Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 80 - 99)



  80. The fact that you are getting 800,000 that came down, I think, this year, the fact that you are getting 800,000 suggests your penalty regime is not working; do you think it is?
  (Mr Banyard) Clearly, it is our aim to help and enable more people to file on time, and our Taxpayer Filing initiative was aimed at encouraging people, using the carrot; we are putting a lot of effort into that, but I do not believe the figures show the system is not working. Ninety per cent of people file at 31 January. We issue a first penalty automatically if they have not filed. And another 5 per cent have filed before the issue of the second penalty, on 31 July; so that first penalty has worked, in bringing in another 5 per cent of cases.

  81. What is the second penalty?
  (Mr Banyard) It is a second penalty of £100, if after 31 July you still have not filed.

  82. When do you move on to surcharge and when do you move on to determination?
  (Mr Banyard) If we believe tax is at risk and someone has not put in their return, we will move on to a determination, and a determination is where we estimate, to the best of our ability, what the tax should have been, and that determination can only be displaced if the person sends in the return. If that does not produce an effect, we can move on to daily penalties, which is a further step down the road. What we find is that if we use determinations they bring in about another 55 per cent of the returns. In fact, when we move to daily penalties, we do not actually have to issue them, simply alerting people to the fact that we are moving to daily penalties brings in the return in 80 per cent of the cases; and when we go to the Commissioners to get permission to use those penalties, because we have to, a further 16 per cent come in. So fully 96 per cent of the cases come in at that point.

  83. Just take me through that again. The note I have got from your paper says 50 per cent of the determinations you issued resulted in the submission of a return?
  (Mr Banyard) That is right.

  84. So that is 50; now what do you do with the other 50 per cent?
  (Mr Banyard) With the other 50 per cent, it depends on whether the determination has been paid. If the determination has been paid then someone has accepted our figures and still not submitted a return; and we would think, prima facie, that that case was high risk, so we would move to daily penalties.

  85. If it is paid, you would give them a daily penalty?
  (Mr Banyard) We would want to get the return, to find out how much their income was.

  86. What is the daily penalty then? They have paid you an amount of money that you suggested they owed, why would you pay it, why would you pay the bill, get the second £100 fine, six months later, or so?
  (Mr Banyard) Say you were due to pay tax of £50,000 and you had not sent in a return, and we raised the determination on £25,000 income, because we did not know that you had owed £50,000, then you are still winning, and, as far as we are concerned, you are a risk case. So we then have to decide whether we should move to daily penalties. At that point, we would make contact with you, because we do not move to penalties or determinations without first contacting the taxpayer, asking if they need help, and only then moving on. So we would then say to people, "I am afraid we're going to move to daily penalties," and at that point we would expect 80 per cent of the returns then to come in.

  87. Right; but that leaves 20 per cent then. What happens to them?
  (Mr Banyard) We go to the Commissioners for permission to raise those daily penalties, and when the Commissioners have given permission we again contact the taxpayer and say, "We have got permission to go with this now." That brings in another 16 per cent, and that leaves just 4 per cent where we raise the penalties to get the return. We really are down then to the very last few.

  88. Have you got anybody who still has not sent one in?
  (Mr Banyard) We have some; we have some old returns that we have not yet got in and we have targets for getting them in soon.

  89. How old are they?
  (Mr Banyard) We have a decreasing number for each of the years of Self-Assessment.

  90. So somebody in the first year of Self-Assessment, was it 1996?
  (Mr Banyard) We have a very few cases from 1996-97. We have a target at the moment to get in 40 per cent of all the old returns this year, and we are looking to see whether we can get most of the remaining ones in next year.

  91. It sounds rather odd, it sounds as though, your penalties are not working?
  (Mr Banyard) I think it is fair to say, and I think we brought it out in the minute, that this is an area where we think we can do better, and we have reviewed the processes and we are using our penalty regime more effectively now. I would want to reiterate though that our prime goal is to try to encourage and enable people to file on time; we do not wish to use penalties in the first instance.

  92. How many taxpayers incur initial and additional surcharges for unpaid tax, and has the number changed since Self-Assessment?
  (Mr Banyard) If you will bear with me for one second; surcharges, for the tax year 1999-2000, we raised 201,000 first surcharges, which is only 2 per cent of the population.


  93. That is 201,000 people?
  (Mr Banyard) Yes, 201,000 people received the surcharge. The surcharge is on the tax.

Mr Mudie

  94. And how is that from 1995, has it gone up or down?
  (Mr Banyard) It has been steady in 1998-99 and 1999-2000, and that is slightly higher from 1997-98.

  95. No, that does not answer my question, does it. I am asking, before Self-Assessment came along?
  (Mr Banyard) Before Self-Assessment, there was a completely different regime. It is very difficult to compare before Self-Assessment; but certainly I do not have any comparable figures with me, I am afraid.

  96. Alright; but, if you can, we would welcome seeing them. Now do you automatically repay penalties received when they are in excess of the tax due, do you automatically pay the money back?
  (Mr Banyard) Yes, we automatically repay them, either capping them or reducing them to zero.

  97. Now the Scottish accountants, I am pleased to say, felt that your system caused maximum worry and distress to many of the weakest members of the community, and, this is the £100, was of less concern to the well off. What would you respond to that?
  (Mr Banyard) The £100 penalty, to get a return in, is a simple, flat-rate instrument, which we reduce if the tax is less. If you are looking at the case of someone with relatively low income and comparing them with somebody with a relatively high income, this is where the surcharge makes a difference, because we do not levy a surcharge unless the tax outstanding is more than £1,000, and it is a proportion of the tax due. So that gives you the fairness element that I think you are looking for.

  98. Can I ask you, just on that, because the worry would be pensioners, when you issue a penalty notice, do you analyse, because you have got Self-Assessment groups, the proportion of penalty notices which go to each group, and, of the 1½ million pensioners, how do they stand up, are they high on the list?
  (Mr Banyard) The answer is, I do not know whether we have analysed it.

  99. It would be a good thing to do, would it not?
  (Mr Banyard) I certainly have not got the figures.

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