Consultation on a flat rate scheme for small firms: CIOT submission of 7 September 2001 in response to the consultation document dated June 2001 published by HM Customs and Excise. Introduction
The consultation document sets out proposals for introducing an optional flat rate scheme and for changing the annual accounting scheme. The Chartered Institute of Taxation welcomes the opportunity to give its views on these proposals.
Our general comments on the two schemes are set out in the following paragraphs. The answers to your specific questions are set out in the appendix.
Summary of conclusions
As regards the proposed flat-rate scheme, we conclude that:
· It does not address the real problem faced when the registration threshold is crossed;
· In practice, it is unlikely to reduce record keeping to any significant extent. The main benefit is to simplify the calculation of tax;
· It appears to have been drawn in revenue neutral terms. As it is difficult to identify the winners and losers without a bespoke calculation, and difficult to forecast whether any gains will be maintained in the long term, we feel that business people will approach the scheme with considerable caution;
· The need to block perceived loopholes will inevitably result in the loss of simplicity over time;
· Identifying which flat-rate percentage to use, and when to change to another one, give rise to practical difficulties;
· The flat-rate percentages, or the manner in which they are to be applied, are suspect. The example in para A9 indicates that tax payable under the scheme by a businessman/woman making nothing but standard rate supplies can exceed the VAT actually charged to customers ;
· Although we like the simplicity of the scheme, we believe that the absence of any readily identifiable financial incentive will result in a low take up.
As regards the proposed changes to the annual accounting scheme, we conclude that:
· Quarterly accounting is preferred by accountants because it encourages business people to keep their records up to date;
· The theoretical advantage - a saving in accountancy costs resulting from preparing an annual VAT return at the same time as the annual financial statements - is unattainable in practice because the two month time limit for filing returns is too short;
· The absence of any financial advantage gives business people no incentive to join the scheme. We see little chance of any significant increase in take up.
Flat rate scheme
In principle, we welcome the proposed flat rate scheme. It is simple to operate. Indeed, it is difficult to imagine anything simpler. Anyone adopting it should find little difficulty in meeting the accounting requirements and preparing VAT returns. Thus, viewed solely as a simplification measure, we welcome it. However, the scheme does not address the real problem faced by small businesses crossing the registration threshold and, ironically, its very simplicity may prove to be an obstacle to its success.
The cliff edge problem
The 1998 consultation on registration limits highlighted what has become known as the “cliff-edge” problem. This arises when a business people selling mainly to the public crosses the registration threshold. They need to increase prices by 17.5% in order to fund the output tax for which they are now liable. However, they may lose custom if they do so because their prices would be higher than those of their unregistered competitors. A smaller increase may help to preserve custom, but it results in the business person paying all or part of the output tax out of his/her own pocket. As service traders such as hairdressers incur very little input tax, the ability to recover input tax does little to offset the output tax which they necessarily fund.
This problem is well known to the business community. Many small business people deliberately refrain from expanding their businesses in order to avoid a dip in profits. It is this problem, not VAT accounting requirements, which is the real barrier to the expansion of small businesses.
The obvious solution is a graduated tax relief scheme. There are no real difficulties in designing such a scheme. Customs and Excise already have a proposal on file. However, there is a real problem in introducing such a scheme. The obstacle is art 24(2)(a) of the Sixth Directive. The UK applies a high registration threshold rather than graduated tax relief and would require a derogation in order to introduce the latter. Moreover, there would be a revenue consequence. A lower registration threshold may be necessary in order to produce a revenue neutral result or to meet the pre-conditions for a derogation.
We express no opinion on (a) the relative benefits of high registration levels and graduated tax relief, and (b) the use of different registration limits for goods and services as a means of making the scheme available to all taxpayers making similar profits. However, as the 1998 consultation on registration limits identified the cliff edge problem rather than competition between registered and unregistered businesses as the mischief to be tackled, we consider that there are grounds for re-opening the consultation. Respondents may take a different view of registration thresholds if faced with a different context and a different solution.
Although there is no statutory provision imposing a general duty on all business people to keep proper accounting records, or to prepare financial statements, there are good practical reasons for performing these tasks. For example, it may be necessary to do so in order to comply with specific legal requirements (eg under the Companies Acts), compute the profits to be included on income tax or corporation tax self-assessment returns, see how the business is faring, or support an application for a business loan or overdraft.
