In a welcome break from tradition, Her Majesty's e-taxman did not make the wrong kind of headlines this year. HM Customs and Revenue has announced that a record number of people filed their annual self-assessment return electronically rather than on paper - and that the web systems coped with the last-minute rush to meet the deadline of January 31.
According to the agency, just under 2 million taxpayers lodged their self- assessment returns online at www.hmrc.gov.uk. This was 38% up on last year, and will amount to almost one quarter of all returns, David Varney, customs chairman, says. The exact proportion of returns filed electronically won't be known until the agency has counted its paper forms; 9.8m were sent out.
At the peak in demand, on the days before the January 31 deadline, electronic tax returns were arriving at the rate of 8,700 per hour. The system coped - in sharp contrast to last year, when online filing had to be suspended after a last-minute surge in demand brought the website to a halt. That was only one of a series of mishaps to dog e-filing, one of the most important "e-government" services, in its first few years.
Electronic tax filing was launched in April 2000, but for the first few years, only a handful of taxpayers could make it work. In 2002, 80,000 filed self-assessments online: four times as many tried and failed. At one stage that year, the service had to be withdrawn because a security breach allowed people to see other taxpayers' returns. In January last year, after major technical changes including a new prime IT contractor, the system was supposed to be up to industrial strength. It wasn't: when files started coming in at the rate of 4,800 an hour, the website ground to a complete halt.
Despite this year's breakthrough, HM Revenue and its IT contractor Capgemini cannot yet relax. The British public's takeup of e-tax services is well behind that of Canada and some Nordic states. Meanwhile, another of the agency's e-services, online applications for tax credits, remains suspended following attempted (or possibly successful) fraud in which hundreds of people had their identity stolen and used to claim credits that were funnelled into other bank accounts.
Building a critical mass of users is essential if e-government is to save money. Varney says the growth in popularity was due in part to new online services, which allow taxpayers to check their payment details and how much they owe as well as to file their returns. "Much effort has been put into promoting the benefits of online filing, and that's paid off."
However, the UK still has some way to go. In Canada, more than 50% of the population file their returns online. Denmark and Sweden have achieved even higher rates. The trick seems to be to design the tax system so that as few people as possible need to interact with government. Denmark's "no touch" tax administration, at www.skat.de, was designed so that the vast majority of citizens, including the self-employed, just need to approve their tax return. The country introduced e-filing, originally by telephone, in 1994. Last year, two-thirds of "active filers" - the equivalents of self-assessors in Britain - filed electronically. In all, only 10% of all returns, 400,000, came in on paper.
Britain will find it difficult to emulate this example. The Danish taxman has much better running records of who is getting paid by whom. Every citizen has a unique identification number that is used for employment, banking and tax purposes. In the UK, by contrast, personal identity numbers are a mess: the revenue does not even trust the national insurance number, on which employment and social security records are supposed to be based, for its own records.
Government's inability to join up information about individuals was one reason why the self-assessment system was introduced in the first place, in 1997. Since then, officials have been struggling to simplify the system and reduce the need for people to calculate their own returns. However, they admit that much needs to be done before many people will be able to follow the Swedish example and approve their tax assessment by text message.
In the meantime, HM Customs and Revenue has other IT priorities. One is to sort out the tax credits system, a benefits reform rushed through in 2003 with disastrous consequences. Last November, the government accepted £71m in compensation from EDS, its IT contractor at the time. Treasury minister Dawn Primarolo claimed last week that the IT system is now on the mend. "A significant new software release was introduced without a hitch in November. Although largely invisible to people outside, this exercise delivers real improvements in operational performance," she told a parliamentary committee.
However, one key part of the system is still out of action. Last November, the Treasury shut down a service to allow people to apply for tax credits online after investigators found evidence of organised fraud on the system, using stolen identities. It could not say when this e-government service - whose proper beneficiaries should be the needy - would be restored. Amid the success of tax filing, that remains a lingering sore.
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