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Mandatory e-filing on the way?

17th Oct 2005
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The announcement that the Electronic Lodgement Service was to be withdrawn and the furore that this prompted has overshadowed a potentially far more damaging development. And whereas the withdrawal of ELS will affect some practices, this development will affect potentially almost every practice in the land.

HMRC are developing a new tax return. During the development of this return, which will be simpler and easier to complete, it has been made known to the software houses that no authorised facsimile returns will be approved when the new return is introduced. The plans are to introduce the return for 2008 ' in just over two years time.

Currently software providers have to submit their printed output for approval by HMRC before being able to sell their products. HMRC approves the printed facsimile return as acceptable for filing on paper. By removing this approval step it means that returns produced by your software cannot be filed with HMRC. This will mean in practice that you will either have to submit electronically, or alternatively transcribe entries onto HMRC issued forms manually. Clearly, practices will neither wish to complete manual returns, or indeed have the capacity to do so.

So in advance of Lord Carter's consultation conclusions, it would appear that someone in HMRC has decided that agents will be forced to file electronically within a relatively short space of time.

This 'back door' compulsion to file electronically, without even the decency of a consultation on this matter is high handed and likely to enrage the profession far more than the withdrawal of ELS. Capacity issues spring immediately to mind. At present about half of all tax returns are completed by agents ' probably around 4.5 million a year. The numbers filed electronically by agents is a small proportion of this, but by forcing agents to file online, HMRC can meet Government targets for e-business easily. This is quite probably the explanation for this decision. The worry, however, is that the well known problems with capacity will be exacerbated by such a sudden increase in e-business.

So, is this a 'done deal'? Is there anything that we can do to object? I'm sure that such a decision is reversible, more so than the decision to terminate ELS. The question is, should we be objecting to this, which might well be the outcome of the Carter review in any case? Accepting the conclusions of a high level study in which the views of various interested parties were sought (and I hope taken into account) is one thing, but this is a decision which affects us all which has been made without consultation or indeed consideration of the significant effect it will have on our businesses.

Don't forget that resisting compulsory online filing is pointless if the Government decides that it is desirable. The powers are already with us to allow e-filing to become mandatory for any tax return, purely by secondary legislation. But forcing electronic submission on one class of filers is a different matter. This could not be done by current legislation, and politically the Government is very unlikely to force citizens to file electronically, but is more likely to offer incentives such as more time to file or pay tax if the return is filed over the internet.

As an online filer myself, I can hardly complain about being forced to do something I am doing voluntarily, but the high handed treatment of agents by HMRC in this is disrespectful and gives me a very uneasy feeling. What else is in store?


Replies (16)

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Dennis Howlett
By dahowlett
17th Oct 2005 22:48

No sympathy
I'm going to get flamed for this but whatever. I found Rebecca's initial piece confusing. Then as responses came in I got more confused - as might be apparent from my last comment. Then I had a conversation with one of the respondents.

It now turns out, OCR issues aside, HMRC is not cognisant of the practical issues surrounding compliance, the costs of increased bureaucracy (new money-laundering rules for example)and the difficulties in getting remunerated for the work involveds. Ahem - sorry. This is not a reason to have a go at HMRC. This is an opportunity.

As a representation of life on the ground, this doesn't sound like anything I've not heard before. There's a simple answer - innovate. There's little point whining about change if it is inevitable. Adapt. Do something extraordinary for your clients. (I've got a lot of ideas there but this isn't the place.) For which see here:

Don't misunderstand me. I am a firm advocate for clients. Without them we're all dead. But I see little point in worrying about something that is likely to happen anyway. An appropriate response requires an alternative look at changed conditions and an understanding of your ability to respond.

Of course there are practical issues at stake. These have to be aired, understood and hopefully acted upon by government. HMRC should be actively persuaded to ensure a smooth transition. By all means carefully and analytically explain things are tough. That you're at the sharp end of a place where clients resent compliance and the why of their resentment. Put in those terms, you're client advocates. Which is much harder to ignore than professional ire.

At the end of the day, HMRC need client cooperation. Not ours. When HMRC gets that, then things change. But in the meantime...

You could:

* Organise a petition on behalf of your clients.
* Tell your professional colleagues of your intention and invite them to raise their own petitions.
* Attend FASB meetings and put your case.
* Get local press attention in adjoining towns. That helps make it a national matter.
* Take out a full page in each of the Daily Telegraph, The Times and FT to make your clients' case. If you can't afford it then get your professional colleagues to chip in. I'll write the copy for you. FREE.
* Tell your clients what you are doing on their behalf and how you are investing some of the profits you make into their future.

