Comments from ACCA to HM Revenue and Customs (HMRC, November 2011).
Research by ACCA (A Digital Agenda for European SMEs, ACCA November 2011), has indicated that while the benefits of the digital agenda to SMEs are well recognised and well rehearsed, adoption is by no means universal. The principle barriers observed are lack of awareness and security concerns. While professional advisers can play an important role in helping small business overcome both these concerns, it is increasingly the case the small business instead seeks to displace the burden of compliance in the digital arena by engaging professional advisers to provide that service for them. The benefits to resource constrained SMEs of avoiding the need to invest in hardware, software and training are complemented by the benefits to advisers of economies of scale in facilitating their clients' access to digital services.
It is crucial that HMRC's drive to engage small and medium sized business with the digital agenda is properly focused, and that the tools provided are designed for the convenience of their users. As more and more services require digital communication with government, so the cost to an individual business of complying with all the necessary security measures, and learning how to use them, mounts and businesses are driven by commercial imperative to seek outside assistance, with the result that in many cases the user of the actual digital interface will be the adviser rather than the taxpayer.
This presents an opportunity for HMRC to streamline its offering for tax agents and provide a fast and efficient online service in line with the recent statements regarding Agent Strategy and HMRC service standards. HMRC have been quick to acknowledge the value of agent input in the taxpayer relationship, and a system which encourages agents to offer low cost and efficient assistance to businesses in the earliest stages of their existence would have significant benefits for all parties. Business will be encouraged to build a relationship with professional advisers. Advisers will be able to provide their services at a lower cost as the burden of administration falls. HMRC will benefit from receipt of correctly completed forms and information in a timely fashion.
However, ACCA is gravely concerned that this opportunity is being missed. While we recognise that significant investment has been made into creating digital engagement channels for unrepresented taxpayers who have no knowledge of the tax system, and often limited technical knowledge, this consultation addresses the impacts in the small business taxation arena where users of HMRC systems are often paid professional agents who are considerably more knowledgeable about both tax and IT. The proposed channels for digital communication are not so much focused upon small unrepresented businesses as designed exclusively for them and with no apparent consideration at all for the needs of agents or other regular users. Despite repeated requests from all the main professional bodies, HMRC have declined to provide any 'stripped down' agent specific versions of any of the forms within the (soon to be mandatory) One Click digital interface. Agents will be highly concerned by the administrative burden of navigating a site designed for first time users, with all its attendant safeguards and guidance screens, and will be forced by simple economics of survival to charge for their spent time, which will make their services less attractive to business. We are disappointed that HMRC have failed so far to engage meaningfully with the professional bodies in introducing basic features which are fundamental to the success of online services.
For those taxpayers who are willing and able to engage directly with HMRC through digital channels it is essential that their concerns about security are addressed. The magnitude of this task should not be underestimated, and while we are confident that HMRC recognise the importance of IT security we are concerned that budgetary constraints may limit their ability to make the necessary reforms and maintain the system against the ever evolving threats of cyber crime. The issue is of course one of perception and trust as much as of reality, and HMRC will have a further challenge in developing public confidence in web based systems generally, and in particular of course their own offering.
HMRC would welcome views on the balance between a statutory and non statutory approach to making the digital channel the default option for obtaining CT information
ACCA believes that for business the only practical difference between a statutory or non-statutory implementation of registration through the digital channel will be the sanction for failure to comply. In the case of statutory mandation, there will presumably be some form of sanction to dissuade business from using any other channel. A non-statutory approach would rely upon the attractiveness of the digital channel to business for it to displace the current paper format.
From HMRC's perspective, a statutory approach would however reduce the incentive to create a user friendly digital channel, and seems at odds with the concept of 'active encouragement' towards digital.
