Download Business Case - Office for National Statistics

Business Case to Support
the Regulations for Access to Value Added Tax
Expenditure and Date of Receipt Data
Executive Summary
This business case is designed to comply with the requirements set out in Section 47 of the
Statistics and Registration Service Act 2007 (the Act). This section of the Act makes provision for
the disclosure of information to the Statistics Board and states that the Minister for the Cabinet
Office may authorise the sharing of information where this is needed for specific statistical
purposes and is in the public interest.
Access to the Value Added Tax (VAT) expenditure and date of receipt data collected by Her
Majesty’s Revenue & Customs (HMRC) for all VAT traders in the United Kingdom (UK) will be
essential if the Office for National Statistics (ONS) is to meet the increasing demands for new and
improved business statistics and at the same time to reduce the administrative burden on
businesses significantly. In the longer term ONS will be able to research how to integrate survey
and administrative data to provide more accurate and cost-effective means of monitoring
business change and economic cycles.
All businesses making taxable (i.e. not exempt) supplies of goods or services in the UK of
£70,000 per annum or more are required to register, charge and account for VAT. These
constitute about 81 % of the businesses in the Interdepartmental Business Register (IDBR),
which UK Government departments use as a base for business statistics.
Statistical units in the IDBR, for which VAT data are available, cover about 94% of UK economic
activity. Therefore VAT data have the major advantage of providing information for most
significant businesses, rather than just the few (no more than 4% of IDBR businesses) selected
for a sample survey. By adding expenditure data to the existing VAT turnover data ONS would
have an accurate information source, for all but the smallest taxable businesses, on the two most
fundamental financial variables.
Officials from HMRC have supported this work. The proposals outlined in this business case
could not have been developed without their willingness to provide information and advice.
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Introduction
1.1.
This document sets out the requirements for access to specific data collected in VAT
returns by HMRC and held in its VAT system. In accordance with the mandatory
requirements in the Act, the business case is designed to demonstrate the importance of
data sharing for statistical purposes, the wider public benefits that accrue and the clear
unequivocal need for each of the specified data items.
1.2.
A number of government reviews have argued in favour of increasing ONS’s access to
tax data. In particular, the Allsopp Review1 recommended that “the Government should
as a matter of priority develop mechanisms whereby the ONS … could have greater
access to the information collected by the two Revenue Departments [now HMRC]”, and
the O’Donnell Review2 asserted that “improved … access to [Revenue department data]
could potentially reduce the costs currently imposed by ONS seeking data directly from
businesses”. More recently, Recommendation 7 of the Statistics Commission’s Report 3
states: ”HMRC and ONS should make use of the provisions in the Statistics and
Registration Service Act 2007 to provide a legal gateway for the release of tax data to
ONS for new statistical purposes, where this is not covered by existing legislation.”
1.3.
ONS has received VAT turnover data from HMRC for many years. HMRC recently
facilitated a feasibility study by staff from ONS to investigate whether any of the
remaining variables within the VAT returns might assist ONS’s statistics production. This
study found that if ONS were to receive the VAT expenditure and date of receipt
variables alongside the VAT turnover variable, there would be significant benefits, both
within ONS and beyond, for businesses and users of economic statistics.
1.4.
In view of the Government’s increasing demand for information for policy decisions, ONS
needs a new data source that covers all taxable businesses and imposes no further
burden on them. Access to the VAT expenditure and date of receipt data will significantly
improve editing, validation and imputation processes for statistical surveys. After further
methodological research these data will be used to estimate survey data for the smallest
businesses and thus reduce the number of written questionnaires which must be
completed each year. Access to current and retrospective VAT expenditure data will give
ONS the ability to model and estimate key short-term economic indicators as well as to
analyse a full economic cycle. This will help the users of economic statistics in policy
formulation, monitoring and review.
1.5.
Further details about the scope and content of the individual sections of the document
are outlined below:
-
Section 2 deals with statistical requirements, most notably the need for, and
importance of, obtaining access to the VAT expenditure data for research and
methodological purposes associated with improving business statistics;
-
Section 3 presents information relating to wider public interest benefits including
policy development, quality improvement and reduction of the administrative burden
on businesses;
-
Section 4 and Annex A explain the data sharing requirements for access to specific
data items.
-
Section 5 contains the conclusion of this business case.
