HMRC's stealth taxation through technology

The Revenue is introducing a new requirement to force agents to submit company accounts on-line in XBRL format from April 2011. Let me quote from their website:

“Company Tax Returns and XBRL

XBRL stands for Extensible Business Reporting Language, which is an international standard designed for business financial reporting.
At the moment accounts and other attachments to online CT600 returns can be sent in PDF format. From April 2011 (and for all CT600 returns due after 31 March 2011) we expect that all CT600 returns will have to be sent online, and will have to include attachments using the XBRL format.
You don't have to wait till 2011 to change to XBRL, and we recommend you consider doing so before it becomes mandatory. Later in 2009-10 HMRC intends to introduce a CT filing product which uses XBRL (this will be aimed at smaller, unrepresented companies), and to introduce a new main CT Online service. Other software developers have introduced or are working on products which use XBRL.”

I find this very news disappointing, especially with the short time-scale. I assume that behind this is an intention to make company accounts more accessible to staff within HM Revenue & Customs, and will help their cost-cutting. The justification is the report by Lord Carter on HMRC on-line services amongst other things. Lord Carter had to revise his proposals on individual taxpayers' Self Assessment deadlines following a furore back in 2006 that they were impractical. It would be useful if we could have just a little more time to make the change.

Self Assessment itself was introduced as a cost-cutting exercise, though it increased the cost burden of compliance for taxpayers.

The effect of the new requirement for XBRL format is to transfer further costs to taxpayers. The increase in software costs for tax agents will either have to be passed on to clients or the agents will have to bear them. No doubt the specialist tax software providers will have their developers working furiously to be ready for 2011 and they will need to charge the end user. Unfortunately the change will amount to a stealth tax even on those businesses which are not in profit. I believe in value billing, but increased overheads in software costs do not provide value for the agent or the end-user business. It is very difficult to provide the best value to clients whilst having to dance to the Treasury's discordant tune.

© Jon Stow 2009

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Ulterior motives and deadline woes

Well, the deadline for submitting paper tax returns for 2007-08 has passed with Halloween, and with it the Government’s trick or treat. The trouble is that this messing around with deadlines really is a trick. We have until 31st January 2009 to submit Self Assessment Returns online, and the real reason for the earlier deadline for submitting paper ones is to force online submission to save costs. HM Revenue & Customs probably hoped that people would not get their acts and papers together by the end of October, and would be forced to investigate the online process, either doing it themselves if computer literate, or otherwise having to employ an agent. Then they will be locked in for the future to the online system.

Now, as an agent this will bring me more business, but the truth is that HMRC have got their cost cutting in early; they have already cut so many staff and are so short of resources that they take a long time to process paper returns. It is known that the Sefton office in Bootle is months behind in dealing with paper returns. Even where returns have been submitted for several back years following discoveries by HMRC of possible undeclared income, they are still taking weeks and months to compute liabilities. They used to be so hot on that, but trained staff who understand tax technicalities are in short supply in HMRC.

I feel very sorry for the staff that have to answer the phones. None of them knows anything about tax and consequently each has to take a lot of flak. We are not allowed to talk to those who actually understand and do real case work.

The deadline change for paper returns suggested by dear Lord Carter was just a ploy to get returns submitted online and get the Revenue computers to do all the work. Yes, it saves taxpayers money but it does not help the older taxpayers or those who are not used to computers; in the main it will cost them money to have their tax affairs sorted out.

Has the Government and HMRC been entirely honest about this?

Tax Returns and Crimewatch

People in my business have been wrestling with a problem outside our control for the last couple of months, and that relates to Tax Returns. For a few years, now, HM Revenue & Customs (as it now is) has been encouraging everyone who files tax returns to “do it on-line”, and especially tax agents such as my firm. This will be the fourth year we have filed clients' tax returns on-line, and by last “tax season” nearly all the problems had been ironed out. Most agents use third party software to file on-line, as the Revenue's own system is very cumbersome and involves everything being entered whilst connected to the internet, and with an irritatingly short time of inactivity before one has to re-log in. Those agents involved in the last mad rush on 31^st January 2008 had little difficulty in filing on-line as their data transmissions went through even though the server for the Revenue's own filing software crashed on the vital day. So of course, we agents were reasonably happy, though we could not at that time access details such as what our clients had paid on account.

