FINANCE BILL 2000
CLAUSE 139 AND SCHEDULE 38: POWER TO PROVIDE INCENTIVES TO USE ELECTRONIC COMMUNICATIONS
SUMMARY
1. This clause and schedule allows the Inland Revenue and Customs & Excise to provide incentives to encourage people to use electronic communications with the tax authorities or in connection with taxation matters.
DETAILS OF THE CLAUSE
2. Subsection (1) provides for the making of regulations in accordance with schedule 38 to provide incentives for electronic communication.
3. Subsection (2) provides that an incentive received under any such regulations will not be taxable income.
DETAILS OF THE SCHEDULE
4. Paragraph 1(1) provides for the making of regulations to provide incentives to use electronic communications for purposes mentioned in the section 132(1) of the Finance Act 1999, for any other communications with the tax authorities or in connection with taxation matters. Section 132(1) of the Finance Act 1999 provides for regulations to be made to allow the use of electronic communications for the delivery of information, such as tax returns, and the making of payments, required by law.
5. Paragraph 1(2) provides that the power to make regulations lies with the Commissioners of Inland Revenue and of Customs & Excise in relation to matters under their respective care and management. The broad scope of the provision means that regulations that will allow incentives to be provided for electronic communications may be made in respect of any area of the businesses carried out by the two departments.
6. Paragraph 2 sets out examples of the type of incentives that may be provided for in the regulations. These include the following:
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Discounts [(2)(a)]
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Extra time to comply with obligations under tax legislation. This could include additional time to pay tax or other amounts [(2)(b)]
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Arrangements to allow delivery of information or the making of payments at more convenient intervals. [(2)(c)].
7. Paragraph 3 provides that the regulations may stipulate conditions for entitlement to an incentive. Subsection 2 of paragraph 3 gives examples of the type of conditions that might be set. Subsection 3 allows the regulations to include a right of appeal against a decision that the conditions of entitlement to an incentive are not met.
8. Paragraph 4 allows the regulations to include provisions for the withdrawal of an incentive. Subsection 2 of paragraph 4 gives examples of the type of things that may be included in the provision for the withdrawal of an incentive. Subsection 3 allows the regulations to stipulate that the arrangements set out in other parts of the legislation for assessments, appeals and recovery of tax may be applied, with any necessary adaptations, to the withdrawal of an incentive. This means that the value of an incentive that had been wrongly given to a person could be assessed and recovered in the same way as, for example, an incorrect repayment. And the person could appeal against that assessment in the same way as an appeal may be made against an assessment to recover an incorrect repayment.
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9. Paragraph 5 allows the regulations to provide for any of the provisions mentioned in paragraphs 3 and 4 to be made by means of a specific or general direction given by the tax authorities. This provision would, for example, allow the tax authorities to stipulate the means of electronic communication, which should be used to qualify for an incentive, in a public notice.
10. Paragraph 6 allows the regulations to provide for a special penalty not exceeding £1,000 for a failure to comply with specified requirements imposed by the regulations.
11. Paragraph 7(1) contains a number of miscellaneous powers including the power to make different provisions for different categories of people or other concerns.
12. Paragraph 7(2) provides that the regulations under the schedule are to be made by Statutory Instrument, subject to the negative instrument procedure.
13. Paragraph 8 sets out various relevant definitions.
BACKGROUND
14. The Government is taking a leading role in encouraging enterprise in electronic business and in the development of the infrastructure needed to support the competitiveness of UK business in the growing e-commerce markets. The power to provide incentives to encourage the use of electronic communications is a joint measure between Customs and Excise and the Inland Revenue. It supports the work to modernise the tax system and links to the Prime Minister's target that 25% of transactions with government should be capable of being done electronically by 2002.
15. Legislation in the 1999 Finance Act enables Customs & Excise and the Inland Revenue to develop new electronic services that people can use as an alternative to traditional paper based communication. As a first step Internet filing services for income tax Self Assessment tax returns, end of year PAYE returns and VAT returns will be introduced during 2000-01 and 2001-2002.
16. The Chancellor first announced his intention to offer a discount to small businesses that file their tax returns over the Internet to encourage take up of this service in his March 1999 budget. On 16 February 2000 he announced that individuals who file their Self Assessment tax returns over the Internet in 2000-01 and pay any tax due electronically will receive a discount of £10. Small businesses that do the same for PAYE and VAT returns in 2001-02 will receive a discount of £50 for each. And in his budget speech on 21 March 2000 he said that small businesses that qualify for the PAYE discount and which pay tax credits to employees would receive a further discount of £50.
17. These discounts are the first incentives that will be offered by virtue of regulations to be made under this schedule. Their success in encouraging use of the new Internet filing services will be carefully monitored. The tax authorities intend to introduce further Internet and electronic services. The government may decide to offer incentives to use other Internet or electronic communications services in due course.