1
Allsopp C, Review of Statistics for Economic Policy making, HM Treasury, March 2004
http://www.hm-treasury.gov.uk/consultations_and_legislation/allsopp_review/consult_allsopp_index.cfm
2
O'Donnell, G, Financing Britain's Future. Review of the Revenue Departments. Cm 6163, HM Treasury, March 2004
(http://www.hm-treasury.gov.uk/budget/budget_04/associated_documents/bud_bud04_odonnell_index.cfm)
3
Statistics Commission Report No 37 – Tax Records as a Statistical Resource – A review by Statistics Commission,
November 2007
(http://www.statscom.org.uk/uploads/files/reports/Report%2037%20Tax%20Data%20Review.pdf)
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2. Statistical Purposes
2.1.
Introduction
2.1.1.
New and improved business statistics will be essential if ONS is to meet growing
demands to improve the quality of business statistics, while reducing the burden on
businesses and answering the need for better economic indicators to inform policy
formulation, monitoring and reviewing.
2.1.2.
Access to the VAT expenditure and date of receipt variables will enable ONS to
supplement existing proxy short-term data, derived from sources such as VAT turnover,
Pay-as-You-Earn (PAYE) employment and previous years’ survey data, to improve the
coverage and quality of business statistics, and to reduce the burden on businesses.
Further information about overall statistical requirements is set out in subsequent
sections (2.2 to 2.4).
2.2.
Annual Business Survey
2.2.1.
The surveys carried out by ONS represent a significant drain on the resources of the
businesses which are required to respond to them. The Annual Business Survey (ABS) is
the key survey used to provide estimates for annual GDP and is the leading source for
structural details for UK industry.
2.2.2.
ONS’s feasibility study found that, if VAT expenditure and date of receipt data were
available to be included in the process used to produce the predicted values against
which ABS responses are validated, the accuracy of predicted values for turnover and
expenditure variables could be significantly improved. In addition, modelled data (based
on the relationship between the previous year’s VAT turnover and expenditure data and
the ABS variables in question) can significantly improve the predicted values for the
Gross Value Added (GVA) and Employment Costs variables. This will enhance the
accuracy and quality of major economic indicators and at the same time reduce the
burden placed on businesses from validation phone calls.
2.2.3.
The changes mentioned above are also expected to result in a small reduction in ONS’s
costs in the long-term. However it is likely that, in the short term, any efficiency savings
would be offset by the cost of researching, fine-tuning and introducing new techniques.
Access to the additional expenditure and date of receipt data would enable ONS to
develop new methods which, once validated, would lead to a reduction of the burden on
all businesses and, most notably, small firms.
2.3.
Short Term Statistics
2.3.1.
Access to a long series of historical VAT data would give ONS the opportunity to
investigate methods for using VAT turnover and expenditure in the estimation of key
monthly economic indicators. The majority of VAT data is reported on a quarterly basis.
However, it is possible to estimate monthly data from quarterly data using time series
modelling techniques. Since ONS’s monthly outputs are seasonally adjusted, it would be
preferable to be able to adjust the VAT data seasonally. Seasonal adjustment relies on
having a long time series of data points. 8 years of past data is the minimum required,
but 10 years would be desirable for good quality results. With 25 years of historical data,
it would also be possible to analyse the change in relationships between survey and VAT
data across a full economic cycle.
2.3.2.
The date of receipt variable would be used to analyse the VAT returns’ reporting
patterns. This information would enable ONS to assess accurately the amount of VAT
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data available for a particular period and thus to establish the best statistical method for
producing accurate short term economic indicators.
2.3.3.
ONS is also investigating the potential for using VAT expenditure data in the production
of quarterly supply-use tables. Currently only annual supply-use tables are produced.
The VAT expenditure data would be the only real quarterly data ONS could use to
estimate businesses’ quarterly purchases and therefore quarterly intermediate
consumption by industry group, which is an important component of supply-use tables.
2.4.
Gross Value Added, Intermediate Consumption
2.4.1.
Access to VAT expenditure data will give ONS the opportunity to look into the movement
of intermediate consumption in relation to GVA and output during the recession. It is
currently assumed that intermediate consumption maintains a constant ratio with GVA
during the recent period that is not yet covered by a full set of ABS results. This
assumption is likely to be invalid during a recession, when businesses tend to lower their
input costs in order to maintain profit margins. Currently the National Accounts (NA)
cannot investigate this matter, as there are no short-term measures of intermediate
consumption. Analysing the relationship between inputs and outputs on VAT returns will
support a comprehensive review of the current assumption.
