Conclusions and recommendations
1. One in five Company Tax returns and one
in seven VAT returns are filed late or not at all each year, putting
at risk over £1.5 billion in tax revenues.
The Department takes a firmer approach on filing Income Tax Self
Assessment returns where it achieves around 90% on time filing
and has a target of 93%. If the filing obligations on businesses
can be reduced without risk to tax revenues, the Department should
formalise and communicate the reduced requirements to businesses.
But where the statutory obligation to file remains, the Department
should aim to achieve levels of on time filing of over 90%.
2. The Department lacks information on which
businesses repeatedly file late or which fail to file both types
of return, and on the link between late filing and other forms
of non-compliance. These gaps undermine
its effectiveness in targeting its compliance work and its assistance
to help businesses comply, and in identifying areas where it could
make significant improvements. The Department needs to:
¯ identify
which businesses have more than one return outstanding and which
are late in filing both VAT and Company Tax returns;
¯ analyse
the linkages between late filing and other non-compliant behaviour
such as filing inaccurate returns and late payment; and
¯ devise
a programme for obtaining comparative information for each main
tax and taxpayer group, covering timeliness and accuracy in filing
returns, paying tax due and levying and collecting penalties
3. The penalty regimes for non-compliance
with VAT and Corporation Tax are very different, the fixed rate
penalties for a late Company Tax return are low, and penalties
are not routinely applied. As part of
its Powers, Deterrents and Safeguards Review, the Department should
introduce a consistent approach to penalties for both taxes that
relates the penalties to the size of business and targets those
who persistently do not comply. It needs to enforce all penalties
and assess the effect of changes in the penalty regime in securing
higher levels of on time filing.
4. The Department could make more use of non-financial
incentives to encourage businesses to file returns on time.
The Department should evaluate the benefits of introducing tax
clearance certificates which have been used with some success
by the Irish Revenue. It should also compare its performance in
getting returns in on time with the performance and practices
of other tax administrations to identify other incentives it could
use to encourage on time filing.
5. Less than 10% of businesses filed their
VAT or Company Tax returns online in 2006-07.
The Department plans to make online filing mandatory by 2012.
We reiterate our previous recommendation that before resorting
to compulsion, the Department should be offering a good quality
service which a high proportion of businesses are willing to use
voluntarily.[2]
6. The Department's online services for VAT
and Company Tax returns do not fully meet the needs of businesses
for robust and secure online systems, which offer the facility
to communicate electronically and view their tax liability statements
and records. Overseas tax authorities
provide specialist services for agents and public access to online
facilities, as well as differential filing dates for paper and
online returns, earlier repayments of tax for those who file online
and pre-populating returns with information they hold. The Department
should facilitate routine use of electronic communications and
payments by businesses and their agents, and consult businesses
and agents on the benefits of implementing the other measures.
7. Filing obligations account for between
30% and 50% of businesses' compliance costs on VAT and Corporation
Tax. Substantial reductions in the administrative
burdens associated with filing VAT and Company Tax returns are
needed to achieve a meaningful reduction in the overall costs
for businesses in dealing with their tax obligations. The Department's
target is to reduce by 10% the overall administrative burden of
the tax system on businesses. To make a real difference, the Department
should set and publicise differential targets, which seek greater
reductions in those obligations which businesses find particularly
onerous.
8. On current plans it is unlikely that businesses
will see significant change in the costs and ease of compliance
before 2011, six years after HM Revenue & Customs was set
up. To introduce more rapid improvements,
the Department should:
¯ improve
the content and navigation of its website so businesses have ready
access to full, clear and up to date information on filing VAT
and Company Tax returns;
¯ provide
businesses with a single point of contact covering the range of
taxes, and share internally information it holds on individual
businesses for the different taxes, so that businesses have to
provide the information the Department needs only once;
¯ align
the dates for filing Company Tax returns, payment of Corporation
Tax and the filing of accounts with Companies House.
2 Committee of Public Accounts, Twenty-fourth Report
of Session 2003-04, Transforming the performance of HM Customs
and Excise through electronic service delivery, HC 138. Committee
of Public Accounts, Forty-ninth Report of Session 2005-06, Corporation
Tax: Companies managed by HM Revenue and Customs' Area Offices,
HC 967 Back
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