Filing returns electronically
24. The Department encourages all taxpayers to file
their returns electronically. Electronic filing reduces costs
both for taxpayers and the Department and improves accuracy by
identifying simple errors through validation checks on the return.
The Department considers the cost of processing a tax return excluding
overhead costs is reduced from £22 to £13 if the return
is filed electronically, by eliminating the costs of data entry
and of rectifying simple errors made by taxpayers in completing
the form.[66]
25. The Department has a target to obtain 35% of
Self Assessment returns electronically by 2007-08, with an interim
target of 25% by 2005-06. It achieved 12% in 2003-04 and
met its forecast of 17% in 2004-05 -just over 1.6 million returns
submitted electronically. Electronic filing in the UK is lower
that in some other countries, for example the United States has
achieved 44% and Australia 83%. To increase take up of online
services the Department is targeting groups with high potential
to file electronically through e-marketing campaigns.[67]
It has offered limited incentives, such as performing the tax
calculation on behalf of the taxpayer irrespective of when they
file their return, to encourage self assessment filing on-line,
whereas it has used financial incentives to encourage small sized
businesses to file their employer returns electronically.[68]
It has a mandatory regime for employers with 250 and more employees
to have filed PAYE returns online.[69]
The review by Lord Carter[70]
of e-filing is expected to suggest ways in which the Department
can increase e-filing.[71]
26. The Department acknowledges that taxpayers want
a reliable service. But over the weekend of 29 and 30 January
2005, when large numbers of people were seeking to file by the
31 January deadline, the online filing service did not operate
properly. Around 80,000 people did not get a message to confirm
they had submitted their completed return and they were therefore
unsure whether their return had been successfully filed. HM Revenue
and Customs gave those affected a two week extension to file their
returns. It has reviewed the problems experienced to identify
the causes and prevent a recurrence. While it has increased the
scale of its web-based technology, the Department cannot provide
an assurance that similar problems will not occur in the future
given the high number of returns that are filed on the 31 January
deadline.[72]
27. There are major peaks in the workload for the
Department around the two filing deadlines of September and January
each year (Figure 2), which increases the Department's
costs. Taxpayers are increasingly filing tax returns later each
year - around 25% within two weeks of the January 31 deadline.[73]
This brings a higher risk of errors in processing as the Department
seeks to process these returns by the end of March so that it
can take account of the information in sending out the following
year's tax returns and in issuing tax codings for the start of
next tax year. The Department encourages people to file by the
end of September with the incentive that the taxpayer will not
have to calculate the tax and if the taxpayer files on-line this
facility is extended to the end of December.[74]
Figure
2: The flow of Self Assessment returns for 2002-03 filed during
2003 and 2004
Source: C&AG's Report, HM Revenue and Customs:
Filing of Income Tax Self Assessment Returns (HC 74, Session 2005-06)
28. Experience of other tax authorities suggests
that HM Revenue and Customs might consider more fundamental changes
to the filing deadlines to reduce costs and errors. Taxpayers
in the United Kingdom have 10 months to file their returns whereas
overseas tax authorities typically allow taxpayers only three
to four months.[75] Some
tax authorities tend to collect during the year a level of tax
that is likely to be higher than the final assessment and therefore
taxpayers have a greater incentive to submit returns promptly
to obtain the refunds owed.[76]
Getting returns in earlier by bringing forward the January deadline
to the autumn, or setting differential filing deadlines for different
groups could smooth the peaks in workload and help to reduce errors
in processing and setting tax codes.[77]
29. Sending out the returns later would also ease
some of the pressure on the Department to finish processing the
previous year's returns by the end of March, and the forms would
also reach people when they are in a better position to complete
them.[78] Lord Carter's
review is considering a range of options for changing the dates
when returns are sent out and the time allowed for taxpayers to
return them[79] [80]
and the findings of the National Audit Office's Report. The Department
considers that any change in filing dates would need to reflect
the differing circumstances of taxpayers, some of whom have more
complicated financial affairs. It had not undertaken a cost benefit
analysis of the various alternatives, but it intends to develop
the management information needed for such analysis.[81]
30. Differential filing dates for paper and electronic
returns are in place in ten of the 30 Organisation for Economic
Co-operation and Development (OECD) member countries (Australia,
Austria, Canada, France, Greece, Iceland, Ireland, Italy, Netherlands
and Norway). In addition the United Kingdom has the most generous
return filing dates for self calculating personal taxpayers of
any OECD country. The Department has provided evidence to Lord
Carter to inform his review. This outlines several options for
differential filing dates such as moving the Self Assessment filing
deadline from 31 January to 30 November of the preceding year;
proposals for introducing a paper filing charge which would apply
after a certain date while still retaining a late filing penalty;
and changing the cut off date when the taxpayer does not have
to calculate the tax. The Department considers that differential
filing would increase the take up of online filing to 57% in the
first year.[82]
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