Although the flat rate scheme allows business people to simplify accounting records common to VAT and financial accounting (eg by dispensing with analysis columns for VAT) it does not enable them to dispense with prime records which, while no longer necessary for VAT purposes, continue to be required for other purposes. It follows that the accounting benefits of the scheme may be less dramatic than may be supposed.
The real benefit is reducing the time taken to prepare VAT returns to a matter of minutes. This is a worthwhile benefit which we do not wish to minimise. The point we make is that the accounting benefits should not be over-sold.
Winners and losers
The whole point of a flat rate scheme is revenue neutrality. Thus, the VAT percentages reflect the ratio of sales and purchases for the average business in each trade sector. In practice, few businesses reflect, or always reflect, the sector average. Moreover, trading patterns may fluctuate, change over time, or be distorted by abnormal events so that it is difficult to be certain in advance whether, in the long run, the scheme will result in a tax gain or tax loss. The inherent uncertainty is likely to make the scheme less attractive than it deserves to be.
A fair way of judging the benefits is to consider whether gains and losses are likely to even themselves out over time. This may be a relatively easy decision if, for example, all sales are charged at the same rate, eg hairdressers. The decision is less easy if two or three rates of tax are involved, eg jobbing builders. Here, gains and losses may be a matter of chance depending on the flow of work, although they can be controlled to some extent by only accepting work which is tax efficient. Small business people (and their tax advisers) will soon work out which way the wind is blowing and take the appropriate action. The likely consequence is a distortion of trade patterns in some sectors. It may become difficult for potential customers to find any small business people willing to carry out some classes of work.
Assuming that the proposed sector flat rates fairly represent sector averages and that, in the long run, most businesses within an individual sector closely reflect the sector average, it is tempting to assume that the gains or losses incurred by most business people are likely to be small and that their actions are unlikely to be influenced by trivial sums. We consider that any assumption of this kind is misplaced. As regards size, we note that an IT provider diverging from the norm by just 1% could theoretically gain or lose £187.50 (ie £125,000 @ 15%). Small business people would not regard this as small. As regards the influence on decision-taking, our own experience of small business people suggests that a sizeable proportion would be more willing to do things the hard way rather than to pay, or risk paying, even a trivial amount of additional tax. This may be all very regrettable, but such matters must be viewed from the shop floor rather than from an ivory tower.
A flat rate scheme clearly achieves some saving in administration. However, we are less optimistic than the consultation document both as regards the time saved (see para A16) and whether it will be translated into cash. Small business people writing up their accounting records during the evening will have more time to put their feet up rather than more cash. Moreover, a saving expressed in notional cash terms is illusory if the scheme results in a loss which must be paid with real cash. Financially, the business person is worse off.
We find it difficult to avoid the impression that Customs and Excise is likely to be the only sure winner from a flat rate scheme. The 1998 consultation document indicated that some 321,000 businesses had an annual turnover between £50,000 and £100,000. This suggests a substantial saving in administration costs (because there are fewer records to examine and much of the assurance work can be office based) if a substantial proportion of eligible business people entered the scheme.
We conclude that any business person able to foresee a clear gain will rush to join the scheme. There may be at least some business people willing to pay a small price to achieve simplification. We suspect that the cost, or the uncertainty, is likely to act as a deterrent in other cases.
We feel that the Government may be disappointed with the take-up for what we regard as a worthwhile scheme. The way to increase take-up is to ensure that most small business people will gain some financial benefit from it. This involves graduated tax relief. Simplification, by itself, is likely to be insufficient.
The path to legislation
It is an unfortunate fact that simple ideas tend to acquire baggage along the path to legislation. Exceptions and qualifications are added on to meet perceived ideas of fairness, reduce adverse revenue consequences, take account of special situations, and so on. We consider that these temptations should be resisted. The success of this scheme depends upon simplicity and nothing else. We would prefer to see two or more different schemes than one scheme which loses its only virtue by trying to do too much. Thus, we caution against any tinkering which reduces the scheme’s simplicity.
In theory, annual accounting simplifies accounting procedures. The rush to complete the quarterly VAT return (often at an inconvenient moment) is avoided, the exposure to default surcharge is reduced, the time limit for furnishing the return is increased from one month to two, and there is an opportunity (much reduced in practice) to prepare the annual VAT return and financial statements at the same time. These are tangible benefits which should be attractive to small business people. We suggest three reasons why they are not.