However, HMRC had commissioned a report from Lord Carter (see here) as to how things should be done in the future. There have been changes because of representations mainly by the professions involved, but as a result of this, paper personal tax returns have to be done by October this year though the last filing day for on line returns is still 31^st January next.

One curious recommendation which has stuck is that all facsimile returns have to be in the Revenue's own PDF format so that paper ones can be scanned in using OCR. One can see the point if we are posting paper returns, but actually we are supposed to transmit the details electronically, so the logic defeats me. Anyway, what has happened is that the returns have been completely redesigned to fit the paper PDF format so that the facsimile returns we agents used to send to clients for approval are no longer acceptable to HMRC (even though we used to PDF them anyway). Consequently this has meant a complete rewrite of the software by the third part providers. Well, that's their job of course, but who ends up paying for this?

Anyway, the software people have done pretty well, but guess what? HMRC's software for processing the on-line transmissions has all sorts of problems, tax returns are getting rejected for no sensible reason and time is wasted by agents on the telephone to their software support people who are swamped. One of the most stupid errors is that the tax return says that if sole traders have a turnover of less than £30,000 then they do not have to detail their expenses but just lump them in one box. However, HMRC will reject a return done on-line on this basis even though one is following the instruction to the letter.

It all seems to be change for the sake of change, or a result of that other bugbear of corporate and government-speak “modernisation”.

This bring us to Crimewatch, the June episode of which was shown on BBC1 this week. For years it was presented from a studio by experienced broadcasters and whilst a little formulaic it held interest because of the material but also because of the attention to continuity and minimal distraction. So, some bright spark at the BBC obviously decided to “modernise” it, get rid of Nick Ross probably because he was “old”, and change the compelling and considerable journalist Fiona Bruce for Kirsty Young. Not content with that they have scrapped the studio and present the programme from some sort of warehouse with scaffolding and gantries as furniture, they cut between various non-professional broadcasters who are or were police officers but don't know how to talk to a camera, and keep having different segments by these people in different parts of the warehouse. Poor Kirsty Young, an experienced broadcaster herself stumbles round this dark edifice and at times seems as bemused as many of we viewers at home. The programme could be interesting if the content were well presented, but its earnest production is not entertainment and some of us are going to switch off.

My lesson for the BBC and for HM Revenue & Customs? If it ain't broke..........

Post-holiday blues

I have been a bit quiet of late. You could understand that a number of developments in the UK tax world have pretty much left me speechless. We have had the Budget, largely flagged in advance with the capital gains changes etc. but the income-shifting fiasco has been put on hold. Unfortunately it is not a dead duck and will reappear not much changed, I suspect; a serious canard if ever there were one.

We tax advisers have a job squeezing our holidays in these days but we managed a couple of weeks in May in the steam room that is Florida at this time of year. Whilst I had my back turned, Darling had another Budget to compensate those who lost out from his organ-grinder's announcement of the abolition of the 10% band – well, one of them – in the 2007 Budget. Everyone knew about what had happened last year, except apparently the Government's own MPs. The give-away will apparently cost the Exchequer £2.7 Bn. This will be why the Government probably secretly welcomes the high oil price, at least in the short term, because of all that lovely extra tax it is collecting. After all it cannot really borrow any more, can it? Oh, well, I expect you are right.

Anyway, time is money for businesses, so I am especially upset at the problem we are having preparing and filing Self Assessment Tax Returns on-line for 2007-08. I said at the end of last year that the HMRC on-line system was much improved. So what happens? Wholesale change at the behest of Lord Carter and all the work and progress over the past few years has gone out of the window. I have lost time with the software not working, my supplier is over-stretched and work is not getting out of the door as I would like (any of my clients reading this need not worry; they will still get the same good service but it is just costing me more at the moment). If it ain't broke.....