Cross-border exercise of powers
Question proposed, That the clause stand part of the Bill.
Mr. Francois: I thank the Financial Secretary for his kind words and join him in enthusiastically congratulating both Mr. and Mrs. Gauke on their elevation, which is doubly deserved.
Clause 86 relates to the cross-border exercise of powers by HMRC. The explanatory notes state:
UK wide criminal investigations can raise complex issues around jurisdiction and the correct procedures and powers to use when gathering evidence and apprehending suspects. This clause clarifies how evidence can be gathered and suspects can be apprehended using powers that are familiar and acceptable to the court where any proceedings are likely to follow.
In light of that, there is a question that I would like to raise with the Minister. In the case of an HMRC investigation that spans more than one of the home nations, would there be a code of practice as to which jurisdiction the investigation and potential legal proceedings would take place under? The Financial Secretary in response to the previous debate intimated that a guidance note is now being drafted by the relevant prosecuting authorities and I am sure that the Treasury will be liaising with them on that. I should like to press him on this a little further while I have the opportunity.
There are many English residents who have their tax affairs dealt with by HMRC offices in Scotland, such as the one in Cumbernauld. Conversely, many Scottish and Northern Irish residents have their tax affairs dealt with in England or Wales. Given that, what would happen in the case of an English taxpayer who is in dispute with HMRC and whose only connection with Scotland is via his tax office in Glasgow? If the dispute then turns into a criminal investigation, could the English taxpayer be arrested and prosecuted under Scottish law? Would he have to travel to Scotland, hire Scottish lawyers or advocates and be put on trial in Scotland even though he ordinarily resides in England?
How does the Financial Secretary see all this working in practice? As he has already referred to a guidance note, which I think would be welcome under the circumstances, could he update the Committee on the progress of those negotiations and give us at least an indicative date, if not a hard one, for when that guidance note is likely to be published? I imagine that
Mr. Dunne: To endorse some comments made by my hon. Friend, who is shortly to become my European Friend, does this power give HMRC the option to choose in which jurisdiction it wishes to pursue a case against the taxpayer? If so, that would seem to put HMRC in a stronger position in seeking redress against the taxpayer. It would seem appropriate that there should be some safeguards to ensure at least that such a decision is taken with the agreement of the taxpayer rather than against the taxpayers wishes.
John Healey: It is important in this discussion to remember that prosecutions and the arrangements for prosecutions are now the responsibility not of HMRC but of independent prosecutors. That is the importance and the relevance of the guidance that I mentioned that will be drawn up by the Revenue and Customs Prosecution Office and the Crown Office in Scotland. They will work together on that guidance note.
Perhaps I can give an indication of how these matters are dealt with currently in practice, which I think members of the Committee might expect to see broadly reflected in the approach that will be taken in future. The Paymaster General set this out in a letter in August last year to the Chartered Institute of Taxation and it was reproduced in the consultation document. The practice is relevant in the sort of circumstances that concern the hon. Members for Rayleigh and for Ludlow.
In practice, the decision on where proceedings are to take place will usually be taken on the balance of conveniencethat is, where the taxpayer and the majority of the witnesses reside. That is how these matters are generally conducted now. As I began by saying, these matters are now for the independent prosecutors to decide, not HMRC and certainly not Government Ministers or Treasury officials. I hope that that gives sufficient indication and some reassurance so that the Committee feel comfortable about allowing the clause to stand part of the Bill.
Question put and agreed to.
Clause 86 ordered to stand part of the Bill.
Sitting suspended for a Division in the House.
Personal tax returns
Question proposed, That the clause stand part of the Bill.
The Chairman: With this, it will be convenient to discuss the following: Amendment No. 247, in clause 87, page 61, line 8, at end insert
or within a reasonable time thereafter when an electronic return cannot be delivered by reason of the failure or non availability of an official computer system as defined in Regulation 189 of the Income Tax (Pay as You Earn) Regulations 2003.
Amendment No. 245, in clause 87, page 61, line 8, at end insert
(c) on or before 31st January for a non-electronic return, if submitted by a person who is registered blind.
Amendment No. 246, in clause 87, page 61, line 16, at end insert
(A1) This section shall not come into force until the Commissioners have conducted an independent review of the security and reliability of the HMRC electronic filing system.
Clauses 88 to 90 stand part.
Government amendments Nos. 241 and 242.
Clause 91 stand part.
Given the number of clause stand part debates contained within the group, I intend to call the Minister first, to speak first to the group of amendments, and then allow the debate to continue from there, with the will of the Committee.
John Healey: We now move to a section of the Bill that examines and makes provisions for the filing dates and filing methods of personal tax returns. Clauses 87 to 91 introduce changes to the income tax self-assessment tax return filing dates. These changes flow from the report and review of HMRCs online services that Lord Carter produced for the Government. It was back in 2005 that my right hon. Friend the Paymaster General asked him to advise on measures to increase further the use of HMRCs key online services, to maximise the potential benefits that could be gained for the taxpayer, and also to ensure that sustained and efficient delivery of services resulted from that greater uptake.
At Budget last year, we accepted Lord Carters recommendations, and clauses 87 to 95 establish the primary legislation that will enable those recommendations to be implemented over the coming years, including changes to the filing requirements for pay-as-you-earn, VAT and corporation tax, which will be introduced in phases from 2009.
