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Tax Rates & Allowances

Comment on HMRC online services

In March 2006, the Lord Carter of Coles' Review of HM Revenue & Customs (‘HMRC’) Online Services was published to coincide with Budget day. The Government welcomed his report, which was based on wide-ranging consultation with stakeholders, and accepted the recommendations in full with little further comment.

Budget 2007 has taken steps to advance these recommendations, making a number of modifications based on input over the last 12 months, and will introduce the necessary legislation to bring areas of this into law in Finance Bill 2007.

The recommendations will come into effect in stages from 2008 onwards subject to the right services being in place. This is intended to give HMRC, businesses, agents, software developers and taxpayers time to prepare for implementation.

The review recommends an aspirational goal for HMRC that it should aim for universal electronic business tax returns by 2012. It should also aim for universal electronic individuals’ tax returns from IT literate groups by the same date.

The main elements of the recommendations are as follows:

Corporation tax | Income tax | VAT | Enquiry window | Risk rules

Corporation tax

All companies will be required to file their company tax returns online, using eXtensible Business Reporting Language (‘XBRL’), and make payments electronically. This will be effective for all companies for accounting period ending after 31 March 2010, where the return is submitted after 31 March 2011. This is a deferment of 12 months compared to the proposals last year.

Our view

From 2011, electronic filing will consist of an XBRL submission of the company statutory accounts and tax computation with an XML based CT600 form.

Currently HMRC provide an online filing service for completion of the CT600 return using XML, with most software including PDF attachments for filing of the accounts and computation. HMRC have made the facility for including XBRL computations in the filing, but has been implemented by few vendors due to its complexity and current limitations.

We believe that HMRC still need to address the significant challenge of moving from a free format tax computation to a more rigid XBRL tax computation, while retaining the ability to handle the wide variety of company circumstances and all necessary disclosures. It is interesting to note that other tax regimes such as VAT and other countries such as The Netherlands and the US have fixed format submissions which do not face this challenge.

Companies which currently use Excel or other methods to prepare their company tax return and they will therefore need to consider using tax software or an agent to file their company tax return.

The Deloitte Abacus software already supports electronic filing and is relied upon by over 65% of the FTSE 100. We are currently working with HMRC on the implementation and impact of these proposals.

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Income tax

There are a number of significant changes to the Income Tax Self Assessment (‘ITSA’) regime which includes personal tax, partnership tax and trust tax returns.

For ITSA taxpayers, for 2007-08 and subsequent returns, the filing period for paper returns will be reduced to six months - the new deadline will be 31 October - and the filing period for online returns will remain as 31 January following the end of the tax year. From the same tax year, substitute returns will no longer be accepted and taxpayers and agents will only have the options of filing electronically or completing the return by hand.

Our view

We welcome the inclusion of Lord Carters’ revised recommendation on filing dates, which previously recommended a change to the current 31 January deadline for all taxpayers.

From our consultations with HMRC, they have currently done well in addressing issues raised by agents and software developers that currently act as barriers for taxpayers, and agents, to use the online services.

We still believe there are a large number of issues raised that have not been answered. It is essential that these are addressed satisfactorily over the next few months to give confidence in the service and make a smooth transition to the new regime.

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VAT

Large and medium sized businesses will be required to file their VAT returns online, and make payments electronically, for accounting periods starting after 31 March 2008.

The seven additional calendar days to submit VAT returns online will remain in place until at least April 2010

Our view
Historically, only 7% of traders filed online and this was partly due to the fact that the service involves filing through a web site and cannot be integrated into VAT reporting systems. The availability of an improved VAT Online service later this year and this will allow traders using third party systems such as Deloitte Abacus VAT to automate the entire VAT reporting process.

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Enquiry window

The measures introduce a change to the enquiry windows for ITSA and company tax returns, which run for 12 months from the filing deadline and which currently act as a disincentive to early filing.

The Budget is bringing in measures to link the enquiry window to the date a return is actually filed. This measure will be effective for ITSA for 2007/08 and subsequent years returns, and for CTSA for accounting periods ending after 31 March 2008.

Our view
We welcome the move to linking the enquiry window to the date the return is submitted. The move to introduce this for CTSA before the move to compulsory electronic filing is a welcome and sensible measure.

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Risk rules

The report also recommends that the HMRC share with software vendors some of the risk rules used to select cases for enquiry.

Our view
We welcome this recommendation remaining in the proposals. In our consultations with HMRC, this appears to be a difficult area for them to address, so it will be interesting to see how this is brought forward in the coming months.

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Glossary

XML - eXtensible Markup Language, the industry standard language for describing data in a universal way. XML is now almost universal as the data exchange format on the internet.

XBRL - eXtensible Business Reporting Language, a language based on XML specifically designed to report on financial data.



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