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									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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