Private and confidential

John Bryning,

HM Revenue & Customs

Indirect Tax Process Team

1^st Floor

Regian House

Liverpool

L75 1AD

11 February 2014

Dear Mr Bryning,

VAT: Amendments to legislation - assistance with electronic filing of VAT returns

The Northern Ireland Tax Committee of Chartered Accountants Ireland is pleased to have the opportunity to comment on the above consultation document published on 20 December 2013. Information about Chartered Accountants Ireland and the Northern Ireland Tax Committee are provided on the previous page.

We would be happy to discuss any aspect of these comments and to take part in any further consultations/initiatives in this area that there may be in the future.

We have considered each of the questions outlined and summarised on page 12 of the consultation document and deal with these in turn below.

Question 1: If the VAT Regulations 1995 are amended as described in 4.3 above, will this be sufficient to provide a means for all VAT registered businesses (except the very small number that are exempt) to file VAT returns online?

We address the above question under a number of headings.

The role of amendments to the legislation

The starting point for this consultation should not be whether amending the 1995 VAT regulations as described in paragraph 4.3 of the consultation document will be sufficient to provide a means for all VAT registered businesses (except those that are exempt) to file VAT returns online. The legislation as it currently stands does do so, save for those very few situations that are currently classed as exempt.

We would reiterate that Chartered Accountants Ireland is fully supportive of the ongoing process to modernise communication methods with HMRC via online methods or e-submissions. The promotion and use of electronic filing methods is not in dispute, and we subscribe to its benefits and efficiencies. However the background to the consultation is clear, the First Tier Tribunal decision (ref: TC 02910t: L.H. Bishop Electrical Co. Ltd. A F Sheldon t/a Aztec Distributors) found that the failure of the VAT Regulations 1995 to take account of a person’s ability to comply on account of age, disability, computer illiteracy (linked to age) or remoteness of location was a breach of the European Convention on Human Rights.

Therefore the starting point for the amendments to be made to the VAT Regulation 1995 should be to build into those regulations a further exception to the mandate to file VAT returns online which caters for an inability to do so based on the aforementioned factors. That exception should then be covered by detailed guidance outlining situations where HMRC will accept inability to comply on the basis of the various factors to include details of how businesses can apply to be considered under the various exemptions.

Proposal to amend legislation to follow the exceptions provided for in the Income Tax (Pay As You Earn) Regulations 2003

Whilst situations of incapacity are currently catered for to an extent in the Income Tax (Pay As You Earn) Regulations 2003 which the consultation document moots should be the starting point for amending the 1995 VAT regulations, there are a number of aspects of the guidance supporting those regulations we would suggest are not replicated.

The guidance provides that when HMRC are satisfied a case meets the criteria to be treated as exceptional, an alternative channel will be offered, but only for a limited period. The guidance supporting the PAYE regulations advises that this will only remain in place until April 2017. We would not be supportive of providing for exceptional cases for a limited timespan only.

In particular, in cases where remoteness of location is the limiting factor, the ability to file online is dependent on infrastructures being upgraded in remote rural areas of the UK. Taxpayers living in these areas could be waiting for some time before adequate broadband service is available – the work of Broadband Delivery UK is crucial in that respect and there is no guarantee that that work will be completed by April 2017.

Furthermore, the rights provided for under the European Convention do not have a limited time span and providing an alternative option to online filing only for a period of time is suggestive that the difficulties those who are unable to file online experience can be easily resolved and are not permanent. This is often not the case.

Compliance costs

Whilst it is sensible to review each case, perhaps on an annual basis, it is simply not equitable to suggest that should the difficulties persist the taxpayer is expected to engage a third party to file online on their behalf. We would point out that under Your Charter, HMRC state at point 9 they will do “ all we can to keep the cost of dealing with us as low as possible”. Taxpayers in the UK have a choice as to whether or not they appoint an agent and often cost is a limiting factor in whether or not they do so. Requiring what in some cases will be vulnerable taxpayers to engage an agent to file online on their behalf would not keep the cost of dealing with HMRC as low as possible.

Compliance costs driven by the complexity of the tax system are a key challenge to the survival of the micro-enterprise category of the SME Sector, the sector most likely to include those who do not have capacity to file VAT returns online. Despite the UK’s standing as a jurisdiction in which it is classed as being relatively easy to do business (The World Bank’s “Ease of Doing Business Index 2013” recognises the UK’s position as number 10 in world), this cannot mask the fact that the tax system is complex and daunting to the micro-entrepreneur whose key focus is to manage limited resources and keep their business afloat. For those who do not have the capacity to engage with HMRC online for the aforementioned reasons it can be even more daunting.

If we consider that the average micro-enterprise must deal with at least four different taxes (Income Tax/Corporation Tax, VAT, PAYE, and commercial property rates) along with the burden of form filling (electronic or otherwise), tax deadlines and tax payments etc., then for those who do not have the capacity to file online it is simply unfair to add to their compliance burden.

Comparable experience in another jurisdiction

Mandatory e-filing was introduced in the Republic of Ireland in phases with phase 4 which commenced on 1 June 2012 including mandatory e-filing of VAT returns. Under those regulations, Revenue may exclude a taxpayer from their obligation to pay and file electronically, if Revenue is satisfied that the taxpayer does not have the capacity to do so.

A person may apply to the Revenue Commissioners to be excluded from the requirement to pay and file electronically on the grounds of a lack of capacity to fulfil their obligations. In this context “capacity” means sufficient access to the Internet, by which either or both a specified return or the payment of any specified liabilities may be made by electronic means and, in the case of an individual, also means not prevented by reason of age, or mental or physical infirmity from doing so. These provisions do not have a limited time span, nor do they force upon a taxpayer incapable of mandatory e-filing the requirement to engage a third party to file online on their behalf. Those who are categorised by the Revenue Commissioners as not having the capacity to file online then simply file on paper.

Right of appeal

We would also suggest that taxpayers applying to be treated as an exceptional case should have the right to appeal the decision made by HMRC as to whether or not their case meets the relevant criteria, this is provided for in the Republic of Ireland mandatory filing regulations.

Question 2: Is there any additional guidance we ought to provide for businesses having difficulty filing VAT returns online?

For taxpayers required to file VAT returns online, the guidance on the HMRC website is sufficient to cope with those situations where the business is having difficulty using the online service but otherwise has the capacity to do so.

For currently exempt situations, those situations are outlined on the website and an address is provided to apply to HMRC for the exemption. However there is no guidance explaining what happens once HMRC are satisfied that the criteria for exemption, as they currently stand, are met. For example, a search on the HMRC website for “Filing by Telephone” turns up no results. This needs to be corrected in the interim before the outcome of this consultation is finalised.

Assuming amendments to the VAT Regulations 1995 are made to provide for an additional exemption on the grounds of incapacity, detailed guidance will then be required to cover these cases. Such guidance should properly include an explanation of the options available for those not required to file online. We would suggest that Filing by Telephone should be just one of those options and in our concluding paragraph we make some other suggestions for alternative options.

Question 3: Are there any circumstances, other than those detailed above, where we ought to consider allowing businesses to use the Filing by Telephone service?

There are no other circumstances which occur to us at present other than those previously detailed where business should be able to use the Filing by Telephone service. However we suggest this particular question is kept under review.

Question 4: What changes would we need to make to the Filing by Telephone service to meet the objectives of accessibility and convenience?

We would suggest a number of changes/matters need to be addressed as follows:

• Publish details of the service on the HMRC website and ensure wider publication beyond the internet for those who do not have access or have particular access issues by reason of their disability/location.
• Ensure the guidance is clear, in particular that the business is aware that first it has to be enrolled for the VAT Online service.
• Ensure guidance is provided using plain language and alternative language and easy to read formats are available if requested.
• Make all guidance documentation available in various formats, such as large print, Braille and audio.
• The hours of availability of the service should be extended beyond 6pm on weekdays to 8pm and there should be availability for weekend appointments.

The hours of availability of the service were criticised in the Tribunal case. It is clear that the current arrangements are not sufficient to cater for businesses where the proprietor is the sole person involved in the business and thus would be required to temporarily close their business to take a call with the Filing by Telephone service.

• Clarification on how the ring back is arranged if a call is not answered within the 3 attempts made. This is particularily important given the tight deadline for submitting VAT returns and the potential for penalties for failure to do so.
• Clarification of the various matters raised on pgs. 80-88 of the Tribunal decision which raised concerns over conflicts of interest, the status of the relationship of HMRC with the taxpayer in using the service and the current requirement to appoint HMRC as an “Agent” for filing the return in this manner.
• The service should cater for those using text-speak/voice recognition phones and for those who having hearing difficulties.
• Provide for access to the service for a minimum initial period of 1 year once HMRC are satisfied a business meets the criteria for using the service, as opposed to the service being provided on a return by return basis as it currently is.
• Consider the possibility for the taxpayer to “login” using their telephone at the beginning of the call so that the adviser then simply confirms the name of the business and security information before proceeding with completing the VAT return.
• Clarification of what protection is in place to protect the taxpayer from phishing calls from fraudulent third parties.
• A continuation of the policy that businesses will not be held responsible for keying errors made during the phone call and that HMRC will take a pragmatic and reasonable approach to the imposition of penalties and surcharges in such situations and in situations where unique circumstances prevented the pre-arranged call taking place.
• A continuation of the policy that businesses are provided with a paper copy of the return submitted. We would suggest that consideration is given to providing the business at the point of submission of the return via the service with a confirmation number unique to the submission should queries arise before the paper copy is received by the business.

Question 5: Are there any other HRA or Equality Act issues that we need to take into account in the design of the VAT return filing process?

We reserve our opinion on this question and instead have focused our responses on practical administrative aspects in addition to the overarching premise that changes are required to the legislation to make it compatible with the European Convention.

Question 6: Do you have any general comments or questions about the issues raised in this consultation document?

This consultation raises concerns about whether there are other areas of UK tax legislation which are similarly affected by a failure to take account of Human Rights/Equality Act issues when mandating online filing. For example, the limited exceptions for filing Corporation Tax online replicate the current exceptions available for VAT which were successfully challenged last September.

It is also disappointing that all of the issues raised by the Tribunal Decision were recognised by HMRC at the time of the original 2011 consultation “VAT: consultation on the next steps for moving VAT online” when responses to that consultation were published in December 2011. However we view this consultation as a positive step and an opportunity to ensure amendments are made to the VAT Regulations 1995 to provide for an additional exemption on the grounds of incapacity.

We have already made some suggestions to improve the Filing by Telephone service under our response to question 4 above. We do not believe that the Filing by Telephone service would place an undue burden on those businesses using phone filing to engage in a short phone call every three months, especially when the timing of the call is arranged/agreed with them in advance (and they do not pay for the call). However we do suggest that this single option would not be a sufficient alternative in all cases. It is certainly clear from the Tribunal Decision that the judge had very similar reservations.

We recommend the following alternative options are also considered:

Option 1

Retain paper filing in very limited circumstances e.g. for those without capacity to use the Filing by Telephone service by reason of their disability/age/location.

Option 2

Make the Filing by Telephone service a ‘face to face’ service – whilst ideally this should be available in HMRC Enquiry Centres, these are being closed in 2014 and replaced by telephone services and visits to taxpayers.

On balance we would suggest option 1 is more cost effective and realistic as a concession, given that paper filing remains available to those who currently meet the exemptions in the 1995 VAT Regulations.

We believe that certain very specific conditions mean that solely providing Filing by Telephone as the only other option to filing online could be viewed as discriminatory and the other options mentioned above should be provided, subject to meeting strict criteria.

For example, certain developmental disorders such as autistic spectrum disorder, dyslexia and dyspraxia can mean that using the Filing by Telephone service would not be suitable for those people who, while able to run their own business, have social and communication disabilities make calling by phone particularly stressful.

The alternative options we have suggested would cater for those very unique limited situations.

We note from HMRC’s December 2011 response document to the original consultation that HMRC stated it was “actively considering the proposals made about Voicemail/keypad filing, as part of a wider piece of work looking at the possibility of introducing such systems for a wide range of transactions with HMRC. This work is in its very early stages, and would obviously need to factor in key issues such as security and confidentiality, and would need to be affordable. At present, the indications are that (assuming all these issues could be satisfactorily addressed) the earliest such a system could be in place (for VAT) would be April 2013.” An update on progress/developments in this area would be welcomed once HMRC is in a position to publish its response to the current consultation.

It occurs to us that the propose amendments to the 1995 VAT Regulations might require to be made via Remedial Order as provided for under Article 10 and Schedule 2 of the Human Rights Act 1998. If so, HMRC may wish to consider if it will be necessary to establish a mechanism to remedy those businesses unfairly penalised for failing to file online who clearly meet the “backdated” exemption.

In conclusion, we would remind HMRC of HM Government’s 2008 paper “Delivering Digital Inclusion: An Action Plan for Consultation” which contained the following statement on page 9: “some have made an informed choice not to engage directly in using the internet, and no part of this action plan suggests that they should be compelled to engage without a reason or need.” This was followed up in 2010 by the following statement by the Minister for the Cabinet Office “every single government service must be available to everyone - no matter if they are online or not”.

This consultation is an opportunity to amend the 1995 VAT Regulations not least to ensure compatibility with the European Convention but in keeping with the spirit of the Government’s own comments in this area.

Do not hesitate to contact Brian Keegan- brian. keegan@charteredaccountants.ie or Leontia Doran leontia.doran@
charteredaccountants.ie of this office should you require anything further.

Yours sincerely,

Paddy Harty

Chairman

Northern Ireland Tax Committee

Chartered Accountants Ireland

Source: Chartered Accountants Ireland. www.charteredaccountants.ie