If respondents favour a non statutory approach, we would welcome suggestions on the most effective way this might be achieved
HMRC has itself identified the requirements of a successful digital offering in its analysis of the success of online filing for ITSA. The key is a stable, responsive service that people can trust. It is worth noting that beyond the altered filing deadlines, no particular effort has been made to make use of paper impossible for ITSA, in contrast with the suggested options at para 3.5 of the consultation document, which go beyond actively encouraging digital and into the realms of discouraging paper filing. To the extent that HMRC's proposals would involve deliberately casting unrepresented taxpayers adrift in a sea of legislation and hoping that they might identify the correct information, and then supply it to HMRC in a useable format, we cannot see how this could possibly assist HMRC. The likelihood of receiving a useful submission would plummet.
In the particular context of filing business information, ACCA is concerned that HMRC has not fully researched the mechanisms by which this information is provided, and the role of professional advisers in assisting company officers in completion of a form which demands relatively arcane technical details. The level of knowledge required to correctly identify the company's return periods will be beyond the vast majority of business owners. Even with the lengthy guidance required to correctly complete the form in place, we are concerned that businesses may make errors if trying to complete the form themselves. Where a professional adviser is involved the number of errors in submissions will be significantly reduced, as will the time taken by the business in dealing with the form.
Receipt of accurate forms will reduce the time taken by HMRC in dealing with errors. We would question the value to business of learning how to complete this relatively complex form, which need be completed only once. This is particularly relevant given that a large proportion of such registrations already involve the input of professionals who have invested the necessary learning time and can accordingly recognise a sensible return upon it, leading to efficiencies both for them and the tax payer (and of course HMRC who will benefit from a higher quality of returned forms).
We would welcome views on getting the balance right between the spirit of Digital by Default and providing an 'Assisted into Digital' alternative in a narrow range of cases
ACCA is concerned at the apparent disconnect between the Cabinet Office message of the spirit of Digital by Default, which is broadly that we will all use digital because it is demonstrably superior to the alternatives, and the message coming through from this consultation document of a system where businesses are forced into the digital channel as much by degradation of existing services and legal imposition as by provision of a viable digital channel.
ACCA research indicates that among those who do not use computers at all, lack of awareness is the main reason for continued failure to take up the advantages of digital communications. For those who do have some internet awareness, security fears are the main barrier to further commitment.
These should therefore be the focus points for HMRC assistance into digital. The issue of those unable to access the internet at all due to lack of reliable broadband coverage across the UK will be outside HMRC's scope as far as assistance into digital is concerned. For those with low or no awareness of digital channels, HMRC will of course face the further hurdle that businesses who do not utilise digital communications for their business activities will question the need to divert scarce resources towards expensive and hard to maintain equipment purely to satisfy an administrative requirement. Currently, the only investment required to communicate with HMRC is a cheap biro, and a supply of stamps. The ideal solution would be for HMRC to provide secure terminals at their offices, or other government premises, which taxpayers who do not possess their own computer can use with a greater comfort as to the security of that equipment than would be the case in for example a public library. We can understand that in the current economic environment budget constraints will be cited as just one of many factors making such a proposition impracticable. However, the same budgetary constraint argument holds true for small business, and imposition of Digital by Default is of far less importance to them than it is to HMRC. The advantage of HMRC physically providing a secure channel of digital information would be that it would address the concerns of those who are digitally aware but concerned about security, and would also generate significant amounts of publicity in itself, thereby reaching those whose awareness is currently low.
Looking to more practically achievable aims, HMRC's systems should be designed for ease of use, and to be compatible with as wide as possible a range of hardware and software configurations. HMRC should provide consistent messaging highlighting specifics of digital benefits - instant access to guidance, reduced processing times, automatic provision of taxpayer copies of submissions etc. (This of course presupposes that the system will be quicker for taxpayers than paper, and that it will provide a useable 'audit trail' for users.)
Are there particular groups for which CT Digital by Default will impact more heavily? What mitigation strategies might assist?