Thanks (0)
17th Oct 2005 17:14

The unrepresented taxpayer is underlying issue
As HMRC will tell us the problem is not of the represented 4 million taxpayers but with the other 4 million unrepresented group. That group make more mistakes when filling in a return especially one as complicated as the SA100 and moreover are remarkably hopeless at self computation. Every error requires a follow up letter and adds to the delay in resolution.

It has always been the case that the represented group are less prone to error whether or not they file online.

Added to the aforementioned problems, every paper based submission has to be transcribed for the HMRC's systems - with the possibility of introducing new errors and now the picture becomes clearer.

Clearly more and more exhortation to file on line will only persuade a limited further number of the unrepresented group so paper returns are with us for some time to come. Equally many tax returns cannot be made online because of limitations in the internet (and ELS!) service - MP's etc.

Opitical Character Recognition makes good sense - provided it works, which HMRC can tell us from the SA200 experiment this season. If returns are filed by 30th September, the Revenue would prefer to calculate the tax liability.

What does it mean for the tax practitioner? Not that they will be forced to go online, but that we need to agree a form of a return which can be given to the clients of the represented group - let agents and software houses discuss it with HMRC to agree a way forward before 2008.

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By vmurrell
17th Oct 2005 15:53

I was there!
As the head of one of the software houses who attended the meeting with HMRC a few weeks ago I feel I should tell everyone exactly what was said.

HMRC intends to look at simplifying the current SA100. The form will be designed along the same lines as the short return, i.e. intended for Optical Character Recognition.

Many years ago I was advised by the Revenue that reason why they will not approve facsimile OCR forms is because the print area on (say an A4 page) can not be reproduced by Laser and other widely used printers, they just don’t address the whole are area of the page.

So the fact that the new form is OCR has led us to believe that the forms will not be approved for printed submission. HMRC confirmed this when the question was asked at the meeting.

When the software houses deduced this, I pointed out that this move was likely to be unpopular with Advisors and HMRC certainly gave the impression that they did intend full consultation.

Before we all get too worked p over this, perhaps we should ask HMRC to comment!

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By AnonymousUser
17th Oct 2005 11:03

The right direction - but it must be well managed
Mandatory online filing must be the right way forward and my reading of the above suggests this proposal could do a lot to improve filing in the future. But if badly managed it could be a terrible mess. And experience with the way HMRC handles these things does not fill me with confidence.

One interesting possibility is that the market could be opened to new software houses. At present some potential suppliers are put off by the high cost of complying with the ‘visual appearance’ of tax returns. If this requirement was lifted we could see more software competition and lower costs.

There are lots of ‘conditionals’ to mandatory filing. Examples include a greater willingness to issue UTRs (or accept online returns using a national insurance number), acceptance of all returns (eg R40) online and enabling online filing for prior years.

It’s easy to go on and I’m sure others will have their own ‘hit list’. Nonetheless, I’m inclined to give a cautious - very cautious - welcome to this proposal.

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By daveforbes
17th Oct 2005 11:47

is this any different from the SA200
Is this any different from the SA200 shortened tax returned issued last April ?

There is no approvals procedure for facsimilies of this. The only option is efiling or printing a long version SA100.

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By Robert Clubb
17th Oct 2005 11:53

Fine Example
As we already File By Internet, it won't be a problem to us, but many small firms still don't have any proprietory software for anything, let alone preparation of Tax Returns.

I suppose this is yet another classic example of HMRC 'Working Together' with the professionals.

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Stephen Quay
By squay
17th Oct 2005 12:02

Problem Returns
As a committed e-filer I have no problem with mandatory filing of returns but there are cases where a return cannot be filed electronically. For example a previous year return filed after 5 April or a complicated return that fails validation. What happens in these cases especially where a return is not received, only a notice to complete. Sound like more work and fees to be charged out for the extra bureauracy.

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By andyprentice
17th Oct 2005 12:56

back to scruffy then
perhaps a software house could develop tax software to print on official revenue forms, in scruffy text (Bart Simpson style), so beloved by HMRC staff that get to deal with scribbled, coffee stained forms.

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By John Snowden
17th Oct 2005 13:57

Can MP pages be filed electronically?
Presumably FBI will have to be made to cope with that rare beast, the Member of Parliament pages... I hope the development work will be considered cost-effective!

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By martinfoley07
17th Oct 2005 14:38

............I'm astonished............ responses thus far.

