Item 2 is an evidence-taking session on the implementation of the devolved taxes with Eleanor Emberson, chief executive of Revenue Scotland; John King, Registers of Scotland; and John Kenny, Scottish Environment Protection Agency. I welcome our witnesses to the meeting.
Members have copies of the written update from Revenue Scotland, and we will move straight to questions. As the witnesses have been here many times before, they will know the drill: I will ask some questions first, and colleagues around the table will follow.
Although the update report is excellent and very comprehensive, I want to pick up on a number of issues. First of all, paragraph 13 states:
“I am confident that we will deliver the IT system, operational staffing and all the other elements that need to be in place for the collection and management of the two taxes for 1 April.”
Can you confirm that they are all now in place?
All the elements of the information technology system are now developed. We are carrying on with the testing, which, as you know, we have been carrying out since way back in December; we have been involving external users since January, and we will be doing further testing with them next week. We are very confident that all of that is going very well, and no issues have come up that are causing me anxiety.
As for staffing, we now have all the staff, and I am quite confident that we have enough to go live. We have further recruitment in hand but, even if we get nobody else, I am quite happy that we have the staff that we need to go live on 1 April.
That is excellent—I am very pleased to hear that.
In paragraph 16 of the update, you state:
“External user feedback during testing and since the portal opened has been overwhelmingly positive.”
Can you give me an example or two of some of the feedback that you have received?
As the committee might be aware, the convener of the Law Society of Scotland’s tax law sub-committee saw the system and commented that it was “intuitive” and easy to use. The overwhelming feedback is that the IT system is much simpler to use than the one for stamp duty land tax. Those who have been testing it have given us some suggestions for improving the system slightly, which we have taken on board. Generally speaking, it has been going really well.
I have indeed seen Isobel d’Inverno’s comments about how user-friendly the system is now.
In paragraph 17 of the update, you say:
“the system will be opened for external users”,
adding that this
“may reveal additional bugs or issues.”
Has anything been identified in that regard?
Next week, we are going to do a further round of end-to-end testing of all aspects of the system, which will involve external users, and after that, we intend to open up the system to a wider group. So far the testing has revealed a number of small issues, and we have been able to tidy them up and make things clearer and slightly easier for users. I expect that we will continue to find things like that and trap one or two confusing error messages. The system is now at the level of refinement, and we will see what comes out when we open it up to a wider community, but we do not expect any significant problems.
Good stuff.
I should say that I am not neglecting the two Johns—I just do not have any questions for them. Colleagues around the table might. We will proceed with you for the time being, Eleanor.
With regard to taxpayer contacts, you say in the update report:
“Up to 26 February, the support desk has been handling an average of 33 calls per day, with steady progress in sign-up numbers.”
What is the capacity for call handling? Do you expect that to be an issue? Will it be okay? Do you have any indications as yet?
We have done our planning on volumes of calls, and we will be able to handle 250 to 300 calls a day if we have to; if that is the case, we can scale the staffing up. With colleagues, we have examined the level of calls that we could get. We expect to take higher numbers around the end of March and the beginning of April, and we will ensure that we have extra staff online who will be ready to answer calls if necessary. Since I wrote the update report, the level of calls has continued at a similar level.
In paragraph 30 of the update, you mention
“The change to the costs of IT procurement and maintenance”,
and state
“that VAT will not be recoverable”.
Was there an understanding at one point that it would be recoverable? How much VAT is not being recovered?
There was no such understanding, but it was the original basis for costing. A lot of this goes back to the 2012 estimates and the figures that were worked out then, and other figures were developed later. As a result, we have been costing everything on a slightly—how shall I put it?—artificial basis. It was made clear all the way back in 2012 that we were costing on the basis of VAT being recoverable but it is quite clear to us that it will not be, as far as the IT system is concerned.
Having included VAT on the IT system, I must apologise to the committee, as the table of costs that I have sent you contains a slight inconsistency in the treatment of VAT. We have included VAT in the IT system costs and—I think—in some of the costs that we are paying to Registers of Scotland for set-up. However, we have not included it—or rather, we think that we have not included it consistently—for our colleagues in Registers of Scotland and SEPA. The impact of that would be, I think, a maximum of £24,000 out of the £21.2 million, so I hope that the information is not materially misleading, but I can write to the committee and correct the figures after the meeting.
I just wanted to know what the figures are.
For the IT system, the figure is of the order of £200,000, but I can come back to you with the precise number.