Quarterly accounting forces business people to keep their accounting records up to date. This is particularly important in cash trades. Leaving everything to the end of the financial year is a recipe for cash accounts which do not balance and important accounting documents going astray. This was the nightmare of pre-VAT days in the branch of accounting known as “incomplete records”. No accountant wants to resurrect this era. Nor, it is safe to say, will the Inland Revenue.
Our experience suggests that accountants discourage clients from adopting annual accounting as a means of enforcing accounting discipline. The preparation of financial statements is simplified and costs are reduced if clients keep good accounting records. The revenue departments benefit because the accounting records are likely to be more reliable.
Two month time limit for returns and balancing payment
In practice, accountants find it difficult to prepare annual VAT returns and annual accounts at the same time. The two month time limit is simply too short because too many clients share the same balance sheet date. The only way round this problem is to extend the two month period. However, this merely gives business people even more time to put off the annual chore of getting the books up to date. It would also contravene art 22(4) of the Sixth Directive. Thus, although a longer lime limit is desirable, it is impractical in the absence of a derogation and may also be self-defeating.
Having said this, the practical (if not the legal) problems can be readily solved with a little imagination. For example, the current due dates for returns and payments could be linked to annual self-assessment returns made for income tax purposes. Indeed, the annual VAT return could form part of the self assessment return and the Inland Revenue could collect the tax due as agent for Customs and Excise. If a cadre of customs officers were to be based in Inland Revenue offices, the VAT and direct tax affairs of small businesses could be reviewed at the same time.
There is no worthwhile financial incentive to join the scheme. It is true that, for some business people, VAT liabilities are spread by way of monthly instalments. However, we see little real cash flow advantage given the level of tax liabilities at issue. Moreover, an annual accounting scheme is unnecessary as a means of introducing payment arrangements of this kind. In practice, some real financial incentive is necessary if the take-up is to be increased.
If (as we assume) a higher take-up rate would reduce administration costs, there is scope to pass on some of this saving to small businesses. For example, business people could be offered a flat rate sum or a percentage “discount” to help bring this about. The cost would be negligible.
ANSWERS TO SPECIFIC QUESTIONS
Q3.1 What do you think of these proposed accounting procedures?
A1 We regard the proposed accounting procedures as proportionate to the aims of the scheme. Our only problem lies with the requirement to pay tax by “electronic means” (para 3.5). Payment by credit transfer or telephone banking involves little or no cost. However, business people filing returns electronically under the arrangements introduced earlier this year incur annual verification fees of £50 per annum. We would regard any mandatory requirement to join these arrangements as a disincentive.
Q3.2 What do you think of these proposed eligibility criteria?
A2 The £125,000 turnover limit for joining the scheme is expressed in tax-exclusive terms (para 3.7) and we assume that the £100,000 limit is also intended to be a tax-exclusive sum. It is sensible to use tax-exclusive limits in order to ensure that the eligibility criteria are the same for both unregistered business people(who do not charge VAT) and registered ones (who do).
A3 The inclusion of “non-taxable income” other than exempt supplies (para 3.7) requires some clarification. We assume that the intention is to exclude large charities, grant-aided organisations and the UK branches of overseas businesses from the scope of the scheme. On this basis, “non-taxable income” presumably comprises supplies made outside the UK which would be taxable or exempt supplies if made in the UK and does not include “income” such as dividends and Post Office salaries which do not amount to the consideration for a supply. We trust that this is what is intended.
A4 The turnover limits for leaving the scheme are expressed in VAT-exclusive terms (para 3.10). However, as members of the scheme are required to keep a record of turnover in VAT-inclusive terms (para 3.3),we feel that exit limits should be expressed in the same manner. The equivalent limits are £146,875 (ie 47/40 x £125,000) and £171,875 (ie [47/40 x £125,000] + [£25,000]), but lower sums may be necessary in practice to take account of the fact that turnover includes zero or reduced rate supplies in some cases.
A5 We consider that capital items should be excluded from the turnover taken into account when determining whether a businessperson has to leave the scheme.
