VIEWS: 9 PAGES: 19 CATEGORY: Business POSTED ON: 11/19/2010
Free Tax Returns Online Filing document sample
Free Tax Returns Online Filing document sample
Lord Carter - Wyman Symposium Good evening. I’d like to begin by saying thank you very much for the invitation to speak. Although it is only a month since I was in this very same venue talking about XBRL and Corporation Tax, I have enthusiastically accepted the further invitation on the basis that I’ve been asked to return “by popular demand”. Introduction This evening I do not intend to cover in great detail my review of HMRC Online Services, the report for which has been in the public domain for a few months now. I think what may be beneficial though is if I give you an overview on my report and recommendations followed by some more specific information relating to the heads of duty for VAT, CT, PAYE and SA. Background I am widely known to many as an unashamed champion of the use of IT in business, in government and between business and government. I have a firm belief that IT and online services have the potential to offer benefits to business, taxpayers and the government. In the context of HMRC, online services can help customers to fulfil their tax obligations accurately, more quickly and provide them with greater certainty. For government, customer use of online services will provide opportunities to free up resources from low value tasks, such as processing and error correction, to focus on more complex activities such as compliance and customer support. In 2001 I was first asked to look at how information technology could help taxpayers and I conducted a review of payroll services. Having been asked to lead a further review I had to take stock and consider the current climate. We sometimes forget that the electronic and internet revolution is only ten years old in terms of mass adoption. When my Review team and I first spoke to users we found a little hesitation and reluctance over the introduction of online filing. But certainly much has changed in 5 years and there has been a big difference in attitude and practice: Technologically – the United Kingdom is now one of the most wired-up countries in the world and UK businesses are ranked amongst the most sophisticated users of information technology. Culturally – citizens and businesses have come to expect easy–to-use, high quality websites that provide quick access to information and services. And financially – we are already spending the savings that the electronic revolution is delivering. E-enabled costs are dropping, for instance in the US a loan originated on line costs $10 as opposed to one originated through a branch which costs $200. Similarly a personal tax return costs 56 cents to process in the USA against $2.79 for paper. Last year more than 60% of small employers filed their PAYE returns online and nearly 25% of Self Assessment returns were filed online this year. In the course of our review we found there is now a general acceptance of online services as the way forward. And I was encouraged by improvements to the Self Assessment Online service, which now provides a high quality response even at the peak filing period. My recommendations Building on the good progress in the e-economy and at HMRC my team and I made a package of recommendations. I’m pleased to say that most of that package has been well received by the tax industry, but I know there have been concerns about the proposals to change income tax self assessment filing dates. More of that later. The overarching recommendation made in my report was that Government should set an aspirational but realistic goal for HMRC to aim for universal electronic delivery of business tax returns by 2012. And that it should also aim for universal electronic delivery of individuals’ returns from IT literate groups by the same date. Some of the thematic areas of the recommendations that may be of interest to you are as follows: Working with agents, software developers and other intermediaries Amongst other things I have highlighted the importance to HMRC of offering agents, software developers and other intermediaries the opportunity to talk at workshops about online services in the run up to the implementation of my recommendations. I know work arranging these workshops has already begun which is encouraging. I’d just mention though that the workshops are not part of the consultation exercise on the recommendations I have made. Rather, they are intended to find out from people such as yourselves how best we can communicate and support your needs – for example, what communications do you need, how should we communicate with you and when? Service testing and design I know that the robustness of online services is of concern to practitioners and becomes more important when online filing becomes mandatory. In view of this, and as the overarching recommendation is clearly ambitious, I believe HMRC should continue to invest in the right infrastructure. That also means building in more rigorous testing. I recommended that each service should be tested to confirm it has capacity to cope with anticipated demand at peak times. This will give customers assurance that their investment won’t be wasted – it’s also a sensible safeguard to prevent government from embarrassment. To maximise the benefits that the recommendations seek to achieve, the