The figures that I have show that the IT costs have gone from £1.5 million to £2.266 million. Even if VAT were imposed on all of that, it would be one sixth. That would still mean an increase, but overall you seem to have come in at approximately £1.1 million below the £22.3 million figure that was mentioned. Obviously, that is a lot more than the £16.7 million that was initially hoped for. Why is there such a significant difference in the revised totals? For example, staff set-up costs are now £3.742 million compared with a budget of £1.8 million, which is a difference of 100 per cent.
There are a number of reasons for that difference. As I have attempted to explain in paragraph 31 of the update report, the comparison between the £16.7 million and the £22.3 million is becoming increasingly strained. As the committee is aware, those estimates were done in 2012 on a flat-cash basis—
Without accounting for inflation et cetera.
Indeed. There was nothing to do with inflation. In addition, as the committee will be aware, there have been several changes in scope. The Scottish landfill tax and the land and buildings transaction tax are different from their UK equivalents, and there are costs associated with developing those taxes to meet the needs in Scotland. If one were to ask HM Revenue and Customs today to set up what we are actually setting up, it is far from clear what it would charge to do that. The original HMRC costing was based on relatively minimal changes to its IT systems and so on, because it was costing like for like on existing UK taxes. The changes in scope are significant.
As we discussed with the committee in November and December 2014, the set-up costs were higher than my earlier estimates, but we are no higher now. We are at £21.2 million, which is where we were in December. I am confident that that gives the committee a good handle on the costs for setting up those two taxes.
Thank you very much for that.
I will now open up the session to colleagues round the table. Gavin Brown will go first.
Good morning. I have a quick question about the project’s overall status. The Revenue Scotland report refers to “Amber/Green”. I think that that assessment comes from the November gateway review.
That is right.
However, the Registers of Scotland report refers to the project overall as being “green”, or at least it states:
“The ... Tax Administration Programme Board is reporting a status of green”.
Is the project as it stands today completely green, or is it still amber/green, with presumably a small number of elements at amber?
This week, we have five elements at amber out of around 600 individual deliverables. As we have highlighted before, we monitor the situation every week and, if anything turns amber or red, we take action to bring it back. Five elements are sitting at amber today, but that is on a slightly different basis of assessment; the gateway review report uses an assessment template with different categories. I have to say that I have never seen a programme of this level of complexity given a green gateway report a few months before going live. I am not saying that that never happens, but I have never seen it happen.
And the five amber elements that you have referred to compare with 17 amber elements last year.
Yes. The comparison is with the 17 amber elements.
So it is the same figure.
In relation to testing, after your previous appearance at the committee, you wrote:
“The formal release of the full system will take place once unit testing, involving external users, is completed.
We would expect that formal release to take place in late January or early February as I indicated to the committee.”
Did that happen along those lines?
Yes. Everything has proceeded along the lines that I set out.
In your report, you refer to SETS, which I think is the acronym for the lawyers and stakeholders signing up to LBTT, landfill tax or both.
It is the name that has been chosen for our online tax collection system—the Scottish electronic tax system—simply because people like to have names for IT systems.
They must have names, of course. You have suggested that 483 users from 160 firms have signed up and that 52 are in the process of doing so. How many users need to sign up for the tax system as a whole to function, and how many lawyers are likely to use the system on the basis of your calculation that 90 per cent of applications will be submitted online? Is 483 pretty close to what you think is likely to be needed, or where are we?
Not yet. I will ask John King to comment, because our best understanding is based on Registers of Scotland figures.
Pretty much the same user base will have to sign up and register for the land and buildings transaction tax as has to sign up and register for various of our services. The solicitor community is quite small and concentrated. Five firms account for about 14 per cent of all our registration business, 100 firms for about 55 per cent and 600 firms for over 96 per cent. I expect that, between now and the end of March, the bulk of those 600 firms—and possibly some more—will have signed up and registered. As of today, 181 firms have registered. Based on our experience at Registers of Scotland, that is quite good progress with just under a month to go. A lot of firms will register closer to the event. By and large, that will be driven by when they start to get involved in a transaction that involves the land and buildings transaction tax. That will focus their minds. Indeed, it is how they traditionally operate: if they need to register, they will. I feel that we are in a positive place at the moment.
How long does it take to sign up? Does it take minutes, hours or days?
It depends on the route that is used. We have set up the system so that a firm that is already registered with Registers of Scotland’s online system can use its Registers of Scotland credentials to pull all the data across. In that case, the arrangement takes minutes. However, if a firm is not in that position, it must request a user identification from us, and we have to post an authentication code out to it. It is all to do with system security. In that case, signing up will take a small number of days, because we need to use the mail and the firm then has to use its authentication code.
As John King has said, as of this morning 181 firms have registered, and well over half of the 690 users that that figure represents have signed up to the system using their ROS credentials. Nevertheless, a significant number of users are using the postal route. Both this week and next, we are putting out a lot of communications, through many different channels, to encourage people to sign up early and to make them realise that leaving it until 31 March might not be the best idea.
