessary.'
Regarding online payment, Brian believes that 'this also makes sense, but we have a lot of work to do on this issue. One of the items I would hope we can tease out are the constraints placed on accountants, particularly for corporate clients, in terms of their authority to direct or disburse client funds, if only as agents acting to facilitate e-payments. There are not just tax, but regulatory issues, here as well'. He also believes that agent registrations and authorisation will need special consideration.
'We also need to carefully consider the whole methodology of registering as an electronic filing agent, and then identifying the issues surrounding authorisation to file for individual clients. Accountants are “wholesale purchasers” of electronic filing; it must be made easy for them, if the “retail market” of individual taxpayers is to be captured.'
Tina Riches, a CIOT technical officer agrees that substitute forms will probably cause the biggest response, because the practitioner's default position is the ability to send a paper return. If there is a national software problem, HMRC could agree to extend the deadline, but this would not necessarily cater for clients who are late with information and there is a problem with the office software. In accordance with 'the Carter principle', Tina would like to see FBI working successfully for some time before the plug is pulled on substitute returns. This should ensure that any problems between HMRC and software companies are resolved, without leaving practitioners and their clients in the lurch. VAT and corporation tax issues appear to be taking a back seat for the present, while the e-group gets off the ground, but these are likely to be the next issues to be addressed.
In addition to these hot topics, practitioners will also need to keep a watching brief on the other recommendations made by Lord Carter.
Conclusion
Hopefully, HMRC will be as enthusiastic about the e-group as the profession appears to be. The last year or so appears to have seen an increasing 'them and us' attitude between HMRC and the profession and this cannot bode well for future 'working together'. Paul Aplin has been an active force in promoting and encouraging e-filing and co-operation to make it a success. He says:
'I think all of the professional bodies' representations to Lord Carter's review made the point that consultation on e-services was at best erratic and at worst non existent and that HMRC seemed at times to be cutting itself off from a potentially enthusiastic profession and simply saying “thou shalt have this”.
'In Lord Carter's words, HMRC “listened, but they did not hear”. I believe that things have changed.'
Let's hope that he's right!
Working Together e-group
Member organisations
AAT — www.aat.co.uk
ACCA — http://uk.accaglobal.com
ATT — www.att.org.uk
CIOT — www.tax.org.uk
ICAEW — www.icaew.co.uk
ICAI — www.icai.ie
ICAS — www.icas.org.uk
E-Filing of Personal Tax Returns Survey
(1) Which best describes the type of organisation you
work in?
- Accountancy practice — Big 4.
- Accountancy practice — Medium sized international.
- Accountancy practice — National/Regional.
- Accountancy practice — Small firm.
- Accountancy practice — Sole practitioner.
- Tax consultancy.
- Legal practice.
- Industry/commerce.
- e-filed privately only, for self, family or friends.
- Other.
(2) What percentage of income tax returns were e-filed (either by ELS or FBI) in your organisation last year?
- None.
- Less than 25%.
- 25% to 50%.
- 51% to 75%.
- More than 75%.
(3) What proportion of the returns which you filed last year were rejected?
- Less than 25%.
- 25% to 50%.
- 51% to 75%.
- More than 75%.
(4) Please indicate up to three reasons for e-filing rejections (please tick all that apply):
- Tax return too complex.
- Client type not handled by FBI.
- Attachment of additional information not previously allowed.
- Third party return filing software error — failure of data validation.
- Third party return filing software error — computational error.
- Other FBI software error.
- HMRC software rejection, e.g. incorrect name and address, etc.
- Agent authorisation (64-8, whether online or paper).
(5) Now that we have persuaded HMRC to allow the electronic attachment of additional information, what is the largest total attachment you might need to send?
- Less than 1Mb.
- 1Mb to 5Mb.
- More than 5Mb.
(6) On which e-filing software do you primarily rely?
- Third party software.
- HMRC's free online software.
(7) Some taxpayers cannot e-file, for instance Members of Parliament, judges and employees of the security services. Is it a priority for your firm that such groups be included in e-filing?
- Very important.
- Not so important.
- Of no relevance.
(8) If you believe that HMRC-approved substitute returns will still be needed after the proposed withdrawal date (2008), please tell us why. (Please tick all that apply.)
- Agents need a client's signature on something approving the full content of the tax return.
- Agents need to be able to submit a paper substitute return if a return cannot be sent by FBI.
- Agents need a fallback in the event of an HMRC systems failure.
- Ongoing need to make repairs/amendments to returns.
- Returns for prior years not covered by e-filing.
- Approved substitutes won't be necessary.
(9) Are the current arrangements for online agent authorisation (64-8) [sufficient]?
- Yes.
- No.
(10) Are you willing to arrange tax payments online, either for yourself or on behalf of others?
- Yes.
- No.
(11) From this list, can you tell us the single item you find most problematic about electronic filing? (If you wish to elaborate, please e-mail further details to your professional body.)
- Registering as an agent for online filing via the Government Gateway.
- Cost of third party software.
- Inadequate functionality in HMRC's online software.
- Client resistance to filing on-line.
- Security concerns.
- Complexity of use.
- Slow response times.
- Fear of HMRC systems failure close to the filing deadline.
- Agent authorisation (i.e. authorisation by client of the agent).
(12) What other types of return might you file on-line? (Please tick all that apply.)
- PAYE.
- CT.
- VAT returns.
- VAT registration.
- 64-8 Agent registration.
(13) Of which professional body are you a member? (Please tick all that apply.)
- AAT.
- ACCA.
- ATT.
- CIOT.
- ICAEW.
- ICAI.
- ICAS.
- None of the above.
The representative bodies will be very pleased to receive any other comments you might have, which are not addressed in this survey, by e-mail.
