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Key points * HMRC should conduct a post mortem into PAYE online. * Working together will help HMRC produce efficient e-services. * The US electronic tax administration advisory committee. * Should software suppliers be encouraged to provide free software? * The pros and cons of adopting XBRL.
WRITING LAST YEAR, shortly after the Government relented on the proposal to change the tax return filing deadlines, I said that HMRC's e-services had travelled a long and winding road. Taxation even obligingly printed a photograph of a winding road on its front cover. I hoped that by embracing the Carter principle — that no new service should be launched unless and until it had been fully tested and proved fit for purpose — HMRC would accelerate out of the winding lanes and onto the e-services superhighway. I believe in giving, and later in this article will give praise where it is due, but firstly there has to be criticism. As an enthusiast for e-services, I take no pleasure at all in writing the next three paragraphs.
Adverse camber
When I log on to my bank account, I expect everything to work (and it does). When I go on line to book a holiday, order a DVD, or pay my car tax, I again expect the transaction to be processed properly and it is. So why, three years after it was revamped, is PAYE online still not up to the mark? In previous years we had capacity issues and parts of the system not being ready on time. This year we had around a week of unavailability in the run up to the deadline and problems printing P60s. Practitioners up and down the country have been tearing their hair out. They have been trying to file out of hours and paying overtime for their staff to do so. I am one of those employers. This situation is simply unacceptable and it has to be dealt with.
Lord Carter said that HMRC 'should benchmark customer satisfaction with its online services against commercial online services and seek to learn from best commercial practice'. If Amazon asked its customers to shop only out of hours or offered a service that could not cope with the predictable Christmas peak, it would be out of business pretty quickly. All online applications need to be able to cope with predictable volumes and they must be geared to providing a fully functioning service during normal working hours.
The Carter report also noted that 'businesses and taxpayers who interact electronically on a day to day basis with their customers or in the course of their work or personal lives are less inclined to change the way they deal with HMRC'. The Working Together E Group's recent survey reinforced this view, finding that while there is enthusiasm for the idea of e-filing, it is tempered by concern over HMRC's track record on delivery. The performance of PAYE online over the last three years demonstrates why. I urge HMRC to conduct a full and immediate post mortem and to say publicly what they intend to do to ensure that PAYE online works properly next year. Failing to do so will risk further undermining the credibility of HMRC's e-services generally. Dismissing the problems as 'some minor issues' is not a helpful approach.
Motorway open
Let's move on to some good news.
SA online worked well this year: in fact it worked extremely well. This happened because the IT infrastructure was improved, extra capacity added, adequate testing performed and detailed volumetric predictions made. I saw the volumetric predictions (and subsequently the actual statistics) and they were almost uncannily accurate. The system not only worked, it coped with a 40% increase in volume. I believe that there will be a further increase in volume this year and another substantial increase next year when the Big Four and the larger firms move to e-filing their self-assessment returns.
Lord Carter recommended that HMRC should work closely with stakeholders. This picked up on criticism that HMRC had effectively turned their back on consultation. I believe that things have changed dramatically over the last year. HMRC have consulted with the profession through the Working Together E Group and in other ways. I, for example, have attended a number of Carter project meetings and have been able to put the profession's point of view at a number of key stages. I do not think that these are token gestures, rather they represent a new way of operating that I hope will become more widespread. Increasingly, our views have been listened to. We need to keep the dialogue going.
By talking, the Working Together E Group achieved a sensible resolution to the thorny question of substitute returns. That could easily have erupted into a re-run of the deadlines issue. The professional bodies also convinced HMRC that using the joint Companies House/HMRC filing facility for company accounts should be optional and not compulsory. We now have the facility to e-file attachments as PDF files and will have self assessment and corporation tax enquiry windows linked to the actual filing date rather than the statutory date. By conducting two surveys of members, the group gathered evidence to help improve the self assessment online service and one result is that HMRC's online product is being enhanced to include the capital gains tax pages. HMRC also listened when we urged them to slip parts of the Carter timetable to ensure that self assessment online is fully functional before moving on to other elements. Pre Carter, that simply would not have happened and they would have pressed on regardless.
I am pleased to see that Working Together, another of Lord Carter's recommendations, is being taken up. Agent workshops on online services give practitioners the chance to see demonstrations and to talk to HMRC about the systems. We can expect to see further enhancements to SA online in the short term: facilities to file returns for earlier years and to amend returns online are planned. In the longer term we may see returns partly prepopulated with information held by HMRC: elsewhere in the world this is already happening. There are also significant opportunities to move away from form based reporting. But the basics have to be in place and working reliably first.