A6 Article 24(1) of the Sixth Directive confines flat rate schemes to “small undertakings” rather than to “small and medium-sized” ones. In the absence of any further guidance, the entry and exit turnover limits chosen are at best arbitrary. We do not have any strong view on the limits chosen. However, they should be reviewed annually in the same manner as registration limits.
A7 Second-hand dealers, auctioneers and tour operators are excluded from the scheme. It may be that few would qualify in practice on grounds of turnover.
Q3.3 What do you think of the proposed flat rate percentages in general?
A8 Flat rate percentages are applied to VAT-inclusive turnover (para 3.14). This is sensible because turnover records are maintained in VAT-inclusive terms. Any other approach would compromise the simplicity of the scheme.
A9 Our general impression is that the flat rate percentages are not generous and that some are too high for small businesses. This general impression is reinforced by the curious result illustrated in the following example.
An IT service provider bills £60,000 for services rendered and charges VAT at 17.5% amounting to £10,500. The amount billed to customers is therefore £70,500. The provider’s flat rate percentage is 15%. The provider’s VAT liability is therefore 15% of £70,500 = £10,575. This is £75 more than the VAT actually billed to customers!
A10 We suspect that the flat rate percentages have been expressed in VAT-exclusive terms. If this is so, the IT provider in the example would have a liability of £9,000 (ie £60,000 @ 15%). In effect, the provider would receive a notional input tax credit of £1,500 (ie £10,500 - £9,000). This represents notional purchases of £8,571 (ie 40/7 x £1,500) chargeable at the standard rate. Expressing flat rate percentages in VAT-inclusive terms is a matter of some difficulty as turnover will often include zero or reduced rate supplies. The proportion of turnover chargeable at each rate clearly varies from one business to another, and there may be significant variations between different business sectors included within the same flat-rate percentage group.
A11 We also suspect that sector averages may have been derived from statistics for all businesses within a particular sector rather from statistics for small businesses within that sector. The distinction is important. Larger businesses generally buy more cheaply - although this may, to some extent, be off-set by larger administration costs.
Q3.4 Do you have views on the proposed flat rate percentages for any specific sector?
Q3.5 Do you agree with this approach towards subsidiary and main trade categories?
A13 We agree that the flat rate percentage should be applied to taxable and exempt turnover by reference to the main trade carried on. We also agree that a new flat rate percentage should be applied when there is a change in the nature of the main trade. However, these matters give rise to the practical problems outlined below.
A14 There is some lack of clarity in the trade descriptions used. We foresee that some business people will find it difficult to decide which general description is most appropriate to their own particular circumstances. Two examples will suffice. First, is a business person who sells computers a “non-food retailer” taxed at 7% or a “computer provider” taxed at 15%? We suspect the former as notional input tax credit would otherwise be seriously understated. Secondly, we assume that “tax advisers” fall within the same trade sector as accountants and lawyers, but there is no certainty that they do so. We feel that Customs and Excise should verify the nature of an applicant’s activity, or main activity, when they process the application. It would be unwise to rely on the accuracy of self-classifications and unfair to impose penalties if they are accepted uncritically.
A15 A change in the main trade may happen overnight, eg if it is closed down. In other cases, the change may take place over a period, eg where it grows less rapidly than the subsidiary activity so that, in time, the subsidiary activity becomes the main activity. We think it would be wrong to leave business people to sort out matters by themselves. We note that VATA 1994 Sch 1 para 14 requires business people exempted from registration to notify any material change in the supplies made, or any material change in the proportion of supplies made in a quarter. This enables Customs and Excise to decide whether exemption continues to be appropriate. We visualise a similar procedure for the flat rate scheme. A scheme certificate could specify the flat rate percentage to be used and set out the notification requirements, and the reason for them, in clear but informal terms.
Q3.6 What do you think of these estimated compliance cost savings?
A16 Given that business people will need to keep more or less the same accounting records (albeit in a somewhat simplified form) for non-VAT accounting purposes, we feel that a time saving of one hour per week is a gross over-estimate. It will be slightly quicker to make entries in the cash book, for example, because three figures (ie total, VAT-exclusive and VAT) are reduced to one. However, the saving is a matter of seconds per entry plus a saving resulting from not having to cross-cast three columns or having to cross-cast a reduced number of columns. The time saving will naturally depend upon the number of entries made. We feel that a saving of one hour per month would be generous for entering a large number of small value invoices.