services must be designed collaboratively and around the needs of customers. During the review I was impressed by the willingness of stakeholders, including agents and software developers, to work with HMRC on this. Incentive payments Why no incentives? This touches on one of the key differences from my earlier Review of Payroll Services. Those of you who file employer returns are no doubt well aware of one of my main recommendations back then – that Government should make incentive payments to encourage smaller businesses to file online before being required to from 2010. And yes, that has been a phenomenal success – over 900,000 small businesses took this up in its first year. That’s good – especially for smaller businesses. But as part of that trend towards greater IT use that I mentioned earlier, the vast majority of businesses are now using IT in their day to day work. To be blunt, they just don’t need financial encouragement to adopt electronic ways of working. And we ought to celebrate that fact. Of course, that means the onus is now on government – on HMRC – to improve its online services, and to focus on building robust services that can cope with high volume usage at peak times. This is the consistent message we heard – from businesses and other service users alike. And as a result, I have recommended that resources available for online services should be focused on improving the services themselves rather than on further incentive payments. Mandation Currently customers and their agents use 20th century preparation and 19th century delivery. It is only reasonable to expect people to use the latest methods and the latest means for a truly 21st century service. Widescale adoption of online services is an essential element in realising the efficiencies that technology can offer and will help to transform government services. And let’s not underestimate Britain’s capacity to do this. I was pretty astonished by the high degree of IT literacy of most of the people I have met who are starting out in business. Clearly business is ready for this step. While there will always be a few late adopters I believe that it’s now reasonable to require customers and their agents to file online. Especially if you look at the growth in the use of IT generally and of tax software in particular – and then project that forward to 2010. Further information about each of the Heads of Duty (HoDs) VAT To realise the benefits to both the customer and HMRC of online filing, mandation will be introduced in phases for VAT. Already businesses have had access to online VAT returns since early 2004, and this service has operated without encountering significant problems. My further recommendation is: 2008 – Businesses who’s turnover exceeds 5.6 million, and all newly registering businesses will file online – that is around 44,000 businesses 2010 – Businesses who’s turnover exceeds £100,000 will file online – that is a further 830,000 2012 – only in the run-up to this year will we consider universal mandation of online filing for the remaining 950,000 smallest businesses. Corporation Tax I’d now like to talk about the recommendations to do with companies that I made in my report. I’ve recommended that by 2010 returns from all companies should be filed using XBRL, with the filing window linked to the filing date. I hope I don’t dumb down too much if I say that XBRL is a language for the electronic communication of business and financial data. Based on XML, which is already used in the online filing of company tax returns, it has become a standard means of communicating information between businesses and on the Internet. Why 2010? But why 2010? Why not now? Well, although the “view services”, that allow companies to see an up to date picture of their tax liabilities and payments, are more popular, only 2% of companies filed their returns online in 2005/6. And so we ought to be fair, and we ought to give enough time to prepare. What I don’t want to see is a jump from, say, 10% online filers in 2009 to 100% the following year. That strikes me as dangerous. I also wanted to give HMRC and software houses the time to develop and prove their services and products. What I have in mind is a fully operational service based on XBRL from, say, April 2008 that enables a stepped increase in numbers over the next two years. And by a fully operational service, I mean that: first, HMRC provides support for both computations and accounts to be filed under XBRL second, that software houses have products that enable filing of accounts and computations under XBRL and third, that accountants have adopted and are using those products to file company tax returns. Why XBRL? So why XBRL? XBRL has the potential, and looks set to revolutionise financial reporting. Clearly, the introduction of XBRL cuts out laborious and costly processes of manual re-entry and comparison. Computers can treat XBRL data "intelligently" – and so can government as a result. Better still, they can recognise the information in an XBRL document, select it, analyse it, store it, exchange it with other computers and present it automatically in a variety of ways. Not just that, but in a much faster, much more accurate way. That’s the goal. Already, XBRL has been introduced into the quarterly reporting by US banks to their regulator, for example. Also, Companies House is already receiving