1 Simplifying Registration
1. Around 700,000 new businesses start up each year.
They have to register separately with the Department as different
taxes become due, which can be at different times. For example,
as they take on employees they will need to operate PAYE and if
their turnover exceeds £61,000 they become liable for VAT.
Even if a business needs to register for a number of different
taxes at the same time, it must do so separately for each. There
are around 1.2 million registrations a year (Figure 1).
[2]
Figure
1: The number of tax registrations in 2004-05
| Tax
| New registrations
| Number deregistering
| Total registered
|
| Self employment (Income Tax Self assessment)
| Sole traders
| 330,000
| 389,000
| 3,065,000
|
| Partnerships
| 41,000
| 57,000
| |
| Corporation tax
| 330,000
| 185,000
| 1,600,000
|
| PAYE
| 272,000
| 97,000
| 1,163,000
|
| VAT
| 270,000
| 170,000
| 1,825,000
|
| Total
| 1,243,000
| 898,000
| 7,653,000
|
Source: C&AG's report, HM Revenue & Customs:
Helping newly registered businesses meet their tax obligations
2. The Department deploys over 400 staff to register
businesses, costing over £10 million a year. In 2005-06,
around 70% of businesses registered by completing a paper form.
They have been able to register online for VAT since December
2004, PAYE since June 2006 and for Income Tax Self Assessment
since February 2007. By April 2007 20% of businesses had registered
online for VAT and 25% for PAYE. The Department estimates that
it would save around £1.7 million a year if online registration
for VAT increased to 50%. In Australia, 96% of businesses register
for a business tax number online. 85% of registrations with Companies
House are conducted online in the UK.[3]
3. The main incentive for businesses to register
online is that it is easier than completing a paper form. For
example, in registering for VAT online the address is automatically
completed after entering the post code. The completed form is
also easily submitted to the Department with immediate acknowledgement
of its receipt, providing businesses with greater certainty that
the Department has received the registration. The Department has
not considered offering any other incentives to businesses to
complete registration forms online. Lord Carter's Review of HMRC
Online Services noted that the vast majority of businesses are
now using IT and the internet on a day to day basis. He recommended
that available resources should be focused on improving the services
rather than providing new financial incentives.
[4]
4. The separate registration processes have evolved
as the Department has developed separate computer systems for
each tax over the years. Separate registrations are inconvenient
for businesses who must provide the same information more than
once. The Department acknowledged that it is some way behind the
practices of other tax authorities, such as Canada and Australia,
where businesses can register once for all taxes, and complete
their registration online. Major changes to the Department's systems
would be required to implement a similar system.
[5]
5. Businesses are issued with different reference
numbers for Income Tax, PAYE, VAT and Corporation Tax which they
need to use in contacting the Department. The Department cannot
access data on a business across the taxes and so lacks an overview
of the tax position of a business. It is developing a "customer
index" that should enable it to link internally all the reference
numbers for an individual business.[6]
6. The 2006 Review of HMRC Online Services by Lord
Carter of Coles[7] stressed
the importance of a single business identifier to be used for
all types of tax as well as for interactions with other government
departments to achieve more joined up services. Sir David Varney's
report on Service Transformation[8]
also recommended steps to improve the capability and capacity
of government to establish business identity and share relevant
information to meet the government's commitment for businesses
to provide information only once. A number of other tax authorities
use a single business identifier. The Department expected that
by 2010-11 businesses would only have to provide information once,
which would be used to update all the different tax systems.[9]
7. The Department's registration forms vary in complexity.
The easiest to complete paper form is for National Insurance contributions/Income
Tax Self Assessment registrations. It is a short form and requires
little guidance to complete. The VAT registration form is the
most difficult because it contains technical terms and complex
concepts. The Department has recently redesigned this form to
make it easier, and two thirds of businesses now complete the
form correctly compared to around one half of businesses previously.
The Department incurs further costs in seeking additional information
from businesses that have completed the form incorrectly.[10]
8. Errors also occur in online VAT registrations
because the Department's system lacks validation checks. There
are no mechanisms to prevent the bypassing of boxes that should
be completed. Additional documents required by the Department
cannot be submitted online. If the Department does not receive
these supplementary papers by post within five days the application
is classified as incomplete.[11]
9. Businesses are required to register with the Department
soon after becoming liable for each tax. For example, sole traders
and partnerships should register with the Department within three
months of becoming self employed. The Department can impose a
penalty on businesses registering late for VAT and Class 2 National
Insurance contributions. Similar penalties for Corporation Tax
were introduced in July 2004 but there are no penalties for registering
late for PAYE. In 2004-05 the Department imposed penalties totalling
£6.7 million in nearly 70,000 cases of late registration
for Class 2 National Insurance contributions and VAT. No penalties
have been imposed so far for late registration on Corporation
Tax.[12]
2 Ibid, para 2.5 Back
3
Qq 14, 44, C&AG's Report, paras 2.5-2.6 Back
4
Ibid, para 2.10; Qq 24-30; Ev 14 Back
5
Qq 7, 12, 84 Back
6
C&AG's Report, para 2.13 Back
7
Review of HMRC Online Services, Lord Carter of Coles,
HMRC, March 2006 Back
8
Service transformation: A better service for citizens and
business, a better deal for the taxpayer, Sir David Varney,
HM Treasury, December 2006 Back
9 .
Qq 6, 9-10, 114-115 Back
10
C&AG's Report, paras 2.8 and 2.9; Qq 50, 51, 86-87 Back
11
Qq 79-83 Back
12
C&AG's Report, para 2.3 Back
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