Examination of Witnesses (Questions 218-239)|
WEDNESDAY 20 MARCH 2002
218. Jane Moore, could I welcome you to the
Committee. Could you identify yourself and your organisation for
the Shorthand writer.
(Ms Moore) Technical Director of Tax
Aid, a charity which gives free tax advice.
(Mr Williamson) Coordinator, Low Incomes Tax Reform
Group, which is a Committee of the Chartered Institute of Taxation.
219. I thank you both for the memorandum you
have submitted. Jane Moore, in yours, you say that Self-assessment
can only go so far to making the system simpler. Do you think
there is in fact scope for simplifying Self-assessment without
changing the underlying tax regime?
(Ms Moore) I think that Self-assessment itself, the
actual bare bones, the deadlines, the timetable and the concept
of submitting a tax return and then paying the tax is actually
quite straightforward, and there is not a great deal of scope,
perhaps, for simplifying that. What can be simplified is the way
in which it is made accessible to people, in terms of simpler
forms, better information, and the sorts of support that is available
for them, and clarifying some of the areas where there is confusion
at the moment, such as the filing deadlines, and which are the
ones that attract penalties, things like that. Perhaps there are
areas which cannot really be simplified without simplifying the
underlying legislation, I fear.
220. Robin Williamson, you referred to the fact
that pensioners can be considered, in some measures, to be in
poverty, yet fall into the clutches of Self-assessment. Is that
a relatively new phenomenon?
(Mr Williamson) This is a phenomenon which is certainly
as old as Self-assessment, and in terms of the tax system generally,
goes back to the 1970s when personal tax allowances first started
to part company with the rate of inflation. The Rooker Wise Amendment
which addressed the question of aligning the tax allowances with
the rate of inflation did not come in until the 1980s, by which
time a great many pensioners in poverty were already within the
tax system. The particular complexity of Self-assessment for these
people is the compliance aspect, the 8 page form, the 30 page
explanatory material, though we are working together with the
Inland Revenue very constructively to address these complexity
221. I am just interested in your argument.
At first glance, you appear to blame on some mistake of an individual
who is in receipt of benefit or classified by some Government
measure as being in poverty, does fall into the Self-assessment
net. You say, "Regrettably, this is not so." But presumably
your argument is that they should not; is that right?
(Mr Williamson) They should not. Our argument is that
they should not fall into Self-assessment at all, because Self-assessment
was originally set up for people with complex tax affairs and
the self employed, so that the sort of pensioners whose financial
affairs are outlined in our written submission should not be within
Self-assessment, and our recommendations in the written submission
are geared to trying to get them out of Self-assessment. Or, failing
that, at least make the process of assessing them a great deal
simpler than it is at the moment.
222. In the submission that the Revenue made
to us, they said, "One of the aims of Self-assessment when
it was first introduced was to establish a less confrontational
system." Do you think they have achieved that, Jane Moore?
Do you think, in practice, it is less confrontational?
(Ms Moore) I think it depends on whether you have
straightforward affairs where you file a return, pay the tax,
and that is fine, or whether you have an enquiry or difficulty
paying your tax, because I think those are two areas which are
actually quite potentially confrontational. More so than under
the old system, although partly, I would say there has been a
change in Revenue approach, which may or may not be due to Self-assessment;
maybe the change in approach would have happened anyway. There
has undeniably been a toughening up on tax collection, for example,
which is fair enough, but perhaps not always done in a sensitive
way in appropriate cases.
223. But if it was one of the aims of Self-assessment,
to be less confrontational, do you think after five years we could
say they have achieved that, or not?
(Ms Moore) I would say not.
224. Robin Williamson, what would you say?
(Mr Williamson) I would add little to what Jane Moore
has just said. I think much of our specific problem with pensioners
lies in their own perception of not just the Revenue, but any
government body so that anything, even if it is not intended to
be confrontational, is more likely to be construed by them as
being confrontational. We run some pilot projects in the West
Midlands and South West of England where tax professionals give
their time to give free tax advice to pensioners on low incomes.
This is a constant theme of those surgeries. We have elderly ladies
afraid of going to prison for not doing things right. This is
a very big problem with pensioners. Jane mentioned the question
of enquiries where the confrontational aspect is probably at its
most marked. This is why we have first recommended that enquiries
for this particular pensioner group be reduced or even eliminated
in favour of more cross checks between taxpayer declarations and
third party information sources, such as banks and building societies,
where those pensioners who save have some funds.