A17 The consultation document allows for a reduction of £168 per annum in accountancy fees. We suspect that the flat rate scheme will have a negligible effect on the time taken by accountants to prepare financial statements. In practice, most time is spent on analysing expenditure, balancing the cash and bank accounts, and preparing the trial balance. The scheme has no effect on these operations. We feel that the reduction (if any) in accountants’ charges is likely to be negligible.
A18 All told, we think that the compliance cost saving is likely to be nearer £200 per annum than £1,000. Furthermore, it is more likely to be a notional saving than a saving represented by hard cash.
Q3.7 Do you agree with this approach towards high value capital expenditure?
A19 Drawing a distinction between capital and revenue expenditure is an obvious complication, but we agree that it is a necessary one. There are three possible ways of dealing with it:
· Making an allowance for low value capital purchases when fixing the flat rate percentages (the option adopted);
· Making an allowance for all capital purchases when fixing the flat rate percentages (the option specifically rejected);
· Keeping all capital purchases and sales outside the scheme (an option which has not been considered).
A20 The principle drawback of the flat rate scheme is uncertainty - whether individual business people will be winners or losers - and the most obvious cause of uncertainty is the level of future capital expenditure. The third option would reduce the element of uncertainty but, like the first option, it would introduce an exception which detracts from the scheme’s simplicity.
A21 We make three observations on the third option. First, business people must obtain VAT invoices to support input tax deductions for capital expenditure. Secondly, they must necessarily decide what does or does not amount to capital expenditure in individual cases. The direct tax case law is a salutary warning of the difficulties which can arise in distinguishing capital and revenue expenditure and we note in particular the problems arising when property is refurbished. Thirdly, it is necessary to give parallel relief for the leasing of assets in order to avoid distorting business behaviour. These factors suggest that the third option is less attractive than it appears at first sight.
A22 We conclude that the flat rate percentages should have a built-in allowance for purchased and leased assets and that individual capital items above a specified value should be dealt with outside the scheme. Certainty suggests that it may be preferable to adopt a threshold which is lower than £2,000. Whatever test is used to define capital expenditure, it must be carefully explained in the resulting public notice. The starting point is Verbond van Nederlandse Onderemingen v Inspecteur der Invoerrechten en Accijnzen (case 51/76)  ECR 113,  1 CMLR 413, which was applied in Harbig Leasing Two Ltd v Customs and Excise Comrs (VAT decision No 16845).
Q3.8 Is the £2,000 level appropriate?
A23 While we agree that there should be a threshold value for individual capital items and feel that £2,000 may be too high, we have no firm view on what the value should be. We consider that the prime object of a threshold value is to avoid a multitude of small claims while giving business people confidence that they will not be adversely affected by the swings and roundabouts effect of capital expenditure. On this basis, we suggest £250 as a reasonable threshold, but we do not go so far as to advocate it.
Q3.9 What would be the best method of dealing with capital purchases where traders leave the scheme?
A24 As regards capital items for the purposes of the capital goods scheme, it seems reasonable to work on the basis that the scheme has operated from the date of purchase. Thus, any use while using the flat rate scheme is counted as taxable use and scheme adjustments are confined to later intervals.
A25 We see no need for an adjustment in respect of other goods.
Q3.10 What do you think of this approach to intra-community trade?
A26 We see no purpose in requiring business people to make contra entries on the tax return. We also see little need to collect the statistical information in boxes 8 and 9 if, as the consultation document supposes, the number of transactions involved is likely to be small. We feel that a centrally prepared estimate would be sufficient for the purposes of preparing trade statistics.
Q3.11 Are there any simpler ways of dealing with these transactions?
A27 We see no reason why goods (acquisitions) and services (reverse charge) should be treated differently. We consider that both should be ignored.
Q3.12 What do you think of this approach to reverse charges?
A28 We agree that reverse charges should be omitted from turnover for the purposes of calculating output tax and from the statistical boxes.
Q3.13 Are there any simpler ways of dealing with these transactions?
Q3.14 Do these arrangements sound reasonable?
A30 The proposals for assessment are reasonable.
A31 We agree that Customs and Excise should have power to terminate membership of the scheme where this is necessary for the protection of the revenue. It may also be necessary to include at least some of the other powers set out in VAT Regulations, SI 1995/2518 reg 54 in relation to annual accounting.