Inevitably, those impacted most heavily by Digital by Default will be those who cannot access the internet at all. Given that the physical side of the wider Digital by Default agenda will not see broadband access rolled out to the UK until 2015 (assuming no delays to the current projections; under previous government strategy 2Mbit/s broadband was originally scheduled for rollout to the whole of the UK by the end of 2012) there will inevitably be pockets of the UK population who will not be able to access HMRC's online services for three further years. HMRC could usefully use that time to educate and inform all taxpayers of the benefits of digital, while learning from user feedback on those services currently available what areas it is good at and which areas it needs to improve upon. Even once fast broadband is reliably available to every address in the UK, HMRC should still allow a period of grace for those who have never used/been able to use computers for business before to become accustomed to the new processes.
HMRC would welcome views on the considerations that should be taken into account when deciding the period for which the minimum tagging list for accounts should continue to apply?
HMRC should consider the current burden on business of attempting to comply with the minimum tagging list as opposed to 'full tagging', the likelihood of changes to accounting standards which will impact upon the tagging requirements and finally its own ability to make use of the information gathered from tagging.
HMRC would welcome views on these two alternatives
The second alternative is preferable.
What might be an appropriate specified amount, under such a proposal? Would £250 seem a sensible level?
£250 seems too high as a base level. HMRC clearly believe £100 to be an acceptable minimum for businesses to process transactions, as they require instant payment of penalties in this amount. However, for many of the smallest businesses, who are also those most likely to have a small discrepancy which they are keen to recover, even that amount can make a noticeable difference to short term cashflow. A level of around £20 or £25 would be more appropriate for small and micro businesses.
HMRC would welcome views on how to get more companies to supply details that would allow them to receive electronic payments for any amount as a default without compromising any essential security or other considerations
Unfortunately, for many businesses the extremely high profile instances of HMRC data loss have left an indelible impression. Further administrative issues, such as the failure to anticipate the level of ITSA repayments resulting in late issue of returns (an instance which would of course not arise under the digital channel) and the continued clean up of PAYE records under NPS have caused immense harm to HMRC's credibility. This alone would be significant; coupled with the findings of ACCA's research that for SMEs which already operate digitally security is their gravest concern it suggests that time and rebuilt trust will be the only way to persuade business owners to share their most critical information with HMRC.
Are there circumstances where HMRC should not require an email address as part of a company's designatory details?
Email is not currently a mature enough part of corporate communications to be a requirement of registration with HMRC. The existing postal infrastructure is understood by business and HMRC alike. Mechanisms exist to confirm postal addresses, and for more or less rapid and secure means of delivery. Minor errors in addressee details are generally easily resolved, and where an individual moves on without a change of details being supplied to HMRC their successor will typically deal with any post addressed to them.
Similar conventions have yet to be established for email, so it is not suitable as a channel for secure and reliable communication of confidential and/or business critical information. The transience and fragility of email communications compared with physical post mean that only those who are prepared to invest time and effort in setting up secure systems and protocols, and maintaining them, should be trusted to use email for business critical communications.
If business is willing to communicate with HMRC by email then this should of course be encouraged subject to the necessary security precautions being taken. However, while this can be encouraged, businesses should not be forced to provide contact details which may not be appropriate for their set up or business model.
All this of course is subject to the proviso that failure to provide an email address to HMRC when registering through the (default) digital channel will make it impossible for the company to receive confirmations etc. Clearly where the registration is dealt with by an agent this will not be a problem, as most agents have appropriate email handling mechanisms in place for it to be an appropriate channel of communication. However, HMRC should be clear about the use to which such an email address will be put, and ensure that the registration pages make this clear to the tax payer.
HMRC would welcome views as between a statutory and non statutory approach to making the digital channel the default option for registering for ITSA
The same considerations apply as for incorporated businesses, but with the added complication that individuals may confuse registering as a trader with other forms of registering to use HMRC online services for tax. Extra thought must be given to the messaging on the website to ensure that unrepresented individuals do not inadvertently register themselves for taxes unnecessarily.