2.4.2.
Furthermore, with 25 years of retrospective VAT expenditure and turnover data, ONS will
be able to look at the movement of intermediate consumption and GVA relative to
turnover across a full economic cycle. Furthermore, the availability of the data of receipt
variable will enable ONS to determine the chronological order of the returns and to
distinguish multiple returns for a particular period and specific VAT traders. Such details
will be essential if ONS is to make an accurate assessment of change over time. This will
give ONS the opportunity to analyse the change in this relationship from the previous
recession (early 1990s) through recovery and boom and back into recession, thus
increasing the accuracy of short-term estimates of intermediate consumption, and of
Gross Domestic Product (GDP).
3. Wider Public Interest Benefits
3.1.
Introduction
3.1.1.
Allowing ONS to use individual businesses’ VAT data, particularly for replacing some
survey data, would enable ONS to improve efficiency and value for money in its data
collection, increase quality by greatly extending coverage of small businesses beyond a
small sample and reduce the costs to businesses of providing data. This is consistent
with over-arching data collection principles and Government recommendations to collect
data once and use these many times.
3.1.2.
The increased coverage of smaller businesses would yield a double benefit. It would not
only improve the quality of ONS statistics that currently are based on reasonably small
sample fractions, but also reduce the requirement to include smaller businesses in some
surveys and so provide important, targeted administrative cost savings.
3.1.3.
It would mean that businesses employing fewer than twenty employees would see the
burden that statistical surveys place on them reduced. The cost to small businesses is
expected to reduce by at least £1 million per year from 2014/5.
3.1.4.
Access to VAT expenditure data will enable ONS to respond to increasing Government
demands for better information to support policy development, evaluation and review
while improving the quality of the economic statistics it provides and reducing the
administrative burden on businesses.
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3.2.
Policy Formulation, Monitoring and Review
3.2.1.
Policy formulation, evaluation and review demand more and more detailed analysis.
Economic statistics are used widely to support evidence-based policy making, including
monetary and fiscal policy, supply side policies and macro-economic forecasting.
Moreover, better economic statistics should facilitate the monitoring of key Government
milestones at both national and local levels.
3.2.2.
Access to current and retrospective VAT expenditure data would provide a new source
for calculation/estimation of key short-term economic indicators such as GVA. It would
also be possible to investigate and analyse the relationship between intermediate
consumption, GVA and turnover. This would enrich the economic statistics used by the
Bank of England and Her Majesty’s Treasury in the process of policy making, monitoring
and review. In particular, the Bank of England and the Monetary Policy Committee would
have more reliable short-term estimates of GDP at the time they needed for interest rate
decisions.
3.3.
Quality improvements
3.3.1.
Adding additional record-level sources of data – VAT expenditure and date of receipt –
will give ONS the means to further improve the quality of its economic statistics, firstly by
improving the editing and validation of existing business surveys.
3.3.2.
In the longer term, business statistics will be improved because the expenditure data are
available for all businesses which are required to pay VAT – this is the vast majority of
businesses, as only extremely small businesses (with taxable turnover less than £70,000
per annum) are exempt. These data therefore offer the significant advantage to ONS of
providing information for almost all businesses, rather than just the few selected for a
sample survey.
3.3.3.
Adding the expenditure and date of receipt data to the existing VAT turnover data would
give ONS an accurate information source for all but the very smallest businesses for the
two most fundamental financial variables. In particular, it is considered that
improvements to the quality of the annual supply-use tables can be delivered using the
VAT turnover and expenditure data.
3.3.4.
As discussed in section 2, the introduction of the VAT expenditure data into the editing,
validation, imputation and estimation processes of various surveys will result in
improvements in the accuracy of ONS data without additional cost to the responders.
Any such improvements in accuracy would represent a benefit to all users of ONS data,
including wider government, the Bank of England, Eurostat and the general public.
3.4.
Reduction of the administrative burden on businesses
3.4.1.
The primary benefit associated with the sharing of VAT expenditure and date of receipt
data is that it would enable ONS to move towards meeting the government-wide target of
reducing the administrative burden on businesses.
3.4.2.
As discussed in Section 3.3 above, if the VAT expenditure and date of receipt data were
available to ONS, it is likely that significant improvements to the validation, editing and
imputation process of key economic surveys could be introduced, which would result in
fewer telephone calls to businesses to check the accuracy of their responses. This
reduction in telephone calls would in itself represent a noticeable reduction in burden for
smaller businesses.