(Ms Moore) Can I just add something. I think there
certainly are areas which are less confrontational now. There
is no doubt that the Revenue is a willing listener. We work a
lot with the Revenue and our suggestions are well received. But
there is a gap between perhaps public perception of Self-assessment
and the Revenue and what they are doing, and what the Revenue
are trying to do in terms making the thing more accessible. I
think there has been an improvement in the Revenue approach, definitely.
Chairman: Thank you.
225. Your group has called for the trigger point
to be raised to £5000. How did you come to that figure, and,
if it were, how many people would come out of the Self-assessment
(Mr Williamson) That is a figure which, if you take
the original figure, which is £500, that was raised to £2,500,
which was a great deal more than doubling the original figure.
If we were to simply double the present figure to £5,000,
that would have an even greater effect in terms of taking out,
I cannot give you numbers, I am afraid, but certainly all the
people who are in the similar sort of situation, as we see, as
the first two pensioners who we have set out in our written submission
who have saved all their lives, often typically single elderly
widows, saved all their lives in granny bonds, National Savings
products, following government advice, but because these are not
taxed at source, they suddenly find themselves having Self-assessment,
and doubling the income limit would effectively double the amount
of savings which they can actually accumulate before they get
226. So your approach to the £5,000 was
double the existing limit rather than working back through the
types of people within certain categories, and your view was that
£5,000 represented a threshold of substance rather than something
that was purely numeric, is that right?
(Mr Williamson) Yes, £5,000 would be something
which could also be implemented, we believe, without great additional,
or indeed any additional, cost.
227. There is always going to be a line drawn
(Mr Williamson) Yes.
228. There needs to be, presumably, a defence
for having the line at whatever point it is at. So what, in your
view, is the defence for putting it at £5,000 as opposed
to £7,000 or £6,000?
(Mr Williamson) If it was £7,000, better still.
(Ms Moore) Well, I think £5,000 represents a
sensible nest egg of about £100,000 say, or property income
of the typical sort of level that we see, and which we think will
take a lot more people out of having to do Self-assessment, not
necessarily out of paying tax.
229. Yes, your group proposed this £5,000
(Ms Moore) Yes, I also am a member of the Low Incomes
Tax Reform Group, so there is a certain similarity in some of
the things we have considered.
230. So you would suggest there is a point of
substance behind choosing the £5,000. It is not just drawing
the line somewhere for the sake of easing pressure on some people,
but you have not actually quantified how many. Can you do that?
Do you know how many
(Ms Moore) I am afraid we do not know.
(Mr Williamson) If it were to be combined with a very
much simpler system for collecting tax above that limit, then
that would be a
231. Mr Williamson, your group is suggesting
replacing it by having correspondence between pensioners and the
Treasury and the Inland Revenue. How is that going to work?
(Mr Williamson) This would work simply by pensioners
stating in the course of correspondence what their income was
and what their tax allowances were, and the Revenue then issuing
a simple form assessment of the kind that was issued before Self-assessment,
when we got the "one size fits all" return.
232. But this is not feasible, is it, having
people sit down and writing letters to the Inland Revenue? The
Inland Revenue look at all these different letters: some will
cover some points, some will not cover others. There is going
to be an awful lot of toing and froing before they get the information.
It is going to be more confusing, is it not, than just starting
with a form at the very outset?
(Mr Williamson) A form is another way of doing it.
We do not see a hard and fast distinction between a letter which
states what the pensioner's income was and the allowances and
deductions they are claiming, and a form which is a simple statement
of just that, and gives clear guidance as to the income which
pensioners typically need to declare and the typical allowances.
They have these forms in other jurisdictions. I have one here
which is used by Revenue Canada, and sent to over 65s who are
under a certain income limit. It is two pages. It simply lists,
"Do you have these types of income?", and invites them
to claim certain types of deductions. That is a form rather than
a straight form of correspondence in whatever form a pensioner
233. Have you floated your novel idea of entering
into this quaint correspondence with every pensioner with the
Revenue? What do they think?
(Mr Williamson) We have floated all the ideas which
we have put forward in our written submission with the Revenue.