Clauses 87 to 89 introduce differential tax return filing dates for tax returns that are required for the year 2007-08, and then in subsequent years. Tax returns issued by HMRC after 6 April 2008 will need to be filed by 31 October 2008 for returns submitted on paper, or 31 January 2009 for returns filed online. Clause 87 sets out the changes to the existing filing date rules for personal tax returns that are completed primarily by individuals, clause 88 sets out the changes needed to the filing date rules for tax returns completed by trustees, and clause 89 sets out the equivalent changes for partnership returns.
Lord Carter originally recommended shortening the self-assessment tax return filing periods both for paper and for online returns. Some hon. Members will remember the discussions that I had in the Finance Bill Committee last year with the hon. Member for Fareham about this matter. As I expressed at the time, I had some sympathy with his argument. Clearly, I had
At the time, I explained that HMRC had published a partial regulatory impact assessment with recommendations for our adoption of those changes. I explained also that HMRC had published a partial regulatory impact assessment with recommendations for our adoption of those changes. Alongside Lord Carters report, we specifically invited views on the recommendations and the partial regulatory impact assessment.
Last year, we set 30 JuneI thinkas the deadline for responses and comments. I gave an undertaking to the Committee as well that we would take into account the views expressed in it and during the consultation process. In light of views expressed and received on the partial regulatory impact assessment, Lord Carter himself considered the further representations in the evidence from tax practitioners and revised his recommendations on self-assessment tax return filing dates. The Government listened to and accepted those revised recommendations in July last year.
Lord Carters report states also that HMRC should continue to consult practitioners on the detailed implementation of his proposals. I can confirm that that has happened and continues to do so. The spirit in which HMRC has worked with tax practitioners and their representative bodies has allowed us to take a better approach in the Bill. I hope the Committee accepts that. It was ably summed up by Paul Aplin, chairman of the tax faculty at the Institute of Chartered Accountants, when he acknowledged that HMRC was abiding by what he called the Carter principle, which is that
nothing is launched until its been tested and proved fit for purpose.
I would like to make clear also to the Committee that we are not introducing compulsory online filing for any income tax self-assessment returns. Lord Carter did not recommend that and it is not our policy to do so; I do not want the Committee be under any misapprehension over that.
The introduction of differential filing dates, however, will encourage the further growth of online filing by capable and competent individuals confident about using IT and, of course, by agents. It will do so by offering the incentive of a longer period in which to file an online return. Representations made consistently to Lord Carter identified that as a significant driver in increasing voluntary take-up. The option to file income tax self-assessment returns on paper remains for everyone, but it will, of course, require earlier filing by those who choose that option.
Clauses 87 to 89 preserve the minimum period of three months currently allowed for the completion and filing of a return when the notice requiring the return is issued by HMRC after 31 October. That is a feature of the current system and will ensure that the minimum three-month period for completion is always given, regardless of whether the tax return is filed on paper or online. The rule changes in clause 89 for partnership returns depend on whether the partnership consists of one or more individuals or companies.
For partnerships that consist of one or more individuals, the notice to file a partnership return will, as a result of those changes, specify filing dates no
Clause 90 makes a small number of consequential amendments to existing provisions resulting from the introduction of differential self-assessment tax return filing dates under clauses 87 to 89 to ensure that the periods during which a tax return can be amended subsequently by a taxpayer stay linked to the 31 January for all paper and online tax returns. No one will be disadvantaged by filing a tax return early.
This substantial group of amendments includes three tabled by the Opposition, on which I shall briefly give the Committee my views. Amendment No. 247 seeks to provide an open-ended alternative to the 31 January filing deadline for electronic returns in the event of a systems failure or the non-availability of HMRCs online service during the peak filing time on 31 January.
I hope that the amendment is a probing oneno equivalent amendment has been tabled in relation to clauses 88 or 89because it is unnecessary. As I have stressed, HMRCs self-assessment systems have been strongly capacity tested in the past two years and are now based on what I regard to be, and what I hope that the Committee will accept is, a strong design and IT infrastructure. Carter encouraged us to give even greater attention to this issue than we were already giving it. The online self-assessment system performed very well in the 2006 online filing peak, and better in 2007. In the final 24 hours of the 2007 peak, 150,000 tax returns were filedalmost two a second. In total, more than 3 million were filed in that way in the last tax year.
Julia Goldsworthy (Falmouth and Camborne) (LD): Many of the representative bodies have noted how admirably well the system coped in January 2007. However, the Chartered Institute of Taxation reported online filing failure rates of up to 10 per cent. Was the Minister about to give his assessment of the failure rates, especially during that busy period?
John Healey: I was not, principally because we are talking about the self-assessment online tax system and the capacity of the HMRC system to accept and process filings. In those final 24 hours, the system was accepting and processing about 6,000 an houralmost two a secondwhich is a significant performance.
HMRC is clear and on the record regarding what will happen if there is an unforeseen breakdown in the service, and I am happy to confirm for the Committee, on the record, that no one will be penalised for the delivery of a late return in such circumstances. However, I should make it clear that HMRC already has the power, under section 118(2) of the Taxes Management Act 1970, to put that into practice. I hope that hon. Members will not press the amendment to a vote.
Mr. Dunne: What work has HMRC done to consider capacity? The Financial Secretary talked about the speed of processing in January when a total of 3 million returns were filed online. How confident is he that if the move encourages substantially greater numbers of taxpayers to file online, the computer systems and software within HMRC will be able to cope with a doubling, tripling or even quadrupling of capacity? The Governments track record on the delivery of such IT programmes is not stellar.
