CIOT evidence to the Public Accounts Committee hearing on Self Assessment on 22 October 2001, sent on 5 October 2001. The Chartered Institute of Taxation (CIOT) understands that the Public Accounts Committee is considering the National Audit Office report on Income Tax Self Assessment (published in June this year) at its meeting on 22 October and would like to submit a number of observations on the subject. By way of background, the CIOT has some 11,600 tax professionals as members, the majority of whom are in practice as Chartered Tax Advisers and many of whom have daily contact with the workings of the Self Assessment system.
1. The Institute broadly welcomes the report and agrees that the introduction of self assessment has generally improved the administration of income and capital gains tax. The Institute has been involved, through consultations and working groups, with self assessment from the start and has always viewed it as a necessary modernisation of the tax system.
2. We do, however, believe that the additional burdens that self assessment has placed on taxpayers and advisers has been ignored. We believe that now is the time to start making the system work more efficiently. We see the existing and now well-established joint Inland Revenue and professional bodies’ Working Together project as a key way forward.
3. We generally support the NAO report findings but feel it could have gone further, particularly in the area of late filing of tax returns. We note from the report that the Revenue are now carrying out research into patterns of taxpayer behaviour and the reasons why returns are not filed on time. We have long asked for such research and look forward to the results with interest. We particularly endorse the recommendation of the NAO that the Revenue develop:“their management information to monitor the use of fixed and daily penalties, and tax determinations, and their effectiveness in ensuring that tax returns are filed. Without this information, the Inland Revenue cannot assess whether these incentives are effective or that local offices are using the arrangements properly” (page 3).In short, we think it is important to find out more about the reasons for missed filing deadlines as that in turn will help define courses of curative actions.
4. In part 2 of the report, on identifying compliant taxpayers, we note at para 2.5 the words:”Individuals have a legal obligation to notify the Inland Revenue of their chargeability to income tax or capital gains tax. For the newly self-employed, the arrangements were simplified and strengthened in January 2001 and individuals can now telephone the Department to register, with the risk of a £100 penalty if they do not do so within three months.”We are a little disturbed to see the new penalty for failure to register for Class 2 National Insurance being described as a strengthening and simplification of an income tax obligation. The latter remains as an obligation due six months after the end of the first tax year of liability by virtue of section 7 of the Taxes Management Act 1970. We consider the Class 2 penalty unfair and disproportionate to the Class 2 charge (currently £2 per week).
5. We note that at Appendix 2 to the NAO report there is a reference to “processing errors” leading to gross errors of the order of £100 million. We would like to know how effective the Revenue are at correcting such errors. Whilst we understand the Revenue’s “process now, check later” principle, we have found in practice that this can lead to processing errors. Whilst we can understand and accept why these occur – the complexity of the tax system being one reason – such errors take taxpayers and their advisers time and effort to sort out. We wonder, also, how many unrepresented taxpayers remain subject to uncorrected, unnoticed errors.
6. The report refers to the joint research carried out by the Institute and the Revenue into enquiries under self assessment. We would also refer the Committee to research report we published in April 1999 “Self Assessment: Working Towards Best Practice”.
7. We believe that more progress could be made in the streamlining of self assessment if simplification of the tax system could be achieved. Whilst we have no direct evidence we suspect that one reason for non-compliance is the complexity of the forms. We enclose our recent paper on “Quick Wins” detailing some changes that could bring about a shortening of the return form.
8. We also believe it is necessary to reduce the impact of self assessment on certain sectors of society such as the elderly. Our Low Incomes Tax Reform Group has long advocated removal from self-assessment for those on the lowest incomes. It seems a farce to send such a form to an 85-year-old widow with two sources of income totalling £7,000 per annum, but this is what happens if you have “the wrong sort of income”. Additionally, a simpler return form for this group should now be devised. The development of such a return could be linked with the returns that will be necessary for the forthcoming, and increasing, group of New Tax Credit applicants in 2003.
9. Finally, we continue to support the e-enabling of the self assessment process. The Electronic Lodgment Service has not been an entirely happy episode and Filing By Internet unfortunately had a bad start. We hope that more positive progress can be made in the future. We consider the encouragement of active involvement by all taxpayers’ agents, including Chartered Tax Advisers, is an essential ingredient to success.
We would be pleased to supply further details to amplify any of the points or papers we have referred to, or to give oral evidence to the Committee if that is appropriate.
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