Examination of Witnesses (Questions 20
- 39)
WEDNESDAY 25 APRIL 2001
MR NICK
MONTAGU CB, MISS
ANN CHANT
CB, MR JOHN
YARD CBE, MR
WILLIAM THOMAS
AND MS
ELISABETH ASTALL
20. Are you saying "significant" in
terms of the amount of income?
(Mr Montagu) No. That is covered really by the higher
rate taxpayers. If, for example, somebody, in addition to his
or her earnings taxed through PAYE, had a lot of different sources
of investment income—income from rents, would be a good
example—then this would need to be covered by self-assessment.
What we try to do, where possible, is where there is a small amount
of, again, if I may put it that way, simple extra income we try,
in the interests of simplicity for the taxpayer, to deal with
this through a tax coding, but it is not always possible to do
so.
21. How do you find out what the other sources
of income are? If I, as a young man just out of university, took
on a job in some large multinational company, how would you find
out whether I needed to do more than just pay under PAYE?
(Mr Montagu) One of the things that we would do increasingly,
again, is try to get over to young people information about the
tax system, about their obligations, so that people are more generally
educated about it. Also, typically, a lot of such income would
come from banks and building societies and we get from them a
multiplicity of what we call third party information passed to
us which would enable us to see that this young woman or man had
additional sources of income. We would check whether these were
sources known to us and, if not, we would get in touch with them,
explain what their obligations were and try to put them on the
right course for the future.
22. That 9.5 million must be a great many fewer
than people who have some sort of small investment income, as
you say, income from bank accounts, building societies or whatever.
Have the others all been told at some point that they ought to
be declaring this income?
(Mr Montagu) Which others are we talking about, the
ones outside self-assessment?
23. The ones who are not within the 9.5 million
who are doing self-assessment who are in the PAYE system because
they have got perfectly normal employment but you find out from
banks or building societies they also have perhaps some other
fairly small amount of income.
(Mr Montagu) Yes. Again, of course, a lot of bank
and building society interest is itself paid net of tax at the
basic rate[1].
(Miss Chant) And from all banks and building
societies, when they are sending the annual statement to the investor,
you will see on your statement "Keep this certificate, you
may need to submit it for income tax purposes. It has been paid
net of tax". As Mr Montagu said, if you are getting income
from another source other than as an employee, there is an onus
on the person to declare this if they are working as self-employed
as well as being employed. The moment you begin to come into contact
with the legitimate economy, whether you are working for somebody
or drawing investment from other sources or renting, and they
are the most common sets of circumstances, there is quite a range
of information and education that comes to you to point out where
your obligations are. We ourselves do a lot in that general education
field.
(Mr Montagu) If I can just add to that,
Mr Rendel, picking up Ann's point about the legitimate economy,
a bank or a building society or a responsible investment house
would actually alert somebody receiving income from them to the
need to tell the Inland Revenue if they had not already done so.
We work closely with the reputable institutions.
24. The banks and building societies are paying
what amount of tax now on investment income? How much is paid
directly?
(Miss Chant) The standard rate of income tax is deducted
at source.
25. At 20 pence or whatever it is in the pound?
(Miss Chant) Whatever the standard rate is, yes.
26. So those people are reclaiming it at the
ten pence rate?
(Miss Chant) Yes, there is the system of tax back
claiming if you are only liable to ten per cent tax rate. Going
back to your earlier point, along with that statement there is
a very clear statement that says "This is going to be deducted
at the standard rate[2].
If you are a higher rate taxpayer, you should declare this".
27. And those who have dividend income?
(Miss Chant) The same principles for many sources
of such income on payment will be the statement about "this
is likely to be taxable".
28. So they are not paying tax at 20 per cent
or whatever, they are paying only 10 per cent?
(Miss Chant) So you are talking about somebody who
is only at the ten per cent tax rate but is getting dividends[3]?
29. No, I am talking about somebody at whatever
rate they are getting dividend income.