John Healey: Partly encouraged and underlined by Carter, I am confident that we have been sure to test the capacity that will be required of the system in good time, and that we will move to reforms only after that has been proven. We have already tested successfully the capacity for what we forecast will be the peak flow in January 2008. We will begin testing for the capacity that we expect in 2009 13 months before that. The testing has been done in good time to allow us to have the confidence to move forward with the reforms. When that is set alongside the increasing track record of the system, it should give us confidence that the system will perform as expected. In the event that it does not, the amendment is unnecessary, because HMRC already has the powers to ensure that no one is penalised for that, and I have given the Committee the commitment that no one will be penalised in such circumstances.
Amendment No. 245 would extend the paper return filing deadline to 31 January for a person registered blind. I am not sure whether the hon. Member for Rayleigh is using it as a probing amendment, but I notice that he does not seek similar provision for people with other disabilities. At present, many of the small number of blind people who complete tax returns receive help from HMRC or from friends. That level of support will not change. I urge the Committee to bear in mind five things. First, there will still be nearly seven months available in which to file a tax return on paper. In the unlikely event that all the information needed is not readily available within that period, provisional figures can always be used.
Secondly, in the event of a serious difficulty, when a blind person cannot file on time, HMRC would sympathetically consider any reasonable excuse for late filing and not apply a penalty. Thirdly, many blind and partially sighted people are likely to find that the online services that HMRC provides make the task of filing returns easier, as on-screen forms are increasingly easier to interpret and to complete.
Fourthly, HMRC is developing a new web portal as part of the improvements that the Carter review has encouraged us to make. Those will be in place in time for the filing date changes in 2008 and those will comply
To reassure the Committee fifthly and finally, I point out that HMRC is conducting further research to examine access and some of the barriers for disabled people to online services. So although I am always sympathetic to the arguments that have been advanced, the amendment is not necessary.
Amendment No. 246 would delay the introduction of differential filing dates for personal tax returns pending an independent review. That is not necessary either. I have explained why we can be confident about the security and reliability of the system, and we will move to the reforms only once we have tested and established those features.
I hope that I have covered the quite substantial territory of this group, which covers clauses 87 to 91 and Government and Opposition amendments. The two Government amendments add two minor consequential changes not picked up in clause 90 as drafted. It is important that we make those changes. I am grateful to the Chartered Institute of Taxation for pointing the relevant issues out to us. I am glad that we have been able to respond with the amendments.
Mr. Francois: As the Financial Secretary says, this is a large group. As he has just spoken about the Oppositions three amendments, I propose to speak to the amendments reasonably narrowly first and then make some slightly wider points on clause stand part. If that is acceptable procedurally, Mr. Illsley, that is what I shall do. In his usual thorough manner, the Financial Secretary has addressed some, but not all, of the points that I wanted to make. I hope that he will bear with me if, for safetys sake, I go through all of them.
Amendment No. 247 is designed to build flexibility into the system in order to overcome situations in which HMRCs IT system is unavailable to taxpayers. The proposed filing deadlines allow little flexibility and, as in the case of the Taxes Management Act 1970, potentially involve the imposition of strict penalties for missed deadlines. That means that were there to be a major IT failure, many millions of taxpayers might be unjustly penalised. The Financial Secretary appears to have given us a commitment on that, and I shall come back to it later.
A quick look at the Governments management of similar projects shows that that is far from being a theoretical worry. For example, the online portal of HMRCs tax credits computer has been shut since 2005. At the time, the Financial Times reported:
When the system went live, it collapsed under the weight of business, contributing to the huge number of overpayments and the continuing row over how those should be paid back.
That was in October 2005. Then, as we now know, there was an attempt at a major organised fraud against the tax credits system via the e-portal. The
An occurrence that was similar in some ways affected the PAYE computer this year. It was not able to cope with demand after what Accountancy Age reported as
a series of crippling glitches to the system ...at one stage the system was down for an entire week.
That picture is slightly different from the one that the Financial Secretary painted this afternoon, however artfully he put it across.
John Healey: Will the hon. Gentleman accept that, as the Committee has no doubt realised, these clauses concern the arrangements for filing self-assessment forms, not tax credits?
Mr. Francois: I do indeed. However, I am simply giving examples of other Government IT programmes, including Treasury ones. The Financial Secretary is tempted to tell us that everything has been tested and is robust, so I am considering whether other Treasury-related IT systems have been robust. The record is far from reassuring.
A concern that there could be similar problems with the self-assessment system was shared by 75 per cent. of the nearly 1,000 accountants who responded to the Working Together E-group survey, which was organised by, among others, the Association of Tax Technicians, the Chartered Institute of Taxation, the Institute of Chartered Accountants of England and Wales, and the Association of Certified Chartered Accountants. That found strong support for the proposition that HMRC needs
a fallback in the event of an HMRC system failure.
Let me give a practical example. Andrew Sherry, a chartered accountant from Stourbridge in the west Midlands, sent me an e-mail in early May in which he reported:
I have several times tried to log onto the Inland Revenue agents PAYE system over the last week only to get the message that there is a system error. Having spoken to the helpline I am told that this is because the system is unable to cope with the volume. The Government is pushing for us to file everything online and every year the system fails.
Our amendment is designed to remedy concerns such as that. It would address the situation by extending the deadline in the event of a computer systems failure, so as to give the taxpayer a reasonable time in which to submit a return.
