HM Revenue & Customs has failed to gauge taxpayers' costs in forcing them to file their tax returns online, according to the National Audit Office.

As part of its ongoing and wide-ranging audit of HM Revenue & Customs, (HMRC), the National Audit Office (NAO) has issued a report on HMRC's progress in 'encouraging' taxpayers to file returns online, instead of using paper forms - see The Expansion of Online Filing of Tax Returns.

It must be said that the NAO's report is positive in the main:

"HMRC’s expansion of online filing has been a real achievement. The programme is largely complete, to time and budget, and more than 11 million customers are filing online. It is an integral part of the Department’s drive to increase efficiency."

So far so good. But - and the emboldening is TW's own:

"However, HMRC cannot demonstrate that the benefits are being maximised. Significant improvement is needed in its understanding of costs and benefits to inform future development."

The full report re-iterates this later point several times, for instance:

"12 HMRC has yet to measure whether the anticipated benefits and costs to customers are being achieved, but plans to do so. HMRC’s business case placed less emphasis on evaluating benefits and costs to customers, but sought to quantify these in annual regulatory impact assessments. [see below]. In 2009, it estimated savings to be between £60 million and £97 million a year, with one-off costs of £39 million and annual costs of £5 million. HMRC is not in a position to compare actual customer benefits and costs against these estimates because it has not measured them, although it plans to do so."

and at 24 (b):

"HMRC does not yet know if customers are receiving the benefits expected from online filing, nor the costs they incur. It should assess:

• customer benefits by, for example, measuring the time spent by customers filing a return and the speed with which tax assessments are finalised; and
• the costs incurred by customers in preparing for, and using, online filing."

The NAO has recognised that HMRC has failed meaningfully to account for the cost of or benefit to taxypayers of its "rush" to online services, focusing instead on the anticipated reductions in its own costs. And the costs of implementing mandatory iXBRL online filing by companies has been very significant.

In the main report at 1.18:

"Professional bodies told us of their concerns about the costs incurred by customers in providing tagged information using iXBRL, largely due to increased preparation time, and high failure rates when returns are first submitted. They considered that iXBRL involved customers in extra costs for little direct benefit and suggested that HMRC could still undertake effective risk assessment with a significantly lower level of tagging, which would also reduce customers’ preparation costs."

So What did HMRC Originally Estimate "Going Online" would Cost?

In light of the well-publicised problems caused by mandatory filing in iXBRL format, the cost to companies of being forced to "go online" has clearly been significantly under-estimated. Or perhaps intentionally overlooked. The idea that moving to mandatory online and iXBRL filing would cost each company in the UK just £10, is clearly nonsense.

In its Partial Regulatory Impact Assessment in 2006, HMRC's Assessment for Increasing Use of Online Services estimated a total "one-off" cost of implementing online filing of just £6m, because, for instance, the cost to companies with agents would be "negligible". As outlined above, this has proved far from accurate.

The 2007 Regulatory Impact Assessment HMRC Online Services: Increasing Use of Online Filing and Electronic Payment preferred to estimate the total cost to businesses of going online, for VAT, PAYE and Corporation Tax together, at just £36m - which was £10m less than the total estimated in the 2006 Partial RIA.

By 2009 the total cost for businesses and individuals was estimated at just £39m, as per the NAO report above. Doubtless more taxpayers will have started to file online between 2006 and 2009, so the aggregate cost to the remainder will have fallen. Without a breakdown of the global figure it is difficult to tell, but it seems more than likely that the cost of implementing online/iXBRL filing for companies at least, remained woefully short of the mark.

One final extract from the NAO's report:

"3.12 Lord Carter’s review recommended that HMRC should benchmark customer satisfaction with its online services against commercial online services, but HMRC has not sought to do this since it considers this would be costly."

It would be easy to infer from this that HMRC is giving a much higher priority to its own costs, than the cost or convenience of taxpayers. (TaxationWeb does not refer to taxpayers as "customers", as customers don't have the moral duty to "pay their fair share" for whatever they consume and, may take their 'custom' elsewhere - for instance, if they are dissatisfied with the level of service they have to endure receive).

We have already alluded to this in a previous article - HMRC Tightening Up on Intrastat - What's the Real Cost to Business?

Our colleagues at the Low Incomes Tax Reform Group are championing the cause for those who are at risk of being put at a disadvantage by the stampede to online filing - see for instance Digital by Default - Response from the Low Incomes Tax Reform Group.

On 23 November 2010 Mr. Francis Maude, Minister for the Cabinet Office is reported to have said, (albeit in the context of access to benefits),

"This does not mean we will abandon groups that are less likely to access the Internet," he added. "We recognise that we cannot leave anyone behind. Every single government service must be available to everyone - no matter if they are online or not."

Which does rather beg the question of why then, must all Employers' Annual Returns, Corporation Tax Returns and soon all VAT/Intrastat Returns, be filed online?

Following our news article last week that the UK government had announced that the Low Value Consignment Relief which allowed the VAT-free import of goods to the UK would be abolished - but only for the Channel Islands - (Government Announces Abolition of VAT-Free Imports from the Channel Islands) - the Islands' governments and retailers have responded that they will fight the new measure.

Guernsey’s Chief Minister is reportedly concerned that the new policy "fails to differentiate between those businesses that have minimal footprint in the island’s economy from indigenous businesses" - distinguishing those businesses which have arguably relocated from the mainland to exploit the VAT 'exemption', from smaller local businesses.

Healthspan, which is also based in Guernsey, has announced that it intends to challenge the UK government's "discrimination" against the Channel Islands, since businesses from other non-EC territories will continue to benefit from the Low Value Consignment Relief for goods with a value of less than £15, so they can undercut Guernsey businesses (or take more profit) as their price to mainland UK customers will not include VAT.

There is a principle of Freedom of Establishment in EU law, which broadly entitles a business to carry on an economic activity in a stable and continuous way in one or more Member States. Healthspan's complaint appears to be that the new rules discriminate against businesses operating in the Channel Islands, which would distort competition with other territories. Of course mainland UK businesses that have not been able to benefit from the VAT 'exemption' exploited by their competitors 'in' the Channel Islands, would argue that competition has already been unfairly distorted for a long time.