All respondents (and me and Rebecca!) use efiling in one form or another, and I would hazard that 90% plus of accounting web users do so (or at any rate, a far higher proportion than average). So, of itself, and subject to various technical matters and details, being made to efile will not create difficulty for "us" per se. That of course is true.

However, that is not the point that Rebecca is raising at all. She quite specifically points out it is in the Govt's power to very readily force use of efiling now if it so chooses.

She is saying, why should we believe it appropriate that all accountants/agents are required to efile, but not others? I believe she is 100% right, and that the apparent proposal is quite wrong.

I would not find it wrong if end categories of enterprise were differentiated e.g. if it were compulsory for all CT returns to be efiled. And of course we already have it with employers' efiling. I do not believe it is acceptable to differentiate on the aparrently proposed grounds - ie the route to filing.

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By wblewis
17th Oct 2005 14:49

Electronic filing of 64-8's
I am also a committed e-filer but as others have stated there are occasions that it is not possible. Prior and late filings when the 64-8 has not been processed. Perhaps we can efile the 64-8's. Working together is a joke!

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Dennis Howlett
By dahowlett
17th Oct 2005 13:03

Compulsion is never a great idea but...
Is this correct? The way I read this, if there is no approvals process then is Rebecca saying no third party form will be made available? There's no problem with this provided HMRC makes the API available to developers so they can auto-populate the return from tax return production software. Even better if they will allow batch updates (highly unlikely methinks).

The other part of this though is the question of load. HMRC might want to consider staggering return dates to allow for the inevitable demand spikes to its systems. This has worked successfully in France for years.

France is divided into a number of 'zones', each with different filing dates (usually spaced roughly 3 weeks apart.) The object of the exercise is to allow time to get returns through the system while minimising the potential for error from overloading. It doesn't work perfectly but it avoids a lot of problems.

It's a fair way to manage the situation but more important, it works.

There will always be exceptions but if this allows the revenue to quickly process the vast majority of returns I can't see an objection.

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By AnonymousUser
17th Oct 2005 12:32

Environmental issues?
I am in the process of adopting e-filing and believe it is the way of the future, though not yet perfect. But apart from the no doubt worthy issues of the appropriateness of compulsion, on-line capacity doubts etc, etc, should we spare a thought for the poor old tree? A large proportion (though not enough) of my clients receive a 1-page “Notice to File” instead of the usual long or short form plus numerous guidance books, etc as they have an agent to print it for them. Under the proposed system will HMRC have to start issuing a full pack to everyone again just in case the agent can’t or won’t file electronically? If so then there’ll be less trees and more post vans on the roads in April – all in all bad news for the environment. Have they thought this through or is it just a rush to achieve another target?

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By AnonymousUser
19th Oct 2005 13:41

What's The Fuss?
This is merely just one more sly step by this Government's immense body of breast beating, power mad Civil Servants (who can retire at 60). The policy which emanates from the top is focussed on centralisation and collectivism, and it is about nothing other than control. I is as simple as that.......

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David Ross
By davidross
19th Oct 2005 16:14

I think this is a storm in a teacup
Now that the Revenue supply all the forms in pdf format, we (and I suspect any other software houses with any sense) no longer have to go through the trouble of re-typesetting the forms. We just copy in the artwork and stick our data fields on top.

In this context, proof reading is a nonsense.

Wearing my other hat as an accountant, the fact is that local tax offices just do not bother to check that a form is in an 'approved' format. it seems as long as a form looks right, they process it. So the artwork approval process is a nonsense and the Public Purse can save the wages of those involved.

I don't believe for a moment that paper Returns will be banned outright any time soon (unless HMRC are going to make for instance old ladies get online !!! ????)

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Rebecca Benneyworth profile image
By Rebecca Benneyworth
17th Oct 2005 18:11

The use of OCR is the issue
I was aware that the reason for not approving a facsimile version was that the form would be OCR processed, and that structurally HMRC have an issue with control over user printed forms for OCR processing, and therefore do not approve printed facsimiles. This is exactly the issue. By deciding to go down the OCR route - and I agree, if I were at HMRC it would definitely be my answer to processing costs and errors, a decision has been made which has a significant effect on users. The only options for advisers are to file online or to transcribe manually onto HMRC issue forms.

We have seen this affect other areas of our work - originally with P35's, then tax credit claims and renewals, and finally with the new short return. My comments were intended to highlight this fact - that as HMRC move to use OCR more widely, someone needs to highlight the significant potential impact on advisers. Agents could be forced into mandatory e-filing by the back door.

I do know that HMRC are consulting about the style and content of the new return, as another accounting web article this week confirms, but I was not led to believe that the processing method was open for discussion.

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