The previous five clauses all dealt with Lord Carter’s recommendations on self-assessment tax returns. The next clauses complete the package of legislative changes needed to implement his other recommendations. Together, they will mean that both business and HMRC will achieve the benefits that he envisaged.
Clause 92 extends HMRC’s powers to require the use of electronic communications for the delivery of information to all taxes and duties for which it is responsible. In line with Lord Carter’s recommendations, the revised power will enable HMRC to make recommendations to require companies to file their company tax returns online, to require employers to file their in-year forms online and to require VAT traders to file their VAT returns online. Those requirements will be phased in from April 2009, in line with the revised timetable that we announced in the Budget. That timetable will give businesses the time that they need to prepare for the changes.
I am happy to put it on the record again that none of those requirements will be introduced until the services have been thoroughly tested and proven to operate effectively. That is in line with the principles set out by Carter. Both the Treasury and HMRC take that point very seriously. That is one reason why HMRC is investing £170 million in its online services over the coming years——to ensure that it will be able to perform to the level and capacity that we require. I commend the clause to the Committee.
The Institute of Chartered Accountants has expressed concerns about this matter and sought reassurance that there are no plans for the compulsory electronic filing of income tax returns or the compulsory electronic payment of income tax liabilities. I think that the Minister has just given that reassurance, so I shall simply flag up a few issues.
We have talked about vulnerable groups filing self-assessment returns; there are also concerns about the ability of businesses to submit electronic tax returns. According to the regulatory impact assessment, Revenue and Customs estimates that up to 250,000 businesses will be required to file tax returns online. That is a significant number of businesses. I can think of many small businesses in my constituency that work on a subsistence basis. They might have to deal with the issues that I mentioned earlier, such as low skill levels, and might therefore have low computer literacy as well as any other kind of literacy. I seek reassurance from the Minister that the proposals will not be pushed forward at a rate that will preclude those businesses from being able to take part or that will cause them excessive difficulty or expense in co-operating.
I echo the hon. Lady’s sentiments. I did not anticipate that I would be able to bring my experience from the Public Accounts Committee so directly to bear in this Committee, but I alert hon. Members to another session that we had recently with the chairman of HMRC on filing VAT and company tax returns, because it is directly relevant to this clause. It became apparent from our discussions that the proportion of companies that file their tax returns online has increased from 2 per cent. in the year ending March 2006 to 7 per cent. in the year ending March 2007. HMRC’s target for company tax returns for March 2008 is 35 per cent. The chairman acknowledged that increasing performance regarding company tax returns in the next 12 months would be a tough act.
On VAT, the proportion of companies that filed their returns online in the year to March 2006 was 5 per cent. That performance improved to 9 per cent. for the year ending March 2007, but the target for the year ending March 2008 is 50 per cent. and the target for March 2010 is 100 per cent. HMRC’s performance in achieving its targets for online returns has, by its own admission, been modest at best.
The clause will give HMRC the ability to encourage companies to file online returns by law, but I add my voice to that of the hon. Member for Falmouth and Camborne to urge the Financial Secretary not to take advantage of the mandatory powers introduced by the Bill until such time as HMRC can cope with returns.
I have made it clear, including in my opening remarks, that we will move to introduce the requirements only when the systems necessary for handling them have been properly tested. I say again to the hon. Member for Falmouth and Camborne that the measures will be phased in from April 2009. That should give businesses time to prepare. I would welcome it if she wishes to work with HMRC to ensure that smaller businesses and others in her constituency are fully aware of the measures.