This article summarises correspondence between the Institute and Nick Montagu, the Chairman of the Inland Revenue, about the Inland Revenue’s plans, announced in a Press Release dated 16 February 2000, to give a £10 one-off discount to personal taxpayers who file their tax return over the internet and pay any tax due electronically. Article by Adrian Rudd of PricewaterhouseCoopers, Tax Adviser's representative on the Technical Committee (published in the September 2000 issue of Tax Adviser).Internet filing
The Institute’s first letter
Robert Jamieson, then President of the Institute, wrote to Mr Montagu, highlighting concerns which many members had expressed about the proposals. Two particular aspects which caused concern were that:
- returns filed by agents over the Internet will not qualify for the £10 discount; and
- returns filed by the Electronic Lodgement Service (ELS) do not rank for discount.
Many members considered that their clients were being treated unfairly. The point was one of principle, and not primarily about the loss of £10. The Institute stressed that if a discount was received by an agent it would nevertheless go to the client – the Institute’s ethical rules would require members to disclose the receipt of the £10 even if it were paid direct to the agent.
Mr Montagu’s reply
Mr Montagu pointed out that the Chancellor first made a commitment to offer discounts for filing tax returns over the Internet in his 1999 budget speech. The Revenue and Customs plan to introduce three return filing services in the next 12 months, for income tax self assessment, PAYE and VAT returns. The one-off discounts are a further incentive, over and above the direct service benefits, to encourage take up and use of those services.
The discounts initiative is primarily about encouraging the use of the Internet and the growth of e-business, and is just one of a diverse range of measures that the Government has introduced to stimulate take up and use of the Internet, by both businesses and individuals. A key Ministerial concern is that the small businesses that play such an important role in the UK economy risk becoming increasingly uncompetitive if they do not take advantage of Internet technology. And this is precisely the area in which the Revenue and Customs can make a significant contribution to support the e-business policy objectives, because the new Internet services will be of direct benefit to small businesses.
Mr Montagu pointed out that measures in the 1999 Finance Act provided the legal framework needed to support the development of the new electronic services. As was made clear at the time, the Revenue’s initial plans were to develop the first Internet-based services alongside the existing electronic service. As a service allowing agents to file their clients’ self assessment returns electronically (ELS) was already in place, the Revenue would develop an Internet service to allow unrepresented taxpayers to file their own self assessment returns. For the current year, the Self-Assessment Internet service and ELS would run side by side.
The Revenue are planning to introduce an Internet-based service for agents in time for next year, probably as a replacement for ELS. The Revenue is working closely with representative bodies and software developers to identify the kind of service that agents would like, and the best way of delivering that service.
When the detailed proposals on discounts were being finalised, last autumn, the Revenue looked at various options, including an extension of the original commitment to the clients of agents using the ELS service, and even to agents themselves, rather than their clients. But the case for doing so was always a weak one given that ELS does not involve the direct participation of the client, nor use of the Internet.
The Institute’s second letter
John Whiting, the Deputy President of the Institute, thanked Mr Montagu for his response, and commented that the Institute understands and supports the Government’s desire to stimulate take up and use of the Internet by both businesses and individuals. The idea of offering discounts for filing tax returns not only stimulates interest in the use of the Internet but will also give a valuable sign to the business community and to individuals that the Government is serious about the use of the Internet.
However John Whiting felt that members’ concerns were not totally satisfied. Many members have made a significant investment in gearing up for electronic communication with the tax authorities through ELS. The Institute contributed significantly to the development of ELS – both in terms of involvement with the ELS Business Form and the efforts put in by individual members who registered to use it. Throughout the development of ELS, it was suggested that some small discount or incentive would provide an important signal to agents of the value the Revenue placed on their efforts, but this was not forthcoming. It is frustrating for people who have spent time and money in gearing up for ELS to see discounts (however small) offered to others, whilst their efforts seem to be leading to a dead end.
The tax software producers feel similar concerns. The CIOT facilitates regular meetings of the Tax Software Producers with the Revenue. One of the major areas of concern at the March meeting was the Internet filing discount. The software producers have themselves invested a good deal of time and money in helping make ELS work but now the direct-filing discount seems to be taking development in a different direction.
The amount of the discount, the fact that it is a one-off, and indeed the amount of work that one has to undertake to obtain it is such that the money involved is not significant. But there is an important point of principle here and the Institute believes that the way the discount has been introduced and offered sends the wrong signals to an important sector of the business community who would be in a good position to encourage the Government’s aim.
Nick Montagu’s reply
Mr Montagu commented that the proposed discounts for Internet filing have a very clear and specific purpose – to encourage direct use of the Internet by businesses and individuals. Last autumn the Revenue considered a wider range of options, including combinations such as agent filing by ELS and electronic payment by the client. He repeated that the Revenue regarded the case for ELS as weak, given that it does not involve either the direct participation of the client or use of the Internet.
The Revenue are grateful to all those who have supported and contributed to the development of ELS. And for as long as there is a continuing demand for the service, and it remains technically and financially viable, they will continue to provide it. But the number of agents registered to use ELS is relatively small – around 3,000 – and a significant number of them only use the service to receive taxpayer statements of account electronically.
More importantly, over 90 per cent of the self-assessment returns sent to the Revenue by agents are still paper returns, even though a significant number of those are actually generated electronically, using substitute return software. The Revenue believe that the best way to encourage more agents to embrace electronic communication, and to increase the number of returns filed electronically, is to provide a new Internet-based filing service for agents.
For that reason the Revenue are working with the representative bodies and software developers to identify the kind of service that agents would like, and the best way of delivering that service.
Mr Montagu felt that it would be a pity if this issue remained a significant source of concern for members of the Institute. One of the reasons why Mr Montagu welcomed the Working Together initiative is that it should help to develop a clearer understanding and respect for the different cultures in which members of the Institute and Revenue staff work.
Around half of all self assessment taxpayers choose to meet their tax obligations without seeking help from an agent, and the Internet service for filing self assessment returns is intended to meet the particular needs of those customers. This does not mean that the Revenue want to encourage more taxpayers to file their returns themselves, instead of using an agent. They are simply providing a better quality service for those taxpayers who, for whatever reasons, choose to complete and file their own return.
The Revenue also want to provide better quality services for agents, and their clients – that is why they are developing an Internet filing service for agents. But these plans were not sufficiently far advanced for this service to be included within the scope of the Internet filing discounts. Mr Montagu believes that if interested parties work together on the development of the new service, and on related service initiatives such as the use of email, the Revenue can provide agents, and their clients, with significant and enduring service benefits.
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