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Govt report calls for e-tax incentives

Electronic filing to be mandatory by 2007

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A government review into payroll systems, published and referred to in Gordon Brown's pre-budget report yesterday, has recommended that incentives be given to small businesses to encourage them to file their tax returns electronically.

The Carter Review, conducted by millionaire businessman Patrick Carter, suggested all businesses with less than 50 employees should be given a £250 incentive next year (and smaller amounts for the next four years) if they sent their end-of-year details to the Inland Revenue over the Internet.

At the end of the five-year scheme - which will cost the government £290 million in total and generate savings of £105 million - it will be mandatory for all small business to send their details electronically. For companies with more than 50 employees, this obligation will be effective from the earlier date of 2004.

Yesterday, Chancellor Gordon Brown welcomed the report, saying: "There is a strong case for cash help for small firms to bring their payroll and tax systems online." An official press release stated however that while "the government endorses the review's recommendations", it believes "the issues raised would benefit from wider debate". It has given a deadline of 31 January 2002 for comments.

In his review, Patrick Carter - who is a non-executive director of the Prison Service, was best man (twice) for Foreign Secretary Jack Straw and has been a controversial choice on two previous government reports - recognises that compulsory electronic filing is "a sensitive issue" and will require new legislation to implement but says that "ultimately it may be the only realistic option if large numbers are to switch and so obtain the longer term benefits which the new technology has to offer".

These benefits include: more time to concentrate on "wealth creation" rather than admin; fewer inquiries from the Inland Revenue; less need to learn about changes in the tax system and government policies; greater certainty that the payroll will be accurate; a quicker way of dealing with starters and leavers; and increased access to wider business services.

The report estimates the cost for a small company of setting up and running a payroll system is between £200 and £250 a year. To overcome "significant cultural and financial barriers", an incentive would have to completely cover the cost, it says. The incentive would be reduced each year until it is just £75 in 2006.

The report assumes that 10 per cent of the 1.45 million small business in the country would move over to electronic filing in the first year, 20 per cent in the second, 30 in the third and so on - neatly adding up to 100 per cent.

The review was ordered by Gordon Brown in June this year to "identify ways of reducing total cost of payroll systems to business". The report, based on submissions by over 60 interested parties including accountants, software house and trade bodies, concluded that it had "no doubt that the way forward is for employers to take advantage of the opportunities provided by IT".

Other recommendations in the report were:

  • Accredited intermediaries would be entitled to receive the incentive payment for each of their clients
  • The Inland Revenue remove its £1,000 charge for accrediting accounting software
  • The Inland Revenue Web site be made simpler and more understandable (the report was unimpressed that despite "teething problems" only 160,000 individuals have signed up to file their returns over the Internet)
  • The IR's helpline service be expanded and improved
  • An ad campaign - at the cost of £5 million a year - be carried out to inform and encourage people to turn to IT solutions


The whole report can be viewed in pdf format here. ®

Related Link

The Carter Review on payrolls (pdf)

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