I should say, in response to the Financial Secretarys very fair question, that our purpose in tabling this probing amendment is to highlight the issue and to seek assurance from him that taxpayers will not be unduly penalised if they make reasonable attempts to file online but are prevented from doing so by a computer or computer-related failure on the part of HMRC. Given that he could see what we were trying to do, and given his pretty categorical assurance that HMRC will not attempt to penalise taxpayers in the event of a clear failure by one of its IT systems, I am grateful for what he has said, and I am sure that the professions and taxpayers will be grateful for that reassurance, too.
That leads me on to amendment No. 246, on the security of the system. Our amendment is designed to ensure that there has been a full independent evaluation of both the security and the reliability of the IT system on which the electronic filing process is based, before the change of filing dates in 2008. The history of the Governments recent IT systems highlights major concerns over whether they are capable of designing a system that is secure enough for personal details included on tax returns.
Just today, the Public Accounts Committee published a report entitled Delivering successful IT-enabled business change. That could be a fair description of the change that HMRC is going through, following the merger in 2005. The PAC looked into the issue in some detail and was quite critical of the Governments record on running major IT programmes. Among other things, the PAC reported:
Lack of relevant experience, combined with a regular turnover of post-holders, adds unnecessary risk to the management of IT-enabled change.
Interestingly, the PAC also said that there is a lack of internal discussion and learning from past mistakes, stating:
The lessons from Gateway Reviews
that is, IT project reviews
are not shared consistently across departments.
Given the vast amount of money that the taxpayer now spends via the Government on major IT programmes, it is rather concerning that the PAC seems to feel that where something has gone wrong in one Department, other Departments are not being allowed to share the lessons that have been learned from what in many cases is the waste of a large amount of taxpayers hard-earned money.
The recent history of problems with major IT systems includes the medical training application system, or MTAS, problems with the Child Support Agency computer system, CS2, and continuing tax credits IT failure, as well as major problems with the PAYE system. I do not need to try your patience, Mr. Illsley; all I ask of the Committee
Mr. Francois: I am not aware of the IT systems that most grammar schools use, but I hope for their sake that they work better than the Governments CS2 computer, which has been a disaster from start to finish.
I shall not reiterate all the background to the MTAS fiasco but, as the hon. Gentleman is clearly interested in the subject, I shall give him a little bit. We know from the Secretary of State for Healths grudging apology what a complete farce the system was. However, the important point is that a Government system full of private information was so flawed as to
Mr. Francois: It was ridiculous of the Government to allow that to happen in the first place. Channel 4 News showed that it was possible to access the personal information of junior doctors through the server by altering a few digits of the URL code, or web address of pages on the site. How was it that the Government could design a computer system that was so insecure?
Unfortunately, MTAS is not the only Government IT system to suffer those sorts of failures. To come closer to home for the Financial Secretarys benefit, I return to the tax credits computer and a point about security of information. The computer added to its woeful record in May, by sending out thousands of letters containing personal details to the wrong addresses. HMRC sent at least 8,000 letters containing bank account numbers of individual claimants. The Yorkshire Post quotes one victim of the error as saying:
Someone could have walked into a bank, said theyd lost their card and used my details to get a new one.
There have been major problems with the PAYE computer, in particular the accrual of penalties by up to 154,000 small businesses that filed their returns online in the normal way, as the Treasury has encouraged, only to find months later that they were to be stung for hundreds of pounds in fines due to an HMRC computer glitch. In essence, this appears to have occurred because after the information had been received electronically, it was, in many cases, lost in the system.
To HMRCs credit, it has apologised for the mistake, admitting that when employers or their agents queried the penalties, internal investigations that it carried out discovered that the overwhelming majority were cases where a test submission had been successfully filed but not the full valid return. That was the experience of Joy Aymes, a director of Eldon Design, who wrote to me saying that her company had been wrongfully fined £900, at least in the first instance. She said:
If a business waited 9 months to let a client know they had failed to make a payment and added extra penalties to the money owing surely they would be breaking the law.
A similar experience was had by Mr. Desmond Hickey, who wrote a letter dated 2 April 2007 to my hon. Friend the Member for Chipping Barnet, the shadow Chief Secretary, which he entitled:
The essence of failed government.
He complained that he, too, had received demands out of the blue for £900. He concluded that HMRCs attitude showed
how institutionally business hostile...Inland Revenue is.
Such cases underline the need for security and reliability in all HMRCs systems. The examples from the real world paint a rather different picture from the
Lord Carters report stated:
We recommend that as part of their work to deliver robust, high-capacity services HMRC should build in more rigorous testing. Each of the services should be capacity tested at least a year before our recommendations are implemented, and if any tests are not successful the measures relating to that service should be deferred.
One must ask what happened with regard to the PAYE computer.
Julia Goldsworthy: Does the hon. Gentleman agree that in addition to testing the systems once they are in place, we must do something else? As we saw with the tax credits computer system, part of the problem often stems from the fact that there is inexperience in the procurement process. Although companies deliver what is asked, perhaps the Government do not understand what they are asking for and then only find out later. Does he agree that there needs to be intense scrutiny at the procurement level to ensure that these inadvertent problems do not occur?
Mr. Francois: I thank the hon. Lady for that pertinent intervention. I admit that this happened under Governments of a different colour, but this particular Government have a particular penchant for major IT programmes that go wrong. The Public Accounts Committee has looked into these for many years and has very often recommended that lessons must be learned from past mistakes. We have now had 10 years of a Labour Government, and every year the PAC produces more reports saying that more problems have occurred, more taxpayers money has been wasted and more confusion has resulted. One must wonder whether anyone on the Labour Benches is listening, because if they are, why do the problems continue to recur?
