Dreams in E

ALLISON PLAGER considers the e-filing dream.

IT IS ALL very well for the Government to encourage the various civil service departments to embrace electronic communication, but public interest is currently at best limited. Despite this, it seems that the Government is moving from encouragement to coercion, with the introduction of clause 132 in the Finance Bill 2002 which concerns mandatory e-filing. However, first, it is worth taking a look at two recent National Audit Office reports which looked at how electronic communication is working in practice.

E-government

E-government is when the public has Internet access to information about all the services offered by government departments and their agencies, and can carry out transactions for those services. The Government has set the target that 100 per cent of services should be on-line by 31 December 2005, giving the public the option to interact with government departments electronically if they wish. Yet, at November 2001, only 52 per cent of the 524 services routinely provided by departments were available online, and most of these provided information only.

This National Audit Office's report 'Better public services through e-government' says that there are two main risks which 'departments have to manage if the benefits of e-government are to be achieved'. These are:

• citizen take-up, i.e. some members of the public will automatically be excluded because they do not have access to a computer, and no benefit is seen in accessing services electronically;
• failure to provide appropriate services, i.e. the on-line services offered are not wanted by the public.

The potential benefits of e-government include greater choice, better accessibility in that it is unnecessary for instance to visit different local offices, convenience, faster delivery and improved efficiency.

Overall, Sir John Bourn, head of the National Audit Office, concludes that e-government could improve public service, and suggests that the office of the e-envoy should advise public departments on how to implement it. He recommends that departments should set targets for the take-up of online services, and actively market these services to the public. It is not only the public who may be reluctant to use electronic technology; Sir John says further that civil servants will have to develop the skills to use it themselves.

E-Revenue

An earlier report from the National Audit Office, 'e-Revenue', said that the Revenue was 'at the forefront' of the Government's drive to offer internet and other electronic services. At the time the report was published (14 February 2002), some 30 per cent of the Revenue's services were available electronically. However, the report concluded that the Revenue was unlikely to meet its target of 50 per cent take-up of its electronic services by the end of 2005.

The report says that the target to achieve 50 per cent take-up of e-services by the end of 2005 is 'ambitious', and notes that it was set early in the development of the Revenue's e-service programme. However, regardless of the target, the report agrees that it is important to encourage taxpayers to take up the Revenue's e-services, since this would 'achieve considerable savings'. It says that a company's employee tax details sent or received via the electronic data interchange service each month improves accuracy by 50 per cent. This means that less administrative time is spent checking and making enquiries, saving time both for the business and the Revenue. From the Revenue's point of view, it believes that when the 50 per cent take-up is achieved, this could mean the cutting of some 1,300 employees, although the report adds that the Revenue 'will seek to re-deploy staff into other areas of work'.

In 2000-01 and 2001-02, the Revenue spent around £4.4 million on marketing primarily its internet service for self assessment, although the advertising also served other purposes.

Most success

The success of the Revenue's electronic data interchange service for pay-as-you-earn has been most marked. The report says that around 660 businesses contacted the Revenue about the service, and that 49 sent tax data for 6 million employees electronically each year. According to the report, the main constraint has been dealing with the large number of requests for information, and that the Revenue 'has not been able to actively pursue larger companies that might not realise the service exists'.

Less success

Notably, the Revenue has failed to attract many self-assessment taxpayers to the idea of filing their tax returns by Internet. The report says that in the first year filing by Internet was available, approximately 39,000 taxpayers used the service to submit their 1999-2000 returns by 5 April 2001. The Revenue had projected a take-up figure of 315,000. The Revenue's aspiration was lower for 2000-01, at 200,000, although this too was over-ambitious, as only some 50,125 had filed by Internet by 4 January 2002 (approximately 75,000 taxpayers filed their 2000-01 returns by the end of the tax year).

The report comments that high take-up of the Revenue's e-services depends on 'taxpayers finding some clear benefit for themselves in dealing with the Revenue in that way'. It is not enough that filing by Internet:

• guarantees that the return is arithmetically correct;
• is convenient;
• confirms that the return is received;
• means faster processing of any tax refunds.

The report says that taxpayers expect 'further added value', especially in terms of a time saving, for instance having a simplified form, or being able to 'rely on the department completing many of the questions from existing data on the taxpayer's behalf'. However, simplification of the form would require legislative change, and using data stored elsewhere to complete questions for taxpayers would need new software to link existing computer systems.

In the meantime, the Revenue commissioned Ezgov Inc to examine how take-up of filing by Internet could be increased for summer 2002. Changes, based on these findings, are planned to make the service easier to use.

Change on the way

The report concludes that e-services 'require a more customer orientated approach which will require changes in the way that the Revenue operates'. Simply 'e-enabling' existing services is not enough; some processes will need to be changed in order to provide the services that taxpayers want, and this will mean that the Revenue must find out what the taxpayer wants from a service. The report praises the Revenue for learning from the personal tax self-assessment experience, in that with regard to corporation tax self assessment, it has involved 'all stakeholders in the development of corporation tax e-services'.

Overall, the report recommends that the Revenue:

• establish what taxpayers require from the department's e-services;
• review the existing target of 50 per cent take-up of e-services by December 2005, and consider a number of different targets aimed at specific groups;
• build on existing progress to 'refine the management and development of e-services', for instance by testing products early, correct problems and if necessary stop development or withdraw a service, and perform project evaluations to 'learn lessons and disseminate good practice'.