3.4.3.
With full access to record-level VAT expenditure and date of receipt data, ONS would be
able to carry out more thorough studies to investigate how VAT data could be used to
estimate the smallest businesses’ ABS responses. ABS is one of ONS’s largest business
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surveys, sent out to approximately 60,000 businesses each year. The estimated total
burden on businesses of the 2008 ABS was over £5 million.
3.4.4.
In 2008, 55% of the ABS sample (33,767 businesses) was made up of businesses with
fewer than 10 employees. It is considered (following the initial feasibility work carried out
on HMRC premises) possible to model the responses of these businesses, based on
VAT turnover and expenditure data, which would mean that only a small fraction of this
number would need to be surveyed in future. The saving to businesses is anticipated to
exceed £1 million per year by 2014/15.
4. Requirements for VAT expenditure data
4.1.
All VAT-registered businesses are required to submit VAT returns to HMRC on a regular
basis (some monthly, some quarterly and some annually). The data required include total
turnover (exclusive of VAT), total expenditure (exclusive of VAT), tax which the
businesses are required to pay to HMRC, and tax which the businesses are entitled to
claim back from HMRC. All these data are held electronically by HMRC.
4.2.
HMRC currently provides ONS with a number of record-level data feeds. They cover
business identification, demographic status and turnover. The disclosure by HMRC of
this information is authorised under Section 91(1) of the Value Added Tax Act 1994.
4.3.
The initial feasibility study supported by HMRC has enabled ONS to identify
supplementary data needed to improve the economic statistics provided to Government
and business organisations. Further details on key data items and how they will be used
are set out in Annex A.
5. Conclusion
5.1.
The provision of the VAT expenditure and date of receipt information, alongside the VAT
turnover within the monthly and quarterly datasets provided by HMRC to ONS, is an
adjustment requiring only minimal additional resources. The potential benefits of sharing
these data far outweigh the cost of doing so.
5.2.
The one-off extract of 25 years’ retrospective VAT expenditure data will be extremely
useful for ONS and wider government, in understanding how intermediate consumption
changes over the full economic cycle.
5.3.
It is expected that the sharing of the VAT expenditure data will enable ONS to improve
the sample selection, editing, validation, imputation and estimation processes of various
business surveys. These improvements will result in increased accuracy, reduced burden
on businesses, and reduced operating costs for ONS in the long-term.
5.4.
Those likely to benefit from this sharing of data include: businesses, whose
administrative burden will decrease; HM Treasury, the Bank of England, other
government departments and users of ONS data, who will receive more accurate data;
and ONS, which will be able to introduce improved methodologies for the production of
certain expenditure-related variables and new analysis of the relationship between key
economic indicators. All this will be accomplished at no extra cost for the respondents.
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Annex A: Requirements for the VAT expenditure and receipt date data
A.1. ONS needs record-level data for VAT expenditure (VAT purchases from Box 7 of the VAT
returns received by HMRC) and return receipt date (from the HMRC’s VAT system) to be
added to the current monthly data feed, to assist with the ongoing development of the use of
administrative data for business statistics. The VAT expenditure data will be used alongside
VAT turnover data to improve sample selection, editing, validation, imputation and estimation
processes of various business surveys (ABS, Monthly Business Survey, etc.), and for
economic analysis. The dates of receipt will be used to analyse the VAT returns’ reporting
patterns, in order to determine the best statistical methods to use for the production of shortterm economic indicators.
A.2. ONS needs record-level annualised data for VAT expenditure (VAT purchases from Box 7 of
the VAT returns received by HMRC) to be added to the current quarterly data feed to assist
the ongoing development of the use of administrative data for business surveys. It will be
used alongside the record-level annualised VAT turnover data to improve sample selection,
editing, validation, imputation and estimation processes of various business surveys (ABS,
Monthly Business Survey, etc.), and for economic analysis.
A.3. ONS needs a one-off extract of record-level data for VAT expenditure (VAT purchases from
Box 7 of the VAT returns received by HMRC) alongside the returns receipt date (from the
HMRC’s VAT system) covering the past 25 years. This dataset will be used for analysing the
history of the ratio between intermediate consumption and GVA, the relationship between
VAT turnover and VAT expenditure across the full economic cycle, as well as in the
estimation of key short-term economic indicators. The dates of receipt are needed in order to
determine the chronological order of the returns and to distinguish between multiple returns
for a particular period and VAT trader.
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