Examination of Witnesses (Questions 40
- 59)
MONDAY 22 OCTOBER 2001
SIR NICHOLAS
MONTAGU KCB, MR
DAVID HARTNETT
AND MR
STEPHEN BANYARD
40. Two per cent of tax take is an enormous
amount of money that we have lost, is it not?
(Sir Nicholas Montagu) If we had lost it, it would
be. I come back to—
41. You have.
(Sir Nicholas Montagu) If I might answer this question
because it is important. I come back to receivables management,
I come back to letters going out followed up by telephone calls
to everybody who does not get a return in and 150,000 coming in
and 230 million pounds more than the previous April.
42. Are you confident on the basis of what you
have said that the figure for 31st January 2002, I guess, will
be over 92 per cent which was the 1996-97 achievement?
(Sir Nicholas Montagu) No, I am not confident of that
because, as you say, there has been a steady downward trend. We
are aiming to get it up to, is it, 90.5 per cent?
(Mr Banyard) Yes.
(Sir Nicholas Montagu) But, I am confident that we
will be much sharper at targeting the people who should have put
in—
43. What is the eventual figure? What is the
31st January figure, 95 per cent?
(Mr Banyard) I think you might hope to push it up
to about 94 per cent or 95 per cent.
44. How does that compare with our Canadian
friends?
(Mr Banyard) That is where I am drawing that figure
from.
45. That is what they do?
(Mr Banyard) They operate under different rules and
different regimes. The sort of figure you may aim to get up to
I think is somewhere around that.
46. In other words, at the end of the day one
twentieth of people do not fill it in, is that right?
(Sir Nicholas Montagu) No, it is not. One tenth are
late, it is not one twentieth do not fill it in. It is 10 per
cent that are not in by 31st January. About another five per cent
nearly are in by July. If I might, Mr Davies, perhaps I could
quote Sir John's report because it is important. "Over the
last four years around 90 per cent of self assessment tax returns
have been received by the due date demonstrating the success .
. ." Sir John's word " . . . of the current framework".
47. Sir John is a very generous man, he always
has been.
(Sir Nicholas Montagu) No, I have to come back on
that. Maybe Sir John is aware, which the Committee may not be,
that the figure was around 50 per cent under the previous system.
48. The percentage of self assessment by 31st
January has gone down over the last four years.
(Sir Nicholas Montagu) It has and what we are trying
to do, as part of this, we have what we call the Taxpayer Filing
Initiative and this is aimed at trying to identify which groups
file late, why do they file late.
49. I am running out of time so on the segmentation
can I just ask do you just do traditional demographic segmentation?
(Sir Nicholas Montagu) No.
50. Or do you do psychographic segmentation
in terms of behaviour, motivation and all the rest?
(Sir Nicholas Montagu) The essential thing with the
Taxpayer Filing Initiative is it is trying to find out which groups
of taxpayers are most prone to late filing and why.
51. Who are they? Who are the people who do
not fill it in? Describe the character.
(Sir Nicholas Montagu) I do not know. Since it started
in March of this year I do not think we have got scientific findings.
I have mentioned that obviously small cash businesses are an area
of risk. What we are trying to do is to find out the groups, who
gets the return in the first place, agree a programme of initiatives
to encourage early filing and to take forward longer term actions
to improve early filing.
52. Do you think, as an example, it would be
a good investment to empower small and medium sized businesses,
in particular small and micro businesses, actually in terms of
the internet, not just in terms of productivity of their own business
but in order to increase your output in terms of filing systems
over the internet which are very disappointing, are they not?
(Sir Nicholas Montagu) They are slow rather than disappointing.
53. They could fill in their tax returns and
could have a more productive business and be a helping hand of
Mrs Doyle or whatever it is.
(Sir Nicholas Montagu) We are certainly keen to encourage
as many businesses and as many individuals as we can to file by
internet. I think you said disappointing, it was certainly a slow
start but we have already had more people filing by internet this
year than we did for the whole of last year. It is taking off,
but the experience of other countries and other organisations
is that it is slow to take off.
54. Do you think it would be worth talking,
your Department and DTI, about the cash benefit to the Exchequer
of investing in internet capability in very small businesses,
both from the productive point of view but from the point of view
of you getting more money into your coffers to spend in Government?
(Sir Nicholas Montagu) Dave may want to come in on
this. Certainly one of the things which we are always looking
at, and we work very closely with bodies like the payroll management
people, is getting more people to file by internet. We talk to
DTI, we talk to the Government's e.envoy. The question of more
money is one that I would be wise to steer clear of, I suspect,
but Dave may want to add to this.
55. Your bargaining position is that you spend
more and you get a lot more back, surely, and that is presumably
what you should be saying?
(Sir Nicholas Montagu) Thank you for the tip, Mr Davies.
Mr Bacon
56. I would like to ask you about simplicity.
Do you think that the tax payers find self assessment easy to
understand?