Finally, the report praises many of the Revenue's good practices, and suggests that other public sector departments should learn from them.

Copies of the National Audit Office reports can be obtained from The Stationery Office. Better public services through e-government, ISBN 0102914656, £20.25; e-Revenue, ISBN 0102913536, £9.25.

Who wants IT?

The overwhelming problem faced by the Revenue and the Government is reluctance by the public to use the Internet for communicating. This is in part because not everyone has access to a computer, let alone the Internet, and that, heresy of heresies, not everyone wants access. Never has the saying 'you can lead a horse to water, but you cannot make it drink' been so true.

Another part of the problem is that most individuals' personal tax is pretty straightforward, and it actually takes longer to complete the tax return on screen than it does to write the entries on the paper form. Furthermore, for those filing by 30 September, the Revenue calculates the tax, so taxpayers, rightly or wrongly, perhaps feel that the responsibility for arithmetical accuracy lies with the Revenue. Perhaps a simplified form, based on the individual's previous tax return is a solution: a one or two-page customised form with a catch-all question at the end would be a more attractive prospect than trawling through eight pages, at least, of largely superfluous questions.

One aspect of filing by Internet which I personally have found discouraging has been the need to register first and then wait a week for a user identification. When I finally do get around to completing my tax return, I prefer to do it in one go, and get shot of it straightaway; surely I am not alone in this. Having to wait for a user identification is just another excuse to put off the chore of filling in the form in the first place. Result: neither gets done, until it is too late to wait for the user identification to arrive. However, the Revenue has cleverly countered this indolence. A few weeks ago, a missive from the Revenue dropped through the letter box, containing my user identification without my having to go through the bother of pre-registering. Check and mate, as they say. Well, there really is no excuse now; it would almost be rude not to file by Internet, the Revenue having gone to the trouble of sending out my user identification before I had even asked for it! Even the form is provided free online.

This is proactivity on a scale previously unencountered.

You WILL file by Internet

The most intimidating aspect of e-filing is the notion that the Revenue will make it mandatory. Clause 132(1) of the Finance Bill 2002 states that:

'The Commissioners of Inland Revenue may make regulations requiring the use of electronic communications for the delivery by specified persons of specified information required or authorised to be delivered by or under legislation relating to a taxation matter'.

This has been introduced currently to force employers to send in their end of year pay-as-you-earn forms electronically, as was recommended in the infamous Carter Report. The legislation gives the Revenue the power to impose a non-compliance penalty of up to £3,000. To say that this legislation has been widely drawn would be an understatement. It effectively gives the Revenue a clear hand to do whatever it wants to in order to force taxpayers to use electronic communication, regardless of the cost, ability, and personal inclination.

Hidden away in a Budget press release with the propaganda heading 'Supporting small businesses and entrepreneurs', the Chancellor made the following announcement:

'The Government is … proposing a three stage move towards e-filing:

• 'employers with 250 or more employees will be required to file electronically from 2004-05;
• 'employers with 50 or more employees will be required to file electronically and beginning with the year 2005-06;
• 'the incentive payments recommended by the review to encourage smaller employers with fewer than 50 employees to file electronically will begin from 2004-05 at the level of £250, tapering to £75 by 2008-09. The Government proposes that electronic filing of employer returns will become a universal requirement from 2010 for the filing of 2009-10 returns.'

It is the all-encompassing sentence, 'The Government proposes that electronic filing of employer returns will become a universal requirement from 2010 for the filing of 2009-10 returns', that is really threatening. Can the Government in all conscience really mean to include the two little old ladies who run a teashop (yes, such charming ventures do manage to co-exist alongside McDonalds) who are happy doing all their book-keeping and payroll manually? What about domestic employers of nannies for instance, who do not even get tax relief on the pay and National Insurance they are required to deduct on behalf of the nanny, will they too be compelled to send in their one-employee-return electronically? As the Tax Faculty in its representations to the Revenue on the Finance Bill says, 'it needs to be appreciated that the obligation to apply pay-as-you-earn is not limited to businesses'. The supposed solution is that businesses must employ a payroll bureau to do the work and file electronically. However, the suggested coercion is repugnant to our national culture.

Given that e-communication is still in its relatively early years, surely the Government should be opting for the softly, softly approach to try to persuade taxpayers that this is the best method for them. E-communication may prove to be the best way forward, but as John Whiting, past president of The Chartered Institute of Taxation, says in an Institute press release dated 10 May 2002, this should be 'by way of encouragement, not compulsion'.

Breakdown

Then there is that small matter of security. At the end of May, the Revenue had security problems with its self-assessment online service, i.e., its online self assessment form, which necessitated its shutting down. While it remained possible to file returns on line using other commercially produced software, the lapse does nothing to boost confidence in the system. Rather, it suggests that the Revenue should ensure that its own systems are in thorough working order, before it starts insisting that employers file by Internet, or even proposes the idea.

It is particularly unfortunate that the letters being sent by the Revenue to individual taxpayers with a readymade user identification number for filing by Internet purposes, referred to earlier, is coinciding with this breakdown.

No, no, no

Clause 132 is draconian, open-ended, unnecessary and way ahead of itself. It effectively gives the Revenue carte blanche to do what it sees fit in the electronic communication arena, when the debate on the issue has hardly started. The clause should be withdrawn from the Bill.

Issue: 3863 / Categories: