AAT RESPONSE TO THE HMRC CONSULTATION ON “VAT: AMENDMENTS TO LEGISLATION – ASSISTANCE WITH ELECTRONIC FILING OF VAT RETURNS”

1 EXECUTIVE SUMMARY

1.1  The Association of Accounting Technicians (AAT) welcomes the opportunity to respond to the HMRC consultation document: “VAT: Amendments to legislation – assistance with electronic filing of VAT returns”. We are participating in this consultation not only on behalf of our membership but also from the wider public benefit perspective of achieving sound and effective administration of taxes. In relation to this wider public benefit perspective we have discussed our response with the Low Incomes Tax Reform Group (LITRG).

1.2  Our key point is that the solution suggested in the consultation document does not remedy the breach of the European Convention on Human Rights (ECHR) evident in LH Bishop Electric Company Limited, Allan Frederick Sheldon T/A Aztec Distributors, Winston Robert Duff Tay T/A Rhos Filling Station, and Brinklow Marina Limited (TC02910) [2013] UKFTT 522(TC) (LH Bishop) and referred to in paragraph 3.2 of the consultation document.

1.3  Our recommendation is to amend regulation 25A(6) of the VAT Regulations 1995 so that any person who cannot file a VAT return electronically can file by paper. We would recommend that regulation 25A(6) should not attempt to define the circumstances in which a person cannot file electronically and should not require a person to satisfy the Commissioners that they cannot file electronically before they are allowed to file by paper.

1.4  We recommend that the provisions of regulation 25A(3) continue to apply so that the VAT Regulations 1995 are consistent with the wider Government digital agenda referred to in paragraphs 1.4 to 1.7 of the consultation document and provide a means for HMRC to challenge any business that they consider may be abusing the provisions of the amended regulation 25A(6).

1.5  The amendment we have suggested to regulation 25A(6) may appear to be contrary to the Government Digital Strategy. However, mandatory electronic filing is required by regulation 25A(3) and we are not proposing any amendment to regulation 25A(3). We are simply proposing an amendment to regulation 25A(6) that provides an appropriate exemption from the requirements of regulation 25A(3) and therefore a remedy for the breach of the ECHR evident in LH Bishop.

2 INTRODUCTION

2.1 The AAT welcomes the fact that HMRC has decided not to appeal the decision in LH Bishop and are consulting on amendments to the VAT Regulations 1995.

2.2 The AAT is responding to the consultation from the public benefit perspective of achieving sound and effective administration of taxes. We congratulate HMRC for ensuring that electronic filing is an efficient and effective method of filing VAT returns and we would encourage HMRC to ensure that this continues to be the case.

2.3 Currently businesses are legally obliged to file their VAT returns by electronic means unless one of the limited exemptions in regulation 25A(6) of the VAT Regulations 1995 applies. Those exemptions currently relate only to businesses which are:

2.3.1  Subject to insolvency procedures; or

2.3.2  Run by people who are practising members of religious societies or orders whose beliefs are incompatible with the use of electronic communications

2.4 Where one of the exemptions in regulation 25A(6) applies the business is obliged by regulation 25A(4) to file by paper. In essence, businesses are legally obliged to file their VAT returns by electronic means unless one of the exemptions in regulation 25A(6) applies, in which case they are legally obliged to file their VAT returns by paper.

2.5 The digital assistance currently available is referred to in paragraphs 2.5 to 2.7 of the consultation document and consists of:

1.  Using public libraries

2.  Using computers owned by friends or family

3.  Using the services of an agent

4.  Using the Filing by Telephone service

2.6 Methods 1, 2 and 3 above can interfere with a person’s right to respect for private and family life and/or their right not to be discriminated against.

2.7 Method 4 above is not a method of online filing and may also interfere with a person’s right not to be discriminated against.

2.8 The methods of digital assistance currently available are of very limited help to those who cannot file VAT returns electronically.

2.9 The fact that telephone filing is not a method of filing VAT returns by electronic means and is not currently permitted by the VAT Regulations 1995 is noted in paragraph 475 of the Tribunal report in LH Bishop. Paragraph 4.2 of the consultation document refers to the Filing by Telephone services as a method of filing VAT returns by electronic means. This appears to contradict paragraph 475 of the Tribunal report and suggests that HMRC remain under the mistaken impression that telephone filing is a form of electronic filing - see paragraph 512 of the Tribunal report.

2.10 It would be possible to amend the VAT Regulations 1995 to provide a statutory basis for the Filing by Telephone service. It would also be possible to widely publicise the availability of the Filing by Telephone service. However, these changes would not ensure that the VAT Regulations 1995 would be compliant with the ECHR. This is because some of the same old people and/or disabled people who have difficulty filing VAT returns electronically are also likely to have difficulty filing VAT returns by telephone. Regardless of the quality of the Filing by Telephone service provided by HMRC, if a person has a hearing difficulty or a speech impediment they may be unable to use the service to file VAT returns accurately. According to paragraph 894 of the Tribunal report in LH Bishop, the failure of Regulation 25A to include exemption for old and disabled persons is not appropriate to its legitimate aim of online mandation. The consultation document does not explain how a telephone filing service provides an appropriate exemption for old and disabled people who may, as a result of their age or disability, have a hearing difficulty or a speech impediment.

2.11 Only businesses to which one of the limited exemptions in regulation 25A(6) applies can file by paper. Not only are the exemptions in regulation 25A(6) currently very limited, but, based on the Tribunal report in Graham Arnold Blackburn and Abigail Blackburn T/A Cornish Moorland Honey (TC02913) [2013] UKFTT 525(TC) it would appear that HMRC had been interpreting and applying regulation 25A(6) in a way that was inconsistent with the ECHR.

2.12 Our recommendation is to amend regulation 25A(6) of the VAT Regulations 1995 so that any person who cannot file a VAT return electronically can file by paper. We would recommend that regulation 25A(6) should not attempt to define the circumstances in which a person cannot file electronically and should not require a person to satisfy the Commissioners that they cannot file electronically before they are allowed to file by paper.

2.13 We recommend that the provisions of regulation 25A(3) continue to apply so that the VAT Regulations 1995 are consistent with the wider Government digital agenda referred to in paragraphs 1.4 to 1.7 of the consultation document and provide a means for HMRC to challenge any business that they consider may be abusing the provisions of the amended regulation 25A(6).

2.14 This should completely remove the need for the Filing by Telephone service and address the ECHR issues evident in LH Bishop. It should also provide a means for businesses temporarily unable to file a VAT return electronically to file by paper. Examples include businesses temporarily without electricity or internet access because of severe weather conditions. Such conditions can last for many days.

2.15 We congratulate HMRC for ensuring that electronic filing is an efficient and effective method of filing VAT returns and we would encourage HMRC to ensure that this continues to be the case. This should help to reduce the number of paper VAT returns that may be filed as a result of the amendment we have suggested to regulation 25A(6) and should result in the cost to HMRC of processing paper VAT returns being much less than the cost of publicising and operating an enhanced Filing by Telephone service. A point that we feel particularly adds to the attraction of electronic filing compared to paper filing is the additional seven calendar days for electronic filing compared to paper filing and we would encourage HMRC to ensure that this attractive feature of electronic filing remains.

3 VAT: AMENDMENTS TO LEGISLATION – ASSISTANCE WITH ELECTRONIC FILING OF VAT RETURNS

Q1. 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?

3.1 We recognise that HMRC want to ensure that all VAT registered businesses (except the very small number that are currently exempt on the grounds of religion or insolvency) can file VAT returns online. However, for the reason explained below, we do not agree that a change in the VAT Regulations 1995 as described in paragraph 4.3 of the consultation document would provide a means for businesses to file VAT returns online.

3.2 Paragraph 4.3 of the consultation document describes an amendment to align the VAT Regulations with the relevant provisions set out in regulation 67D of the Income Tax (Pay As You Earn) Regulations 2003.

3.3 Regulation 67D of the Income Tax (Pay As You Earn) Regulations 2003 says:

"(11) Where the Commissioners for Her Majesty's Revenue and Customs are satisfied that

(a) it is not reasonably practicable for an employer to make a return using an approved method of electronic communication, and

(b) it is the employer who delivers the return (and not some other person on the employer's behalf)

they may make a direction specifying that the employer is not required to make a return using an approved method of electronic communication."

3.4 Regulation 67D allows HMRC to make a direction specifying that the employer is not required to make a return using an approved method of electronic communication. The point is that Regulation 67D does not provide an employer with the means to file a return online.

Regulation 67D simply provides HMRC with the means to allow an employer to file a return by a different method.

3.5 Having the means to file VAT returns online includes having access to the necessary skills and technology. A minority of businesses, either by choice or circumstances, do not have access to the skills and technology necessary for online filing. The change in the VAT Regulations 1995 described in paragraph 4.3 of the consultation document would not provide those businesses with the means to file VAT returns online. Instead, the change would simply provide HMRC with the means to allow those businesses to file VAT returns by a different method.

Q2. Is there any additional guidance we ought to provide for businesses having difficulty filing VAT returns online?

3.6 Businesses having difficulty filing VAT returns online are unlikely to be able to access directly any online guidance that HMRC may provide. It will therefore be necessary to make the guidance available in a paper format. This could be done by writing to the businesses that do not currently file electronically and all newly registered businesses. A limited amount of guidance could be provided online but HMRC should not rely on online methods of communication, particularly in relation to businesses having difficulty filing VAT returns online.

3.7 The content of the additional guidance will depend on the details of the amendments to the VAT Regulations 1995. For example, if our recommendation is implemented it would be appropriate for HMRC to make businesses that are having difficulty filing VAT returns online aware that they can file VAT returns by paper.

Q3. Are there any circumstances, other than those detailed above, where we ought to consider allowing businesses to use the Filing by Telephone service?

3.8 No. Amending regulation 25A(6) of the VAT Regulations 1995 so that any person who cannot file a VAT return electronically can file by paper should completely remove the need for the Filing by Telephone service and should be more cost effective for HMRC – see paragraph 513 of the Tribunal report in LH Bishop.

Q4. What changes would we need to make to the Filing by Telephone service to meet the objectives of accessibility and convenience?

3.9 Regardless of the quality of the Filing by Telephone service provided by HMRC, if a person has a hearing difficulty or a speech impediment they may be unable to use the service to file VAT returns accurately.

3.10 Annex A to the consultation document explains that the Filing by Telephone service involves a telephone call lasting no more than 15 minutes during which the HMRC adviser will identify him or herself, ask some standard security questions, repeat back every figure provided until the business is content that the correct figure has been keyed in, remind the business about paying the VAT, and arrange the next telephone appointment. Annex A also explains that a paper copy of the filed VAT return will be posted to the business.

3.11 It is not difficult to imagine the telephone call taking much more than 15 minutes if the person using the service has a hearing difficulty or a speech impediment or a combination of both. In some cases the business may never be content that the correct figures have been keyed in because they cannot hear the figures that the HMRC adviser is repeating back to them. In other cases the business may be mistakenly satisfied that the correct figures have been keyed in because they have misheard what the HMRC adviser has said.