A32 We appreciate that Customs and Excise are anxious to avoid opening up opportunities for tax avoidance. However, a power to “recoup any unfair tax advantage gained through abusive use of the scheme” would involve legislation of some complexity and, in practice, would require customs officers to reconstruct tax liabilities on the normal accounting basis in order to make an assessment. It is necessary to keep a sense of proportion. We are thinking about businesses with a small annual turnover. The revenue at issue is trivial. Reconstructing tax liabilities on the normal accounting basis is simply not cost effective. We see expulsion from the scheme as adequate protection for the revenue.
Q3.15 What can be done to maximise participation in the flat rate scheme?
A33 We refer you to the main body of our response.
Q3.16 Who do you think the biggest beneficiaries from this scheme would be?
A34 Business people who will gain a guaranteed tax advantage from the scheme. No one else will apply to join it.
Q3.17 Are there any other issues to be addressed about how the flat rate scheme would work in specific circumstances?
A35 We consider that a special tax return should be designed for the scheme. This would have the following boxes:
Flat-rate VAT due: £………….. @ ……..% = X
VAT due on capital items sold in the period X
Total VAT due X
Deduct: input tax on capital items purchased in the period (X)
Net amount due to or from Customs and Excise X
Q3.18 If you are a business or represent businesses, would you participate or advise your clients to participate in the scheme? Why?
A36 Not applicable. However, we refer you to the main body of our response.
Q4.1 Would this reform help to encourage take-up of the scheme?
A37 We imagine that there would be an increased takeup if a public notice and application form were to be included in the registration pack. However, the real question is whether the reform is desirable. It poses dangers for both business people and Customs and Excise. An uncontrolled build up of VAT liabilities in the first year poses risks to the long term viability of the business and an obvious risk of bad debts. We consider that business people should take independent advice before entering the scheme. They should certainly be closely supervised during the first year - it would be quite wrong merely to hand them a leaflet and impose a penalty if they got things wrong. The scheme would quickly get a bad name if this were to happen on a regular basis.
A38 Some business people are clearly capable of doing whatever is required of them. The worry is that business people who are not capable may blithely enter the scheme and find themselves in a financial mess from which it is difficult to escape. We suggest a rigorous selection of applicants and a “cooling off” period which allows for a change of mind.
Q4.2 Should the reform be limited only to firms with turnover less than £100,000?
A39 We see no overriding principle which requires a distinction to be drawn between small and medium sized businesses. It is at least arguable that larger businesses will be in a position to handle their financial affairs more efficiently so as to pose a smaller risk to themselves and the public revenue. On the other hand, the sums at stake are larger if this proves not to be so.
Q4.3 How should the size of the interim VAT payments due from newly registered businesses be most accurately calculated?
A40 The only available information is the estimated turnover on form VAT 1. It is reasonable to use this figure. However, we see problems. Estimates are just that. The reality may be very different. We consider that Customs and Excise should satisfy themselves regarding the reliability of the estimates before accepting them. We also consider that business people should be required to report changes which significantly affect the level of their payments on account so that they can be adjusted accordingly. It may be necessary to introduce some form of penalty to deter business people from wilfully underestimating turnover so as to obtain an interest free loan from the Government. However, a penalty regime will make the scheme less attractive.
Q4.4 Would this reform help to encourage take-up of the scheme?
Q4.5 What size and frequency of interim payments would be most appropriate?
Q4.6 Have you any other proposals on the annual accounting scheme?
A41 The problem with payments on account is that they remove the one financial incentive which would improve the scheme’s popularity. Three factors need to be reconciled:
· What business people probably want (one annual payment so that they have interest-free use of VAT);
· What is in their best interests (interim payments to avoid building up debts which they are unable to pay);
· What is necessary for the efficient collection of VAT revenues (payment at the earliest possible moment).
A42 The scheme would almost certainly be more popular if the presumed wishes of business people (the first factor) were to be met during their membership of the scheme. They could be encouraged to make payments of account (and so meet the other two factors) by making an offer they cannot refuse - some attractive form of bonus for early payment. We appreciate that lengthy credit periods and prompt payment discounts are concepts foreign to the world of tax collection. However, there is a circle to be squared and something imaginative is necessary if this to be done.
Q5.1 Do you have any other comments on the issues raised in this document?
A43 We refer you to the main body of our response.
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