certain accounts in XBRL format. Beyond the technological leap that XBRL offers, there are other benefits too. For example, those who currently file company tax returns online submit accounts and computations as PDF attachments. HMRC automatically captures the information from the return form into its computer systems, but the attachments have to be printed. There is then manual data capture from these accounts and computations to feed the data warehouse which supports risk assessment, for example. This is clearly clumsy and inefficient. Looking to the future, it seems to me that HMRC has two alternatives – either to develop a structured report along the lines of, but going further than, the Structured Accounts Information in the SA return or to receive accounts and computations as data. Given that companies must, by Company Law, prepare statutory accounts each year, it seems sensible to me for these to form the basis of the tax return, supported by computations. So if we want do this – submit accounts and computations as data – then, as far as I’m aware, there isn’t really an alternative to XBRL that offers the same range of benefits. What about enquiry windows? I have also recommended that the period for enquiry into a company tax return runs from the actual date that a return is submitted if that precedes the statutory filing date. I received a lot of representations suggesting this, and it seems to me that doing this removes a significant obstacle to earlier filing. And earlier filing is a good thing – it spreads loads, it encourages early addressing of any issues and so on. Aligning Dates & the Single Filing Service That leaves one last point I’d like to answer. During my Review, I spoke to many firms of accountants and had three members of the profession, from different sized firms, as part of my team. And a number of accountants pointed out that, for the clients they served – mainly small companies – best practice was to prepare accounts and computations as a single task in time to submit accounts to Companies House. So wouldn’t it therefore make sense to bring the statutory dates in line? And, on the back of that, shouldn’t we expect government to offer a joined-up service that enabled a company’s statutory obligations to be met more easily? Well, that seems right to me – and I understand this doesn’t work for large groups. But it must help the vast majority of companies to have a single date to focus on to pay their tax and file their accounts and returns – and this will certainly be the case if the HMRC filing date becomes the 9 months currently in the Company Law Reform Bill. There’s obviously an initial and transitional impact on agents. But the advantage that Corporation Tax has over Self Assessment is that returns are spread over the year so the issue of concentration of work doesn’t arise to anything like the same extent. PAYE My recommendation in 2001 was for employers to file their Annual Returns online – the start date for filing these returns online being linked to the size of the employer’s number of employees. I have no doubt that HMRC offering tax-free payments to encourage smaller employers to file online early, as recommended in my original review, has increased take up, but it is still pleasing to note how well employers and HMRC have responded to the recommendations for online filing. The take up figures for online filing have increased significantly. Over a million Annual Returns were filed online in 2005-06 – this is impressive when you compare it to 2003-04 (pre-mandation) when just 68,000 returns were filed online. HMRC have told me that since mandation of online filing has been introduced, the quality of data sent has also improved. There has been a significant drop in the number of errors made, resulting in HMRC making fewer enquiries to employers/employees and resolving problems more quickly. For PAYE my view is that online services still have the potential to offer significant benefits to business. That is why I have recommended that employers must do in-year business online as well, starting with employers with more than 50 employees in 2008. Smaller employers should follow in 2010. But I stopped short of recommending that employers should be given a financial incentive for starting early, which is a key difference from my earlier Review. As part of that trend towards greater IT use that I mentioned earlier, the vast majority of businesses are now using IT in their day to day work. To be blunt, they just don’t need financial encouragement to adopt electronic ways of working. Of course, that means the onus is now on government – on HMRC – to improve its online services, and to focus on building robust services that can cope with high volume usage at peak times. This is the consistent message we heard – from businesses and other service users alike. I am very pleased to see that HMRC are acting so quickly on my recommendations. I know that there is a programme already in place to contact all employers that have to send information online in-year and that HMRC have met with employer and agent representative to discuss the changes and how they can be best introduced. I am pleased too that HMRC are acting on my recommendations to work closely with software developers on quality standards for in-year information. As you may expect, I saw some discomforting figures about the