Page 115 of the 2006 Red Book said:
Lord Carter recommends that HMRC should continue to invest in its online infrastructure and supporting systems to deliver robust, high capacity services, which should be rigorously tested.
I believe that the Financial Secretary referred to a similar statement. Why is it that the Chartered Institute of Taxation continued to reflect those concerns a year later? It has stated:
We feel that to introduce this legislation in 2007 without an adequate fallback position in the legislation, whilst there are still significant e-filing problems, is contrary to Carter Principles.
Given all those concerns about reliability and, in particular, security, amendment No. 246 is designed to ensure that a thorough review of HMRCs IT security is carried out before the move to advanced electronic filing dates in 2008.
Amendment No. 245 seeks to exempt those registered blind from the early-filing provisions of the clause. I accept from the outset that the Financial Secretary was attempting to deal sympathetically with the issue. I acknowledge that fact. The amendment would ensure that blind people were not disadvantaged by the Governments proposal to encourage online filing. The Royal National Institute for the Blind contacted my office with its concerns. Helen Dearman, the RNIBs campaigns director, pointed out in an
For some blind and partially sighted people there is a choice; they are computer literate and have access technology that allows them to access the internet so are able to choose between the two options available. For around 32 per cent. of blind and partially sighted people of working age, submitting an on-line tax return is just not an option. It seems unfair that some people will be denied the longer submission deadline purely because they are unable to use computer technology.
The Chartered Institute of Taxation reflected those concerns in its 2007 Budget submission when it expressed under the heading, Disabled Persons, the following view:
Finally, there are many people, e.g. those with mental health problems or physical problems such as blindness, who may not be capable of accessing computers. Accordingly, we believe that there should be strong protection for individualswhether in business or notto ensure that they are not penalised by their inability to file online.
Given that point, I should be grateful if the Financial Secretary could tell the Committee what, if any, consultation with representatives of blind organisations he has conducted concerning electronic filing, and whether he will continue to consult them as the programme rolls out. I should also be grateful if he could assure us that the online system is compatible with common access technology that blind people use, such as audio technology. He referred to it in fairness, but will he assure us that it will be built into any subsequent upgrades?
Will all guidance notes be sent in formats such as large print, audio or Braille for those that need them? I should expect the Treasury to do so, but I should be grateful if the Financial Secretary could confirm that point. Finally, will he sympathetically consider cases in which technological failure means that a blind taxpayer does not have access to the online system? I take it that that point is covered by his assurance regarding the previous amendment. Those are my cases for the three amendments that we have tabled.
I turn to my clause stand part remarks. Clause 87 essentially amends the dates for the filing of paper personal tax returns. It introduces a new regime, which means that from the tax year 2007-08 onwards, a taxpayer will have to file their return on 31 October 2008 rather than on 31 January 2009 the following year, unless they choose to file their return electronically. As the changes will have a substantive effect on all 8.8 million self-assessment taxpayers in the country, I shall detail some general concerns about bringing forward the deadlines and some additional concerns about electronic filing and the way in which it may operate in practice, including importantly, its likely impact on staff at HMRC.
By bringing forward the filing dates for a paper return, the Government seek to fulfil the aspiration of Lord Carter, who wrote in his report, published in March 2006, that
we have set an ambitious, but we think realistic, timetable for further measures to increase the use of online services, to promote earlier filing and to provide taxpayers with certainty sooner.
He made an additional recommendation, which has not been mentioned so far. He recommended that by 2012, HMRC should
aim for universal electronic delivery of individuals tax returns from IT literate groups.
Measures to encourage electronic filing of tax returns have been introduced before, notably to encourage businesses to file their PAYE returns online, and I have already outlined the weaknesses in that. In that case, the Government decided on a carrot rather than a stick, and promised to pay each company a £250 incentive for online filing.
In the case before us, however, the Government have decided to wield the stick by bringing forward the tax deadline for people who continue to file by paper. The Governments original intentions were set out in the 2006 Budget, in which 31 August was proposed as the date for paper returns. The Sunday Times referred graphically to what happened next:
Within an hour of Brown sitting down, accountant's e-mails were beginning to wing their ways across the ether, using phrases such as bombshell, draconian, devastating broken trust and all talk, no action. And this from a budget that was rated one of Brown's duller efforts.
That being the case, we welcome, as an improvement, the Governments new proposed date for paper returns of 31 October, as opposed to the earlier proposal of the 31 August. In saying that, I am delighted to have my hon. Friend the Member for Fareham sitting next to me, because, one year ago, he engaged the Government in some detail on that matter, as the Financial Secretary acknowledged. I am pleased that my hon. Friend is here to see that, on this matter at least, the Government seem to have taken some notice and moved back the deadline accordingly. We will count that as a feather in his cap, rather than in mine.
I have some questions for the Financial Secretary about the likely cost to taxpayers of those measures, including those highlighted in the Governments associated regulatory impact assessment. I have noticed that RIAs are often a very useful source of detailed information about Government proposals and, to be fair, some of the Treasury ones are particularly detailed. Perhaps Treasury officials could have a word with the Foreign Office and we can have an RIA on the new European treaty, which I very much hope that the Chancellor would read.