Sure, but is it correct that the longest that it takes to sign up is a matter of days and the shortest could be as little as a minute?
Yes, unless someone encounters a technical problem and phones the support desk and we have to talk them through any issues with their own systems and how they interact.
11:45
Okay, thank you.
I want to tie up a slight discrepancy about the contingency. In its report, Revenue Scotland says that it has formally decided that it does not need a contingency, whereas the Registers of Scotland report says:
“We will have a role to play in the event that system contingency has to be invoked.”
It goes on to say:
“In the event that the on-line submission system cannot be deployed on 1 April we have developed, in tandem with Revenue Scotland, well developed, costed and resourced contingency plans.”
The Registers of Scotland paper is dated 16 February, and the Revenue Scotland paper is dated 27 February. Is the discrepancy explained by the difference in the dates of the papers and due to a decision being made in the interim?
It is exactly that. We took the decision last week based on the position in the system.
Thank you.
When you gave evidence on the IT system in November, you said that the final stage was about security and that there would have to be full security testing and accreditation. Is that still on track? Has that been done or can it not be done until the last minute? Where are we with that?
It is substantially done. It had to be done before we could open our system for sign-up on 16 February. We went through the full security accreditation process, looked at the risk profile and accepted it. I had to sign an authority to operate. We went through all of that before 16 February. We will redo it before 1 April, but I do not expect the situation to have changed materially.
Okay.
Lastly, near the end of the report, you mention your intention to publish the tax yield on the website monthly. Will that be in real time, as it were, or will the monthly information relate to the situation several months before? How up to date will that monthly publication be?
I would expect to publish the April figures in May, for example. We are not yet at the stage where I can give you a date, but we will be working on that.
Sure. I just wanted to know whether the information will be three months behind or something like that. Do you think that it will be a month behind?
I am hoping that we will be able to get the data out the following month. I see no reason why not.
I do not want Mr Kenny to feel left out, so I will ask a couple of questions about SEPA’s progress report.
Paragraph 4 of the SEPA update says:
“Revenue Scotland has requested that SEPA hold and manage Scottish Landfill Tax Intelligence on their behalf. SEPA and Revenue Scotland is looking at the operational and security requirements and costs of this.”
When do you expect to arrive at a conclusion with regard to the examination of
“operational and security requirements and costs”?
We expect to do so this month. We have a meeting with the Scottish Information Commissioner’s office next week to test some of the models that we have put in place. There are concerns around security and data management and ownership that we need to run past the commissioner’s office, but following detailed discussions we hope to be ready and have arrangements in place this month.
In paragraph 7, you talk about the recruitment process for compliance officers and specialists being under way.
Recruitment was undertaken last week and yesterday, and offers have been made to the successful candidates.
Okay. Do you expect every post to be filled?
We expect the people to be in post and ready for 1 April.
Paragraph 11 of the submission says that “setup costs were reviewed” from £620,000 to £380,000, which is quite a shift. What was that driven by?
That was due to the change in the IT system, as a result of which we moved from the understanding that SEPA would receive tax payments directly. When we changed the IT model last year, we reduced our IT costs from £350,000 to £100,000.
With regard to SEPA’s responsibilities in relation to the Scottish landfill communities fund, have you had discussions with Entrust, which is the body that administers funds at a UK level? Has there been input from the bodies in Scotland that receive and distribute funds from Entrust about the systems that you are putting in place? Obviously, if there is no need to reinvent the wheel, it seems sensible not to do so.
We have indeed had those discussions and that input. SEPA is in direct contact with Entrust, and Entrust’s chief executive and, indeed, representatives of the Scottish landfill communities fund forum sit on the project board that Revenue Scotland runs on the programme. They very much have an input to the proposals, systems and guidance that we are proposing.
You say that you expect all of the systems to be in place on 1 April, but some of the bodies that get this funding exist very much hand to mouth and would want to be assured that landfill communities fund moneys will continue to flow.
They will be able to apply to SEPA for approval from 1 April. We are confident that SEPA will be able to deal with those applications. The reality is that we do not foresee the money coming in until the end of the first quarter, when the first landfill tax submissions are due.
Are the bodies that you have been in consultation with aware of and comfortable with that fact?
Yes, and we will be ready to register them and accept their applications from 1 April.
Thank you. That concludes questions from the committee. Do the witnesses wish to make any other points?
No.
Thank you for answering our questions. I suspend the meeting for two minutes for a changeover of witnesses.
11:51 Meeting suspended.Previous
Preventative Spending