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Carter report: implications for businesses

15th May 2006
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Much has been written about Lord Carter's proposals to reduce the filing deadline for SA tax returns, and the implications for accountancy practices generally. The report does, however, have a number of other recommendations which will impact businesses generally; while the proposed change to the filing deadline is important, the furore it has created risks overshadowing the remainder of Lord Carters recommendations.

Aspirational goal
Lord Carter has suggested that HMRC should have an aspirational goal that all business tax returns should be filed online by 2012.

The "universal" aim that all returns should be filed by all businesses must therefore include an element of compulsion. The proposed timeline in Appendix 5 of the Carter report indicates that most of this progress is planned for the period leading up to 2010, which allows for two years of potential slippage within this overall goal. No new primary legislation is required to bring all tax returns within compulsory online filing, as enabling legislation was included in Finance Act 2002 at Section 135, and mandatory online filing can be achieved by the issue of detailed Regulations specifying the type of return and the implementation date.

So, is your business ready to start filing everything online? Here is how the individual recommendations pan out, assuming the deadlines recommended are adopted:

Business with a turnover of more than £5.6 million will be required to file and pay their VAT electronically for VAT quarters starting after 31 March 2008. So the earliest mandatory online returns from this group of businesses will be for the quarter ended 30 June 2008.

The next group of businesses to join mandatory online VAT will be smaller businesses with turnover over £100,000 up to £5.6 million. They will be required to file and pay their VAT online for VAT quarters starting after 31 March 2010.

There is currently no proposal to extend online VAT to businesses with turnover of under £100,000, but Lord Carter suggests that HMRC review this in the run up to 2012.

Many businesses have already started filing their VAT returns online, but initially many were put off by the requirement to use a digital certificate for access to VAT services. A digital certificate is no longer necessary, but take-up of online VAT returns remains very poor at present. Online payment of VAT is simple for businesses with access to the normal electronic banking facilities such as BACS and CHAPs, and smaller businesses with internet banking facilities should also have no problem making payment, but Lord Carter has recommended that there is an electronic payment facility within HMRC's website to allow businesses to make payments direct if they wish to. This should make life easier for very small businesses with limited current use of online banking.

There are no recommendations in the report that registration for VAT should become mandatory online process, and indeed this does not fall within the aspirational goal, as this only refers to returns, rather than all tax processes. The VAT registration process is itself to be reviewed in the medium term (HMRC's report : Progress towards a new relationship), and it is expected that the online registration system will benefit from any simplification of the process in due course.

Corporation tax
The recommendation is simple. All companies should be required to file their company tax returns online, using XBRL, and make payments electronically for returns due after 31 March 2010.

There is no 'two stage' process here for smaller companies, but the later planned start date probably reflects the need for HMRC to develop systems for XBRL filing of both returns and accounts. Note that electronic payment will be mandatory in addition to filing.

As regards precisely when this will affect companies, it is a little difficult to predict. There has been a consultation separately about unifying Companies House and Corporation Tax filing for companies, which examined the proposal to shorten filing deadlines to either 7 or 9 months after the end of the period. The ICAEW's response to this consultation was strongly against shortening the filing deadline.

So, if we retain our current 12 months after the due filing date, year ends from 31 March 2009 will have to be prepared as XBRL submissions. If the deadline is shortened to 9 months, this will affect year ends from 30 June 2009, and if 7 months, years ended from 31 August 2009. Oddly, the shortened deadline actually delays the effect of this change for some companies.

Take-up of online facilities for Corporation tax, which are not currently XBRL oriented, is again very poor, which means that most companies will have to make the move to online at some point in the future. All companies will, however, have to migrate to new technology in order to fulfil this objective. Software companies have been working with HMRC for some time on the necessary architecture to achieve this goal, but there is still some way to go with this. To achieve Lord Carter's testing proposal (see below) systems will have to be ready and tested at capacity by 31 March 2009 before this phase can 'go live'.

Payroll function
Employers are already in the process of moving to mandatory online returns for payroll year end, so Lord Carter's proposals deal with in-year filing by employers. The forms identified in the report are forms P45 and P46, which affect both leavers and joiners. These will be required to be filed online as follows :

  • Large and medium sized employers (using the current threshold of 50 or more employees) will have to file these forms online from 1 April 2008 (surely Lord Carter really means 6 April!), and
  • Small employers will be required to file these forms online from April 2010 (once again the date given is 1st, but we should expect that tax year 2010/11 is meant).

While this will not be a problem for employers, as it is quite a short step to extend online year end to include a couple of other forms, there are some odd aspects to this proposal.