I shall turn to the cost in both money and time to those who do not have internet access. The RIA that accompanied the Carter report estimated that 1 million taxpayers could be affected by electronic filing at an estimated total cost of about £10 million. The estimated additional costs to individual taxpayers varied from zero for those who use a tax agent and so, in a sense, are paying for a service anyway, to £100 for those who do not use a tax agent and have no internet access, which they would then have to find. The RIA continues:
Those without easy access will need to obtain it, but there are various ways of doing that and HMRC will be working with taxpayers to ensure that a range of options are available, and that those options are as cost-effective as possible.
How will HMRC alleviate the additional cost to taxpayers and, specifically, how will it seek to make electronic filing easier in line with the commitment given in the RIA?
In an answer to my parliamentary questions on 12 January and 26 April, the Economic Secretary admitted that currently nearly 1.5 million people are
Furthermore, I have a number of practical concerns about electronic filing, on which I would also welcome the Financial Secretarys reassurance. First, if we are to encourage taxpayers to file online, it must be possible for all taxpayers to submit all their relevant information. For that to happen, the software must be provided and be capable of taking in all of the information currently submitted on a paper return. Of the accountants who responded to the Working Together E-group survey, to which I referred earlier, only 18 per cent. said that they rely on the current free software provided by HMRC with the remainder buying in third-party specialist software.
Currently, taxpayers with income that they are required to declare, such as foreign or trust income, will have to pay a third party to buy the software in order to submit their returns. That was confirmed to me in a further parliamentary answer from the Paymaster General on 7 February 2007 in which she underlined the fact that some taxpayers will need to purchase their own software, which is a disincentive to filing online as the Government would wish. She put it like this:
Self assessment tax returns can be filed online using either HM Revenue and Customs (HMRC) full SA online service or proprietary software produced by commercial software vendors. Most proprietary software purchased to facilitate online filing of self assessment tax returns is bought by tax agents and is typically part of a broader package embodying accountancy and client management facilities. As such, no estimate of these costs has been made.
Most individual taxpayers can file their self assessment tax returns online using HMRCs free online service which covers most circumstances. Other individual taxpayers filed using proprietary software, the cost of which varies.
Partners can also file their own tax returns using HMRCs free online service. But both the partnership and trust return can only be filed using proprietary software.[Official Report, 7 February 1007; Vol. 456, c. 1040W.]
The Law Society further emphasised this concern. It said:
It is wrong to force them
over to a system which they can not use without involving them in extra annual expenditure for commercial software; that might be for the purpose of making just one single entry on a supplementary page that HMRC do not provide.
Also, with regard to being able to submit all the taxpayers information electronically the Law Society has a particular concern about the so-called white
Finally, there is the ability of HMRC to cope with major increases in electronic timing, which will be partly determined by the commitment of HMRC staff to the new process. However, recent survey data now casts doubt on whether that will happen as effectively as Ministers might like to think. An article in Accountancy Age of 17 May this year entitled Taxman in turmoil as morale plummets stated:
Staff morale at HMRC has plummeted in the eighteen months following the creation of the merged department in April 2005, according to a survey filed away obscurely on the departments website.
The article goes on to say:
Tax offices recently went on strike on 31 January, when self-assessment returns are filed, and there is a constant threat of more industrial action.
I have located the survey on the website and it transpires that of those 18,000 staff who responded, which is a considerable number to respond to a survey, 58 per cent. agreed with the statement that
change is not well managed in the department,
while only 29 per cent. agreed that
the quality of service to customers was improving.
That is potentially worrying if we are to see a major shift towards greater reliance on electronic filing. I am sure that the staff will do their best to cope with it, but it would appear from HMRCs own internal staff survey that its staff are not exactly jumping for joy at the way in which the process is being conducted.
The point was further pursued in The S unday Telegraph this weekend in an article entitled Tax staff encouraged to go MAD as morale falls. It reads:
The survey also found that only a quarter of officials feel secure in their jobs and only 1 per cent. strongly believe that the Department is running as well as it should. In response to this, HMRC is sending its staff on make a difference or MAD courses, in which staff are apparently encouraged to speak the future into existence through learning interventions and one to one feedback sessions.
Given the morale problems which now appear to be extant at HMRC, can the Financial Secretary speak into existence how HMRC intends to bring about the shift towards greater electronic filing by a work force which appears so unimpressed by the progress of the HMRC merger? We were promised that there would be Gershon savings, and electronic filings are obviously part of that. The Opposition have supported the process in principle, but it seems that on the ground it could be handled better than it has been to date.
To summarise, amendment No. 247 would provide some alleviation for taxpayers who are deemed to have filed late because of technical problems at HMRC
Julia Goldsworthy: It is a pleasure to welcome you to the Chair this afternoon, Mr. Illsley, and it is always a pleasure to follow the hon. Gentleman. There is a little nostalgia in that, as I shall not be doing it for much longer. He was a feature of both my experiences of the Finance Bill, so things will not be the same without him. The question is: what changes will there be on the Government Benches by the time next years Finance Bill comes around?
It is important that we debate these clauses in Committee and that they are in primary legislation, because they involve significant changes to the way in which our tax system works. As we have heard, they will implement a great deal of Lord Carter of Coless recommendations about how electronic returns should be phased in. There is an issue about timing and how we will ensure that Departments, like businesses and everyone else, keep up to date with the fast-changing world. The key challenge is to ensure that the Governments capacity runs in parallel to individuals ability to take on new technology. It might well be the case that new technologies are out there but not everyone can take them up. It is important that the proposals are sensitive to that.