amount of time and money HMRC spends putting right mistakes made, innocently or otherwise, made on paper forms. Greater use of IT and data standards will, I am sure, reduce these errors. Self Assessment HMRC’s Self Assessment Online service now provides a high quality response even at the peak filing period. I was greatly encouraged by the success of the SA online filing this year. Filing at the end of January 2006 went smoothly and the customer experience remained good throughout the peak. I understand over 160k returns were filed online on each of the last two days, with 8700 filed during the peak hour. Consequently, HMRC received nearly 2m SA returns online last year – nearly 25% of the SA returns filed by the deadline. My package of recommendations intends to build on this good progress. I made three recommendations relating to Self Assessment. First, linking the period that HMRC has to query a return (the “enquiry window”) to the date it is filed (rather than the fling deadline). This will remove a perceived barrier to early filing and has been widely welcomed. It should promote early filing and give taxpayers certainty sooner. Secondly, withdrawing computer generated paper “substitute” SA returns. This will encourage agents who use relevant software to file online (and is in line with the Public Accounts Committee recommendation that professional agents should be required to file SA returns online). It cannot be sensible, once a return has been prepared electronically, not to transmit the data online. Withdrawing “substitute” returns will protect the integrity of the clean data produced by software by eliminating the errors that are introduced by manual re-keying of paper returns printed out from the software. Thirdly, and this is what has attracted most comment, introducing new filing deadlines for SA returns of 30 September for paper returns and 30 November for online returns. These deadlines would mean that all taxpayers complete their tax returns closer to the end of the relevant tax year, when the information should be more readily to hand. The extra time allowed for online returns would encourage IT literate individuals to file online. But paper would remain an option for those who do not have the necessary IT skills. The deadlines also mean that HMRC will be able to process all paper returns in time to tell taxpayers what they have to pay well before the 31 January due date for payment – which is not changing. And, for taxpayers who are also within PAYE, HMRC will have the returns information they need in good time to take account of it in working out PAYE codes for the following year. Adopting different filing dates for paper and for online filing provides an incentive to file online, and helps to spread the “peak” of filing experienced by HMRC, while retaining the option to file on paper for those who prefer to do so. Most people seem to agree with that. What has proved to be more controversial is the proposed new filing dates themselves. It is clear that the 10 months people currently have for filing income tax SA returns on 31 January is far longer than any other country (for example in France these returns are filed in 2-3 months and in Canada in 4). This can mean that people are filling in returns long after they have received the relevant tax records. They may therefore experience more difficulty in completing their returns because the information needed is no longer to hand. And it may have the knock on effect of making enquiries more difficult because events are not fresh in the taxpayer’s mind. But why those particular dates? Differing views. It will not surprise you to know that I have received widespread representation on the issue of accelerating the SA filing date. Clearly those who emailed me thanking me for giving them back their Christmases were not representative of you all. Accordingly, as I indicated at the XBRL conference on 9 June, I invited relevant organisations to provide me with information which would support the contention that the acceleration of filing dates was not helpful. Having now considered those representations I have written to the Paymaster General recommending that the filing date for paper is moved to 31 October but that in order to facilitate the move to electronic filing the date for such filings remains at 31 January. I would however make the caveat that I believe further work needs to be done to better understand the barriers, such as the late receipt of information from third parties, that would stand in the way of an acceleration of filing dates some time in the future. Closing Remarks I’ve spoken for some time now, so let me end on this note. Whilst I have been concerned about the reliability of HMRC’s online services, I was greatly encouraged by the success of the SA online filing service this year. Robustness of service matters, as does a realistic, but stretching timetable of reform. So there is indeed a challenge – both to HMRC and to you as the industry. I spoke to a wide range of people – on both sides – as part of my Review, and I believe that by 2010 we can do this – agree standards, develop systems, test them and make them work. Finally I cannot stress enough the importance of HMRC and it’s customers talking and listening to each other as these changes are implemented. Thank you.
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