Examination of Witnesses (Questions 180
WEDNESDAY 13 MARCH 2002
180. Now, you have said that the practical operation
of the system has "resulted in significant additional costs
for taxpayers and their agents". Does that mean you have
(Mr Maas) We have not quantified the costs but
181. But you know they are significant?
(Mr Maas)if we look at our postbag over the
last ten years the number of problems people write into us with
on self-assessment are far bigger than anything else that I can
ever recollect. I have been involved with the Institute's Tax
Committee for getting on for 25 years, and I cannot recollect
anything like the number of problems on any other issue.
182. You have outlined a number of the practical
problems. Which of these has produced the additional costs?
(Mr Maas) The errors produce an awful lot of additional
costs. What often happens is that an accountant will calculate
the tax payable, the Revenue will process the return, will say
it is the wrong amount, will come up with a different figure and
will make a repayment to the taxpayer very often, and you then
have to convince the Revenue that your figure is right and their
figure was wrong, and you have to get the client to repay the
repayment that was made to them in error. There is an awful lot
of extra work involved in sorting out these problems. To be fair,
under the old system, the Revenue would say, "This is what
we think the tax is. Do you agree?" , and whilst that in
some ways was a better system it did mean the client had to wait
for his money. Now they say, "We will send out the cheque
for what we think is right", and when it does work it is
better but it does not work often enough.
(Ms Monteith) That is one of the reasons why Working
Together was set up. I gather from the tone of some of the questions
earlier that perhaps it is not fully appreciated that Working
Together was not set up to deal with policy issues but really
operational issues, and if you look at the types of issue that
we deal with they are very much of an operational naturefor
example, the use of call centres, the use of a national rate telephone
number that agents have to use. This may seem a small issue but,
if you need to ring several times and get passed around to deal
with somebody's affairs because you cannot find anyone to answer
your question, it becomes very expensive for an individual or
an agent who is dealing with that. That is the sort of thing that
Working Together would look at.
183. I wonder if you would agree that the issue
of complexity in tax forms can really be divided into separate
issues where, on the one hand, you have the complexity of the
tax system itself, with a trade-off between subtlety and fairness
versus simplicity where the more you try to target a particular
tax the more you create exceptions and extra questions and on
the other hand, quite separately, you have the question whether
the form is optimal given a particular tax system?
(Mr Maas) I would agree with the split though I am
not sure I would agree with your analysis of the first one. The
complexity of tax arises from a lot of thingsmuch of it
from not using the system to collect tax but to change people's
behaviour or achieve social objectives. I certainly agree with
the distinction, however.
184. Would you also agree that, looking at the
form which was the second part of the split, there is a trade-off
between brevity and completeness? The previous evidence included
a suggestion that many people would be sent a very short, two-page
form and they could ask for extra bits. The drawback about that
is that, if lots of people needed extra bits, that would be more
irritating than having a larger form where they could skip some
of the pages. Do you have a view on that?
(Mr Maas) Yes. Firstly, if you have a single large
form, the current form is needlessly complex. For example, it
requires dividends to be split into six different categories,
which was a valid distinction when ACT was there and tax credits
were repayable but it is no longer a valid distinction so it is
utterly unnecessary on last year's return form. There are, therefore,
bits of the form that could be simplified. The real problem with
the form, to be fair, is that what happened, rightly or wrongly,
is the Revenue programmed its computer system first and then designed
the form to fit the computer programme. It would have been much
more sensible to have designed the form first and then to have
built the computer programme around it. The other point I would
like to make is that I would agree with John Whiting that I think,
for certain types of taxpayer, it would be much more sensible
to have a separate form. I would not myself say, however, "And
then they could ask for extra pages" because if you look
at what taxpayers you are talking aboutand you can look
at, for example, higher paid employees, where the person is going
to have his salary and his benefit in kind and a little bit of
investment incomein most cases that little bit of investment
income is such a small figure that it makes probably no real sense
to require him to break it down into different categories. You
could simply have a form for him saying "Investment income"
and, if it is less than a thousand pounds, just put the amount
in; if it is more, ask for a extra page.
There is a lot you could do. Having said that, unfortunately all
the time you come back to costs because, if you have separate
forms, although it would simplify and make it easier to complete
the form, it would undoubtedly greatly increase the Revenue's
costs because they would have to process them differently.
185. Yes. Going by my own experienceand
in this sort of area we are all a bit anecdotalI quite
appreciate the modular nature of the form which seems to me to
go quite a long way to meeting the issue, but when I came back
to work in Britain after working abroad I found I could do a form
very quickly and then I was missing the foreign page. I really
wonder whether that kind of experience is quite commonthat
people find they can do nearly all their affairs except a little
bitand whether it is not better to have a modular set?
(Mr Maas) The Revenue do try hard, to be fair. They
try to issue the taxpayer with a form based on the previous year's
return for all the pages. The only exception to that is capital
gains. It would be sensible if every high rate taxpayer had a
capital gains tax form, as you always have to ask for the capital
gains tax form. Having said that, however, the Revenue's website
has all the forms on it so you do not have any longer to ask and
wait; you can download the form and complete it.