The Financial Secretary mentioned that concerns have been raised by organisations about the capacity of HMRC in terms of online filing and the failure rate. He was right to point out that the 10 per cent. failure rate that I flagged up was for businesses, but I would appreciate his comments on the failure rate for the filing of self-assessment tax returns, although, as I said, the Chartered Institute of Taxation said that the online filing capacity was admirably met by HMRC in 2007.
On the Conservative amendments, I have a great deal of sympathy with the points made by the hon. Member for Rayleigh, and it is clear what the amendments seek to achieve. It is important for the public to have confidence in the security of the systems that they use. We have seen examples not only from Government but from national banks of how easy it can be for confidential information to be compromised. It is important that the Government and other organisations pay serious attention to that. When they are going through the process of procurement every effort should be made to ensure that systems are not created that can be easily compromised. On that basis, I have a great deal of sympathy with the amendments.
In relation to the amendments on the non-electronic return for submissions by a registered blind person, I sympathise with the hon. Gentlemans narrow point. For some people, regardless of whether they are registered blind or not, there will be difficulties with
I was reassured by the Financial Secretarys comments about what happens in the event of HMRC failure. Will he expand on what would happen if a person who is submitting their tax return experiences failure at their endeither a power cut or a computer meltdown? Is there any opportunity for discretion in that area?
I have a couple more issues to raise. The first one was mentioned by the Institute of Chartered Accountants. It expressed concern about the certainty of the date when a return is received. Obviously, when deadlines are set, it is very important that they are met. There have been disputes in a number of cases about when the submission was received. The Institute of Chartered Accountants notes:
From this year, HMRC no longer provides receipts when a tax return is delivered by hand or by post.
Will those who file their returns online receive receipts so that they will be certain that their return has been received?
Finally, I echo the point made by the hon. Member for Rayleigh. What happens if the white space is not sufficient for people to make notes? Is there the opportunity for flexibility to expand that space? Is HMRC considering accepting an attachment so that a more full description can be sent with the formal submission?
As I said when I intervened on the hon. Gentleman, it is important that the Government move with the world. There are important lessons to be learned, particularly in terms of the procurement of very large IT projects. Although the Carter recommendations go a long way towards reassuring people that we are going to have a successful system, more could be done to explain categorically and formally exactly how some of those recommendations are met.
Mr. Dunne: I share the general sense that the measure is appropriate and that we should be trying to encourage electronic forms of filing tax returns. I also share the concerns raised by my hon. Friend the Member for Rayleigh and the hon. Member for Falmouth and Camborne that the measures are being introduced with a degree of haste and potentially without sufficient testing, which dents confidence in the systems that are employed by HMRC, and that gives rise to genuine concerns.
My hon. Friend illustrated some of the problems experienced by one of his constituents. If you will indulge me, Mr. Illsley, I would like to give an example from one of my constituents. Mr. Andrew Chapman
The HMRC website for filing self-assessment tax returns on-line has once again been out of action for most of the afternoon. It is the busiest time of the year when agents are under the most pressure. I today telephoned the Online Helpdesk to find out when the website will again be available and was told that they didnt know.
The chairman replied to Mr. Chapman and indicated that from HMRCs online service availability records, the self-assessment online service was apparently available throughout the day on 15 December. Quite clearly, something is at faulteither Mr. Chapmans access to the website or HMRCs records of its own website availability. One of the interesting things that emerged from Mr. Grays letter to Mr. Chapman, which gives an indication of the concerns that we have about HMRCs procedure, is to do with how it can assess the veracity of the points being made by people issuing complaints.
Having failed to get through on the website, Mr. Chapman made a telephone call, as I have just described. In his letter back to Mr. Chapman, Mr. Gray says:
Unfortunately we cannot find any trace of Mr Chapmans call within our systems. This may have been because of a recording error at the time of the call, or that Mr Chapman called via a switchboard. Unfortunately, due to the complexities involved our recording systems cannot identify calls that enter our network via a switchboard as the switchboard masks the callers number.
This may seem an insignificant and trivial point, but I am raising it because it illustrates the difficulty that the Opposition have in accepting the Financial Secretarys statements that the procedures within HMRC are robust if HMRC cannot even identify from within its own computer systems the telephone calls that are coming init acknowledges that the calls are being received within its officesbecause the technology is not up to it. The example illustrates our concerns about whether the technology will cope with the proposed electronic filing.
The hon. Member for Falmouth and Camborne raised a question about whether or not the officers in HMRC will have any discretion if errors are made. I appreciate that we are discussing the legislation rather than current practice, but currently errors that are made by HMRC are subject to individual appeal. They must be dealt with on a case-by-case basis and there is no discretion to deal with problems such as that experienced by Mr. Chapman. If such problems are going to become more widespread, as I fear they may, the Financial Secretary needs to address them with HMRC if the Bill is passed.
Another reason for making that observation about HMRC is that the National Audit Office has recently produced a report entitled Helping Individuals Understand and Complete Their Tax Forms. I am looking forward greatly to that report coming before the Public Accounts Committee, because my contributions to that Committee will be informed by
unintentional errors by taxpayers in completing forms result in over £300 million in underpaid tax.
It is perhaps not surprising that HMRC chooses not to calculate how much tax has been overpaid as a result of the complexity of its systems; it is just bad luck for the taxpayer unless they happen to spot the error.
Errors occur, whether online or offline. The opportunity for appealing the decisions is not automatic; it is complex. We are being urged, through these proposals, to encourage an acceleration of online filing without there being adequate safeguards in place to ensure that the systems can cope.