When we first put them forward which was back at the beginning
of the year 2000, they were anxious to review all the various
ways in which pensioners on low incomes could easily be taken
out of Self-assessment without specifying which particular options
they would favour. Since then, that Review has gathered pace,
and, as I said at the beginning, we are working very closely and
very constructively with the Revenue to address this issue. The
correspondence idea is one of a number, and if there are a number
of practical difficulties with it, then
234. Is it still in the running, do you think,
the correspondence idea?
(Mr Williamson) I think this is something that should
come out of the Review which we will have with the Revenue. Maybe
it is something that should be left on one side and a simple form
should be allowed to take its place in conjunction with raising
the limit to £5,000, or whatever other figure is decided
235. On the subject of the simple form, can
I turn to you, Ms Moore. Your submission to us calls for something
like that, and I think I understand you by saying something even
simpler than the 8 page form that exists at the moment, but your
idea is that the Inland Revenue might have to send out different
additional forms together with the simple form to some people.
That sounds a bit nightmarish to me. What is the idea?
(Ms Moore) They already send out additional pages
with a tax return. A typical TaxAid client might have the 8 page
form on which he would perhaps fill in three boxes, which would
be his name and his National Insurance number, nothing else, and
then the self employed pages. Possibly he also had an employment,
so he would have one of those as well. Maybe he had a bit of foreign
income, he would need that as well. So that situation already
exists, and I think my point about the additional pages is that
they are very inaccessible. If you look at foreign page for example,
it is a nightmare, I mean, I struggled with it. Our clients have
no hope, really, and if they are going to have these bits of foreign
income, which is not that unusual, they do need either that form
simplified so that everyone can understand it, or something a
bit simpler for those who have not got the benefit of an accountant
to fill it in for them.
236. Do you think it is administratively better
to have one form that combines all the possible questions where
some sections might not apply, as opposed to a whole clutch of
different forms, which may or may not get bundled correctly for
each individual taxpayer?
(Ms Moore) Which is the system we have at the moment.
I have no particular problem with the basic form plus add-ons
here and there. I think that works better than one form made to
fit everything. You only have to look at the long version of the
Tax Calculation Guide to see that trying to put everything into
one document does not work, it defeats people when they look at
it. But people look at the 8 page form and are put off by it because
they think, "8 pages, got to do all of that", and actually
very often they do not. The boxes that our clients need to fill
in would be easily identified, and I could probably point you
towards ten or twelve, the rest of them blank, and equally in
the supporting pages, certain lines come up again and again and
again and could be made a lot easier to fill in for those people.
237. One more question on that, if I may: do
you think that an alternative approach to helping there would
be to extend the current approach of supplying additional forms
as experience suggests be necessary? For instance, if you have
filled in a foreign form one year, you get it again the next year.
Could you imagine a little shrinking version, that if one of your
customers had in fact found that he only needed to fill in the
demographic data and the self employed data, that they would get
a form consisting only of that?
(Ms Moore) There would have to be a level beyond which
they could not reduce it because you would have to cater for people
having new things that had not cropped up the year before, so
they would need to have some broad outline of the main areas of
things that are taxable as an aide memoire, I think, and so just
the form based on the year before would not work, I do not think.
238. But that is what happens now, is it not?
On page 2 you get the list of forms you might want, and if you
want one you have not got, it tells you how to get it. So I am
asking you whether you think that the current approach could be
(Ms Moore) Yes, I think it could be. I mean, just
the name and demographic data would not be enough, you would need
to have a bit more. I know that was an extreme example. But perhaps
a couple of pages would do the trick rather than eight.
239. Moving on to taxpayer legal penalties for
late filing. You describe two kinds of late filers: people with
no particular excuse, and those who simply cannot cope. You acknowledge
that for the former, penalties may prove effective; you say in
the latter case, penalty is not really an incentive to file, it
just makes you feel more stressed. In practical terms, how can
the Revenue distinguish between which of these categories the
late filer belongs?
(Ms Moore) That is a difficult question. I am not
sure to what degree the Revenue actually manage to have contact
with some of these people where there are five years of tax returns
stacked up now. I know they are doing research at the moment,
but I do not know the outcome as yet of why people file late,
and why there is a backlog of returns in a certain hard core of
cases. Really, without actually speaking to the person concerned
and finding out, it is very difficult to know what the reason
is. I should imagine they do tend to do that.