First, there are other mandatory forms, such as P46(Car), which must be submitted on a quarterly basis if there are company car tax changes. There appear to be no plans to bring this within the online system. Next is the glaring omission is of forms P11D and P11D(b), which although part of the year end process are not affected by the current online rules. These also appear to have missed Lord Carter's radar, and so will not presently come within the online programme. However, if the aspirational goal is to be achieved, some rapid thought will be needed on P11D's.

There is also no intention to bring payment of PAYE within the mandatory e-payment rules. We already have mandatory e-payment rules for the largest employers (those with 250 or more employees) but these were introduced to secure compliance and prompt payment, rather than as part of an overall e-strategy. What would be of concern is that if this system, and the associated penalty system (known as surcharges) were extended to smaller employers ' the penalties are the most draconian we have within tax today as some large employers are finding to their cost!

Lord Carter did take on board criticism about HMRC's current online services, and concern about testing and has made several very encouraging points in his detailed report. Paragraph 8.1 says 'The most important thing that HMRC needs to do'is to focus on building robust services that can cope with high volume useage at peak times'. He also recognises the size of this problem in paragraph 8.2 "The current problems are not simply a matter of scale. '.the architecture underpinning some of the online services is now outdated and extra capacity cannot simply be bolted on".

He has therefore emphasised this and recommended more rigourous testing procedures to be built in, including testing all mandatory services at anticipated capacity 12 months before each implementation date. Each step should not go ahead unless this testing produces satisfactory outcomes. A timeline in Appendix 5 to the report (note amended in version 2) makes this process very clear.

So are you ready? Or can you be ready in time? These proposals are independent of the individual filing deadline changes, and are likely to go ahead unchallenged, so businesses must start making the mind shift to e-tax soon.


Replies (8)

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By tomtrainer
15th May 2006 12:29

Accrediation of On-line Filers
Wasn't there also something about requiring HMRC accreditation to file on-line? Wouldn't this mean HMRC could withdraw your accreditation to file on-line if, for example, you resisted unreasonable fishing expeditions, or they had some other grudge against you?

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Rebecca Benneyworth profile image
By Rebecca Benneyworth
15th May 2006 20:23

Only for agents, Tom
The approval process has only been recommended for agents, and yes indeed there are potential problmes with it, but HMRC will not "approve" individual businesses for online filing - you merely need to register, log on and file. Indeed this will become the ONLY way in which businesses can comply with the law in future!

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By John Savage
16th May 2006 08:03

Rebecca, you quote..
"So are you ready? Or can you be ready in time?..."

I don't think that the problem lies with whether or not businesses are ready. I think many are, or at least can fairly easily accomodate these changes in good time - businesses are used to adapting.

The question should be "Will the Revenue be ready". Judging by the fiasco yesterday (which may be continuing) for those trying to file PAYE returns, the answer is "extremely unlikely".

And as for adapting, the public sector just shows itself to be more of an unadaptable dinosaur as each day passes!!!

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By tomtrainer
16th May 2006 16:50

Approval of Agents
You would have thought they'd be hopping up and down about it, but they don't seem to be, do they?

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By Malcolm Veall
17th May 2006 11:22

Approval - instead of authority

The whole area of agent authority has been a complete shambles and is becoming increasingly complicated for HMRC as they take on responsibility for so many different forms of filing.

Are HMRC intending to move to accepting filings from approved agents without worrying about agent authority - ie just as now for PAYE end-of-year?

To Peter's comment, could not agree more. Filing penalties focus client minds, they would also focus HMRC's.

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Rebecca Benneyworth profile image
By Rebecca Benneyworth
16th May 2006 13:54

More from me
Tom, yes, that is the real concern with the proposals. I should think that the professional bodies will be hopping up and down at the thought of their members being "regulated" by HMRC. Your point applies absolutely to agents if this proposal is adopted.

John - I regard the evnts of about the last week as the best news since Carter, because it just goes to show that HMRC can't even get right what is mandatory now. It gives everyone the best ammunition to say "If you want us to do it, prove you can do it first". I am a supporter of on line everything in principle, but I have a business to run and like you have grave misgivings about exposing any more of it to the chaos that is HMRC computers.

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By petersaxton
17th May 2006 08:39

Given that HMRC can't deal with the volume of online submissions it's shameful that they expect accountants to deal with it.

If HMRC can't cope they extend the deadline. If an accountant or their client can't cope they get fined. Let's bring in fines for HMRC which are paid directly to the accountants or their clients.

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By tomtrainer
16th May 2006 09:53

Approval of agents
Rebecca, the same applies: will they be able to refuse approval for agents who they don't like?

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