(Sir Nicholas Montagu) I think they find the forms
quite complex. As I have indicated to the Chairman, we are constantly
trying to simplify the forms, the returns, the statements; but
it is inevitable that since self assessment has, by definition,
to cover a multiplicity of possible sources of income there has
to be a limit to the extent to which we can simplify it.
57. In 1998 in the document Assessing Self
Assessment you said you always expected it would take a little
time for the system to bed down. In the three years following
that 96 per cent in 1999, 99 per cent in 2000 and 95 per cent
this year of ACCA—the Association of Chartered and Certified
Accountants—practitioners encountered procedural problems
which often led to the late submission of tax returns and late
payment of tax. That does not sound like it is bedding down.
(Sir Nicholas Montagu) Those are not figures that
ring any bells with any of the three of us. I think it is a system
that is bedding down. For example, we are encountering fewer what
we would call irremediable errors, and by that I mean errors of
the sort that we cannot see the origin of and therefore would
need to return to the taxpayers. Certainly when I talk to taxpayers
and their representatives—We do work extremely closely,
as you will know, with the Institute of Chartered Accountants
and the Chartered Institute of Taxation and we have the Working
Together Initiative with them which is a joint exercise specifically
to look at processing difficulties. Anecdotally I certainly get
the impression that it is bedding down. Dave, do you want to add?
(Mr Hartnett) One of the key things to be taken from
the Working Together Initiative is the logging of difficulties.
They are logged on our internet site. Many are based on misunderstandings
on the part of the practitioners, some are based on difficulties
that we can iron out. I think we are getting through a lot of
those pretty quickly now, but by working together.
58. I have read an article in Accountancy
Age which quoted the Head of Taxation at ACCA who said that
the problems with the system are almost as great today in March
this year as they were when the problems were at their peak last
year. I fully accept what you say about the multiplicity of sources
and there is a limit as to how much you can simplify it but this
brings me on to a point about simplicity. The Chartered Institute
of Taxation has made this point, it has been campaigning for simplification
of the tax system, and the Tax Faculty at the Institute of Chartered
Accountants has also said that it, like many others, has been
campaigning for simplicity for many years.
(Sir Nicholas Montagu) I think I will make three points.
First, I do not think we would agree with what Accountancy
Age say. Second, since you are clearly an avid reader I hope
I have got your e-mail vote for me as Accountancy Age Personality
of the Year. Having made my second point I will now get Dave to
respond on the more general one. I do have to make the point that
so far as simplification of the tax system is concerned, that
is of course a matter for Parliament and what we try to do is
to make the existing tax system, the existing legislation, the
existing Government policies, as simple when we implement them
as we can for taxpayers.
(Mr Hartnett) I just wanted to add that when the new
share schemes were devised in 2000—I think this is an illustration
of our difficulties—we brought private sector people, trade
unionists, practitioners, into the process of devising these and
Government leant very heavily on their advice. Those schemes are
now criticised in the very journal you mentioned for their complexity,
but they are what business wanted. This is a very difficult issue.
59. I quite accept that there is a boundary
in your attempts to implement what ministers and then Parliament
want you to implement and your ability to do a good job. That
is one of the areas I wanted to some extent, without stepping
over the line of the boundary between the two, to ask you more
about. In your own Department's section of the Government's expenditure
plans—this document which I am sure you will be deeply familiar
with since your name is on the front of it, The Government's
Expenditure Plans 2001-04—it does say that one of the
Inland Revenue's objectives and performance targets, in fact it
is the second one, is to deliver year on year reductions in compliance
costs that act as a barrier to the establishment of growth of
small businesses. If complexity is preventing that happening,
and you described the Inland Revenue as an enabling body that
would seek to devote much more effort in all this to helping people
to get it right, to what extent does devoting much more effort
to helping people get it right entail advising Government on ways
of simplifying things?
(Sir Nicholas Montagu) We obviously advise Ministers
on a range of subjects that I do not detail here. What I can certainly
say is we obviously make sure that Ministers are aware of what
we are hearing from the accountancy bodies, from small businesses.
I do not think they need it really, I think they are well aware
of it anyway. It is for them then to balance their priorities.
What we do is devote a great deal of time and effort to trying
to simplifying things for small business. I would emphasise in
particular the success of our business support teams which we
have all over the country working jointly with Customs and Excise
to make it easier for small business to set up in business. We
used to confine their activities to new business; we are now extending
them to small business with their continuing issues, so that our
business support teams provide a continuing contact for small
business. They organise events of all kinds around the country.
In addition, we have recently restructured our organisation so
that instead of having 600 diffuse offices we have around 60 areas,
each with one with two area directors, one dealing with compliance,
one dealing with services, who are much better placed to focus
their activities on the particular communities which they serve.
Stephen has made very clear to them his expectation that they
will be outward facing, in touch with their local Chambers of
Commerce, with local small business and so on.
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