John Healey: As the hon. Gentleman said, we are indeed looking to encourage greater use of online filing for self-assessment. It will remain voluntaryI stress that. However, the way that we are designing the new service and the system set out in these clauses means that increasingly there will be a greater incentive to file online, which will help to reinforce the trend that we have seena trend that we welcomein the past few years of more people choosing to file returns in that way. Online filing is welcome, because it brings benefits both to HMRC and to the taxpayer. It is more efficient, it is generally more secure, and it is a better way of doing such business.
The hon. Member for Falmouth and Camborne mentioned three specific issues beyond her general concern about the position of blind and disabled people in dealing with HMRC. I will come back to that general concern. First, on the question of receipts for filing online, all taxpayers who file online now receive an automatic confirmation by HMRC as soon as their return has been accepted by HMRCs systems. That should now be dealing with the problems that she mentioned.
Secondly, the hon. Ladys concern about the failures of self-assessment filing has been raised with us by the Chartered Institute of Taxation, largely on behalf of agents who have found that commercially purchased software seems not to be performing as well as promised or as well as it needs to. Post-Carter, HMRC is working on developing earlier and faster services for software developers and vendors, to ensure that their software is compatible and fully operational, and on providing validation rules in code format for such vendors. We are working with tax practitioners and vendors to try to identify consistent or common causes of failure so that we can deal with them.
Finally, the hon. Lady mentioned white space, which the hon. Member for Rayleigh is also concerned about. In November last year, HMRC developed and incorporated into the system the facility to take attachmentsshe asked about that and therefore perhaps was not aware of it. The system now provides for some 30,000 characters to be inserted in white space. That is a not insubstantial essay-length capacity, and I expect that in most cases it would be sufficient for a self-assessment tax form.
I said that we will miss the hon. Member for Rayleigh, and we will. I understand his desire to have a last hurrah. He treated us to a tour dhorizon that covered almost everything that he has dealt with in his two and a half years on the shadow Treasury Front Bench. Let me deal with his points about the clause.
I have explained that blind people will be treated sympathetically if there are good reasons for their not being able to file on time. To keep the matter in perspective, more than 9 million people file self-assessment returns. Last year, some 8,600 registered blind people filed self-assessment returns. Clearly, they represent an important but relatively small proportion of the self-assessment filing population.
The hon. Gentleman asked other specific questions. On consultation with groups that represent blind people, HMRC goes out of its way regularly to discuss issues across the range of its services and the operation of the tax system with groups that represent blind people and those with other disabilities. In large measure, that is why the redesigned web portal that I mentioned will be in place when the reforms come into being. It adopts WC3AA, which is the new industry standard for access. The standard has been developed in consultation with disability groups. I confirm that audio, large print and Braille copies of the guidance that HMRC produces are all available on demand.
Will late penalties increase revenue to the Treasury? No, we do not expect that. There is no reason why a self-assessment taxpayer should file later as a result of the changes and incur a penalty. The Red Book confirmed at the Budget that there is no expected increase to the Exchequer.
How will extra costs to the taxpayer be alleviated? Lord Carter has always been very clear on that. He identified benefits for taxpayers as well as HMRC in adopting online filing. It allows taxpayers to fulfil their legal obligations more accurately, more quickly and with greater certainty, and, clearly, there are benefits on the other side for HMRC as well. Any taxpayers to whom repayments are due are also likely to receive them more speedily and efficiently.
On payment dates, the due date for all payments remains 31 January and is unchanged by the arrangements. That applies for everyone who files on time before that date. Must individuals purchase software? HMRC already provides free software for nine out of 10 individuals, and the Government will introduce supplementary pages and improvements to that situation so that by the time of the reforms the free software will be available to 19 out of every 20 individuals who might be involved in self-assessment.
In summary, we have consulted widely and thoroughly on the changes. They have been refined in response to the further work of Lord Carter and to the consultation responses, and they are broadly supported across the piece. Let us keep a sense of perspective. For those filing on paper, the available time period will still be seven months, while for those filing online it will be 10 months. In Germany, the time period is five months, in Canada it is four months, and for individuals in France it is two months. Given that, I believe that we have a right and reasonable balance that will bring
Mr. Francois: We have indeed had a good debate on the Governments e-filing proposals. The Financial Secretary has answered many of my questions very directly, and I am grateful for that. The amendment groupings gave us quite a large pitch, so I decided to plough across most of it, but I thank him for meeting me on each bit of the pitch that I covered.
I shall therefore concentrate on the Oppositions three amendments. On amendment No. 247, I am grateful for the Financial Secretarys reassurance that no taxpayer will be penalised for a late return if the reason for late submission of the return is an IT systems failure at HMRC. He was clear about that principle and I appreciate that clarity.
On the amendment concerning IT security and reliability, our concerns are genuine. It is fair to remind the Financial Secretary that if we want people to file personal, confidential details online, it is critical that the system be secure, otherwise they will not have the confidence to use it. The security issue is important, and I hope that the Government will continue to bear that in mind as they take matters forward, as Lord Carter encouraged them to do.
The Financial Secretary dealt very appropriately with the amendment relating to blind people. He gave a commitment that HMRC would look sympathetically on any particularly hard cases involving blind people, and that it would continue to consult relevant organisations.
Question put and agreed to.
Clause 87 ordered to stand part of the Bill.
Clauses 88 and 89 ordered to stand part of the Bill.
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