186. You refer in your memorandum I think to
the fact that there are a very large number of processing errors.
Have you quantified that?
(Mr Maas) We cannot quantify it. We get that from
the feedback we have from our members, that is all, and some of
them are quite large. We had an instance where a member was given
a £50,000 tax repayment because the Revenue did not process
the self-employment page. The system does say, "If the computer
throws up a big repayment, check why", but unfortunately
it does not always happen!
187. In your memorandum you say that one of
the major problems is with Revenue enquiries. What are the problems?
(Mr Maas) In the past what happened with Revenue enquiries
is the Inspector of Taxes would say, "I have concerns about
this set of accounts", and we would say, "What are they?",
and he would say, "Well, these are my main concerns",
and we would then say, "Well, suppose we send you this, or
that", and he would say, "That is fine". What happens
now is they refuse to tell you what their concerns are; they simply
just ask for information and very often they will ask for information
that I cannot see the relevance of and I will write and say, "Why
do you think it is relevant?", and so that takes time and
sometimes they say "It is irrelevant", and although
there is a procedure where if I do not think it is relevant I
can appeal against it, my experience is I must have appealedeither
myself or othersagainst thirty or forty cases and in not
a single one of them have the Revenue felt sufficiently strongly
they wanted the information then to take that appeal to the General
Commissioners. So there is a growing feeling that they ask for
information for the sake of asking for information, without any
realisation that producing information is often very costly to
the taxpayer and often very intrusive, particularly when they
ask for personal bank statements, because people say "What
has my personal life got to do with the taxman?", and quite
fairly, so. In some cases it is very valid that the Revenue should
ask but in most it is not. Also, because of the system where they
no longer tell you what is worrying them until a very late stage,
the whole enquiry system can become extremely confrontational.
188. Is it not likely that that is so that people
cannot work their way round the concern by other means?
(Mr Maas) I can see the point in what you are saying
but the downside of it is that under the old system, very often,
for example, the Inspector would say, "I am very worried,
the gross profit percentage is very low", and you could say,
"Oh, yes, sorry, we should have thought to tell you, that
the guy was off sick for six months of the year". Now he
just says, "Well, I think the gross per cent is very low",
and you then get lots of questions and a long drawn-out enquiry
and after a year or whatever you convince him the guy was off
sick for a year. So it creates a lot of additional work which,
in turn, creates a lot of ill feeling.
189. So what are you saying they should do as
(Mr Maas) I think they should go back to the old system.
When self-assessment was first mooted the Revenue came to accounting
bodies and said, "We would like to discuss a system for dealing
with enquiries", and we sat down and devised a system which
got round all these problems. Basically they said "This is
the procedure we will adopt to a timetable", and it was a
flexible timetable and it was agreed by both sides, and they said,
"We are going to use this on every full enquiry after 1 April
1998". In fact, they very rarely used it and they have now
abandoned it completely.
190. You said also in your memorandum that the
Revenue scrapped the previous system discussing their concerns
with agents, and you are calling for its reinstatement?
(Mr Maas) Yes.
191. Have you put this point to the Revenue?
(Mr Maas) Yes.
192. What did they say?
(Mr Maas) It is quite clear that the local Inspectors
of Taxes do not like it. When I have tried to find out why they
do not like it, basically they have said that they do not think
it is necessary under self-assessment, which does not make any
sense because it was introduced specifically in the context of
193. Can you expand on that, why do they not
think it is necessary?
(Mr Maas) I do not think that self-assessment renders
it unnecessary when it was introduced specifically because of
(Mr Maas) What I think it is is that because the local
districts have power to require information within 30 days, I
think a lot of local inspectors do not feel that there is any
point in having an agreed timetable when they can impose a timetable
on the other side.
195. These discussions, were they about individual
cases or were they about general points of practice?
(Mr Maas) The initial discussion was why do we not
sit down together and try and devise a system for dealing with
enquiries which will stop them being long and drawn out.
(Mr Maas) Which was what part of the work was.
197. You are not getting any responses, you
(Mr Maas) The Revenue basically never used it. What
seemed to happen was the people who were enthusiastic about it
within the Revenue moved on to other jobs and it just fell into
198. Is it because there is a poacher gamekeeper
relationship between the two and a conflict of interest arising?
(Mr Maas) It is hard to say. I am not sure there is
a poacher gamekeeper relationship because I think both sides recognise
that it is in everybody's interest to deal with things as expeditiously
as possible. I think it is probably that perhaps the Inland Revenue
are much more suspicious of our clients than we are.
199. Suspicious of your clients or suspicious
(Mr Maas) Well, it could be both.
Mr Beard: Thank you very much.
3 Note by witness: The US seems to have no problem
with this. It requires investment income to be itemised only where
it exceeds $400. If the UK did the same, most people would not
need to detail their income. Back