If respondents favour a non statutory approach, we would welcome suggestions on the most effective way this might be achieved
As with corporate taxes, a useable and user friendly system will be the chief requirement. The availability of the portal, and its benefits should be publicised. Previous on line filing services have made use of financial incentives to encourage take up, and while these can never be a viable long term feature of a Digital by Default system, they may have a role to play in the short term as an extra prompt to taxpayers. Clearly in difficult economic times the Treasury will need to be comfortable that the extra HMRC administrative costs saved outweigh the financial cost of providing the incentive, but set at a relatively low level, say £20, this should remain feasible.
We would welcome views on how HMRC can best provide an 'Assisted into Digital' support
While it should not necessarily be the place of HMRC to provide basic advice on how to connect to the internet, or operate a web browser, inevitably many of the queries they receive from first time computer users will tend to be more of this character than issues arising specifically from the tax elements of the process. HMRC will of course need to provide well publicised telephone helplines to assist new users in completion of the individual boxes in forms, but will need to ensure that staff are trained to recognise and resolve (so far as possible) basic 'computer literacy' issues as well as tax specific queries - eg confirming with a taxpayer that they are looking at the correct page by locating the address bar and checking the URL, or recognising common connection problem error messages.
Of course it is not HMRC's responsibility to fix problems with users' equipment, but refusing to help tax payers in identifying the cause of their problems will be counterproductive and do further harm to HMRC's already tarnished reputation. Given that helpline staff will themselves no doubt be using HMRC's own computer systems, the level of training needed should be minimal, and be more a question of sympathy to the needs of taxpayers rather than providing IT technical support.
Are there particular groups for which ITSA Digital by Default will impact more heavily? What mitigation strategies might assist?
Broadly similar considerations apply as for corporation tax.
Are there circumstances where HMRC should not require an email address as part of the requirements for registering for ITSA?
As with corporation tax, an email address is a fundamental requirement to receive notifications from the One Click system. However, given the infancy of the communication medium, HMRC should not be attempting to enforce communication by email in all instances.
HMRC would welcome views how best to proceed in this sensitive area (cessation) when one timely notification could save much wasted administration and circumvent considerable anxiety
While it is true that a single early notification could reduce later administration, it is not clear from the consultation how the process would operate, beyond being digital. The same concerns around erroneous application by unrepresented tax payers apply as for registration, with the added concern that an incorrect withdrawal from self assessment, eg where an individual ceases to trade but retains certain income producing assets of the former trade, would result in a greater loss of tax and administrative burdens than an unnecessary registration.
How can HMRC best ensure only those registering for self-employment go to Registration Wizard?
It is difficult to see how anything other than a well designed website with clear information and gateway questions could fit the bill, given that the aim here is exclusion rather than inclusion. However, it is also unclear why Registration Wizard should not in time be adapted to enable other classes of taxpayer to inform HMRC of the existence of sources of income which have come within the charge to tax.
We would welcome views how best this might be handled (cessation) when one timely notification could save much wasted administration and circumvent considerable anxiety
While there is perhaps less likelihood of mistaken deregistration for PAYE, the same concerns about the process, and who is responsible for actually making the decision to deregister, apply. ACCA is also concerned that such a mechanism may in any even the of limited value unless other aspects of the PAYE system are overhauled at the same time, as we are aware of instances where even a final return and written notification to HMRC has not prevented subsequent issue of penalties and payment demands in respect of closed schemes.
On the basis of information in this document do you have any comments on the assessment of impacts?
As the introduction above makes clear ACCA is concerned that HMRC's impact assessment has, in the absence of time and funding for detailed research, not been based on a sufficiently complete picture of who completes tax forms, which will underpin any realistic assessment of the impacts of changing them.
Until further work is done in this area, any estimates of proposed costs and benefits should be treated with caution. Even once potential benefits have been identified, much will depend upon actual execution of the projects. A commitment to engaging as completely with the needs of the agent community as has been done for the needs of the unrepresented tax payer would go a long way to ensuring a successful rollout of Digital by Default.