Traffic cops
Eighteen months ago (Taxation, 3 November 2005) I suggested that the UK needed an equivalent of the US Electronic Tax Administration Advisory Committee. The Internal Revenue Service (IRS) website says that ETAAC, 'Provides an organised public forum for discussion of electronic tax administration issues in support of the overriding goal that paperless filing should be the preferred and most convenient method of filing tax and information returns. ETAAC members convey the public's perception of IRS electronic tax administration activities, offer constructive observations about current or proposed policies, programs, and procedures, and suggest improvements'. It provides input into the IRS strategic e-services plan. The emphasis is on the word 'constructive'.Membership is balanced to represent tax practitioners, tax software developers, large and small businesses, employers and payroll service providers, individual taxpayers, and government.
I repeated the suggestion at last year's Tax Faculty Wyman Symposium at which Lord Carter and Steve Lamey (HMRC's chief information officer) also spoke. The failings of PAYE online this year reinforce my view that some form of supervisory or periodic monitoring body is needed. Yes, the Public Accounts Committee and the Treasury Select Committee can do part of the job, but a forum in which representatives of the profession, taxpayers and software suppliers take an informed but independent view of HMRC's strategy and reporting publicly would deliver something extra. It was, after all, an independent review chaired by Lord Carter that set HMRC e-services on their current course. It was in fact the second independent review carried out on e-services by Lord Carter, the first — in 2001 — having concentrated on payroll services.
Inevitably, e-services function in a rapidly changing technological environment and at the very least we need a periodic review to check what is on track, what is not and whether some objectives should be changed to reflect experience or changing circumstances. Perhaps Lord Carter should be asked to keep a watching brief.
Free ride
In his report, Lord Carter noted that in the US, 'the IRS has chosen to stay out of the software market and has negotiated with the software industry to supply free software to certain groups. In the future, as online filing becomes the norm, we think that HMRC, working with industry, should consider this approach and whether it might be better to leave software provision to the industry and focus HMRC resources on the infrastructure …'.
HMRC currently offer their own online product so that taxpayers and agents have a choice of using commercial software, for which they pay, or HMRC's product, which is free. But how does the US system work? As Lord Carter indicated, the IRS does not provide a free online product, but prefers to direct taxpayers to the websites of commercial software suppliers. The software suppliers Free File Alliance guarantees to provide access to free of charge return preparation to 70% of US individual taxpayers (generally those with income of $52,000 or less).
Why are the software companies willing to do this? Many of the participating vendors offer a basic free service or various levels of enhanced service for a fee. Perhaps supplying a 'lite' version for free use keeps the IRS from offering its own product which would compete with the software suppliers in the more lucrative high net worth market. There has been pressure in the UK for HMRC to offer a free product so that no-one has to pay for the pleasure of filing a return. But of course it is not free, it is at public expense. Like Lord Carter, I wonder if the US model is not a better alternative: free filing for taxpayers and no public expense, although I tend to agree that it would be sensible to wait until e-filing becomes the norm first. The money saved could be spent on infrastructure.
XBRL
Lord Carter recommended that companies should be required to e-file their accounts and computations using eXtensible Business Reporting Language. XBRL has been evolving for some time and is essentially a way of tagging financial data so that the nature of individual items in that data is indicated by the tag. This facilitates financial analysis and presentation.
HMRC have long been keen on XBRL but, a year on from Lord Carter's recommendation, some reservations are starting to surface. Some software suppliers have indicated that moving to XBRL in the timeframe envisaged by Lord Carter would have cost implications for their customers. It would be unreasonable to force this cost onto customers if the only or main benefits accrued to HMRC.
XBRL has recently been embraced by the US Securities Exchange Commission, and Companies House now accepts some accounts online in XBRL format. The UK Financial Services Authority, however, decided against XBRL. It is important that HMRC, the software vendors and the profession look carefully at this issue so that we are all sure that the road we are on is the best one for all of us. Lord Carter's main reason for making the recommendation that XBRL should be used was apparently that it was the only show in town. He may well be right but we need to be sure. Discussions between the professional bodies, HMRC and the software industry are planned.
In conclusion
In terms of consultation and openness, we have come a long way in the last year. The SA online system demonstrated in January that large scale e-filing can work to everyone's benefit. PAYE online, however, serves as a reminder that there are still some serious problems to iron out. The important thing is that we take a balanced view and keep pushing for the features we want in HMRC's e-systems. We are the ones who have to use them and I am convinced that there is a clear business case for us doing so.
Finally, having been deprived of my Gwyneth Paltrow moment at the Taxation Awards, I would like to say thank you. The result we achieved on the deadline issue was down to teamwork. Eight professional bodies (the ICAEW, CIOT, ICAS, ICAI, ACCA, ATT, AAT and STEP) maintained a united front for four months and that unity was vital. Many of the individuals involved now participate in the e-services discussions with HMRC through the Working Together E Group. Furthermore, all the time the quiet diplomacy was going on, Taxation's No to November campaign was gathering impressive numbers of signatures (as in Parliament, at the critical moment, was an early day motion). The combination won the day.
Paul Aplin is chairman of the ICAEW Tax Faculty and a tax partner with A C Mole & Sons; e-mail: paulaplin@acmole.co.uk. The views expressed in this article are his own and not necessarily those of the ICAEW or his firm.