(Miss Chant) Yes. Depending on the source of their
dividend payments. I would hesitate to give a blanket assurance
on that. The paperwork surrounding all that is more than likely
to provide a pointer to a taxpayer to say "This is likely
to be declared income".
30. I think I am right in saying at present
the amount of tax that is netted off is ten per cent, is that
correct?
(Miss Chant) On dividend income? I am sorry, I do
not know[4].
(Mr Montagu) I think not, Mr Rendel.
Again, tax would be netted off at the standard rate and the counterfoil
accompanying the dividend would make clear that it is a document
for tax purposes. So if either you were a lower rate taxpayer
wanting to reclaim tax or a higher rate taxpayer needing to pay
the difference between the rate at which tax had been deducted
and the 40 per cent rate, it would alert you to that.
31. There may be some people trying to fool
the system but as far as possible you are assuming that everybody
under the 9.5 million who are on self-assessment, if they are
getting any other form of income that is only going to keep them
within their normal standard rate? Because they have not declared
anything else you are assuming that is the case. You do not do
any checks on that, for example, do you?
(Mr Montagu) The reason I frowned when you mentioned
the standard rate is I said earlier on that small amounts of extra
income might well be dealt with through the PAYE system by an
adjustment to the tax code. That could apply to a range of people.
32. So how many of those who are on PAYE have
had their tax codes adjusted because you know that annually they
have a certain amount of other income?
(Mr Montagu) I am afraid I could not answer that question
off-hand.
33. Is it possible to get that figure?
(Mr Montagu) I can certainly try[5].
34. It would be interesting to see because I
imagine there are quite a large number of those other people of
the 20 million who are covered by PAYE who do have some form of
other income?
(Mr Montagu) Indeed.
35. Can I go on from that to paragraph 3.11.
You said that you are going to be contacting people who may have
underpaid in June this year. Firstly, how many people is it? I
see the estimates are £4 million underpaid and £22 million
overpaid in that year 1997-98. How many people are involved in
that?
(Mr Montagu) What we are talking about here—
I think it is important to be clear about the figures. We are
contacting all the people included in that figure of 1.04 million
that is in the Comptroller & Auditor General's Report. The
majority of them will actually have paid the right amount of tax
because we have done some sampling in one of our local offices
to give us a fix for this and the indication from that is that
87 per cent of the people among the 1.04 million figure will actually
have paid the right amount of tax. So we are only talking about
the 13 per cent who have either paid too much or paid too little.
(Mr Yard) Which is about 134,000.
36. And you are not contacting then the other
0.36 million? You had 1.4 million cases where you had no records
and you have cleared 1.04 of those.
(Mr Montagu) I am sorry, Mr Rendel, could you—
37. In paragraph 3.11 there were 1.4 million
people where you originally had no records and you cleared automatically
1.04 million of those.
(Mr Montagu) Yes. The 1.04 million were cleared automatically.
The remainder were not cleared automatically, in other words through
the machine, because these would be cases where we are currently
taking clerical follow-up action. In other words, these would
have been cases previously identified as suitable for clerical
action.
38. Are you saying that there is no need to
contact them because you are still dealing with them?
(Mr Montagu) I am saying we will already have done
so. These will be cases that we are working.
39. So you are contacting 1.04 million, you
are going to contact them in June. How are you going to contact
them?
(Mr Montagu) By automatic issue of a letter from the
computer.
1 Note by Witness: That is paid as the 20 per
cent lower rate tax, rather than basic rate. Back
2
Note by Witness: That is the lower rate of tax at 20 per
cent, not the basic rate. Back
3
Note by Witness: Dividends currently carry a tax credit
of 10 per cent. This satisfies the tax liability of those below
the higher rate threshold, who are liable at 10 per cent on their
dividend income. Higher rate taxpayers are liable at 32.5 per
cent on their dividend income and the 10 per cent tax credit can
be offset against this. The 10 per cent credit does not represent
tax netted off, so it cannot be claimed by non-taxpayers. Back
4
Note: See footnote 3 above. Back
5
Note: See Evidence, Appendix 1, page 14 (PAC 00-01/182). Back
| 
