Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 264-279)




  264. Can I welcome you to the Committee. Could you identify yourselves for the benefit of the shorthand writer, please.

  (Mr Hamper) Neil Hamper, Chairman, Taxation and Financial Affairs Committee of the Policy Group for The Federation of Small Businesses. I am a Chartered Accountant in public practice and a Chartered Tax Advisor. My colleague, Simon Sweetman, is a former Inspector of Taxes, and he will introduce himself.
  (Mr Sweetman) I am the Vice-Chair of Neil's Committee. I am a former Inspector of Taxes and now in business as a Tax Consultant.

  265. Thank you very much for your written evidence. You say for the substantial minority of self employed that do not use agents that the whole system remains, and I quote to you, "Terrifyingly complex, particularly if they file after 30th September." Can I put to you the question I put earlier: what scope is there for actually simplifying Self-assessment without changing the underlying tax regime? Who would like to take that?
  (Mr Sweetman) I think the answer to that is that since Self-assessment was introduced, the tax regime has actually become considerably more complicated. You have the introduction of tax credits; you have the introduction of different tax rates for different kinds of income; you have allowances given in terms of tax which did not happen before, and my feeling is that for whatever reasons, we now have a tax system built for the electronic age, and a lot of people still are not operating in those terms yet. So I think it is very difficult to simplify the system considerably without simplifying the underlying structure, and this is where the very long tax calculation pages come in.

  266. Sure, but without going back over some of those big changes which do affect the underlying structure, are there particular changes you would like to see to up your numbers? Second order changes, if you like.
  (Mr Sweetman) The other things that we referred to in our submission are all attempts to, if you like, simplify the structure of taxation. Yes, there would be simple changes that would take a lot of people out of tax, like increasing personal allowance and so on.

  267. Do you want to add to that, Mr Hamper?
  (Mr Hamper) I think that is a very valid point, that if the threshold were increased, a lot of the problems at the smaller end of the taxpaying population would certainly fall away with, dare I say, not much loss to the Exchequer, as a broad brush approach on that. Our colleagues mentioned earlier filling in the tax calculation sheets. They are horrendously complicated, even for practitioners, and for people that are unversed in tax affairs, I think that really is something that needs to be addressed. And it is complicated, because of the varying rates that my colleague mentioned.

  268. Just on that point of moving up the threshold and taking some of the people out of tax all together, have you done any calculations on your side to the loss of revenue? You say you think it might be minimal.
  (Mr Hamper) No, we have not in detail.

  269. Fine. You have also suggested, to spread the flow of tax returns more evenly through the year, making the return of schedule D taxpayers coterminous with the accounts year. How did you get on with the Revenue on that one?
  (Mr Hamper) Originally, when self assessment was first mooted, there was no attempt, if you like, to move from a 5th April year end. It had been written in stone since whenever.

  Mr Plaskitt: 1752.
  (Mr Hamper) As such, the cost of moving from 5th April to any other date would be phenomenally expensive, so the impression I formed was that the Revenue were somewhat dismissive of even attempting to try and move. I think the Revenue, as also administering the system, would probably welcome some sort of change if it could be accommodated, but they have to work within their own resources, of course.

  270. But the suggestion is that the resources are all being bunched. In your memorandum, the whole suggestion is that resources are all being bunched at the moment.
  (Mr Hamper) Absolutely, I mean, it is a terribly inefficient system. You are getting now the situation where the filing deadlines are either 30th September or 31st January. 31st January is the most critical filing date there. Everybody pulls out the stops, and human nature being what it is, everybody leaves things to the last minute, not just the accountants, and you have this horrible bunching effect as the returns are initially got away from the agents and the taxpayers and then of course the Revenue have got the bunching effect after they have been processed to actually sort and sift from then on. To us it would make logic sense to actually try and spread the filing of tax returns over a calendar year.

  271. That is why I do not quite understand your perception of the Revenue's argument against that on resources.
  (Mr Hamper) Well, we would have thought that the Revenue would have welcomed that sort of change of doing it, rather than sticking with 5th April and everything has to be brought into line to 5th April. As a corollary, of course, the 31st January filing date was built on 5th April.

  272. Have you pressed this recently with them?
  (Mr Hamper) No I have not.

Mr Beard

  273. In your memorandum, the Federation of Small Businesses, you say, "A major problem for business taxpayers is that on the second 31st January after commencement of the business, they have to find the first year's tax in full, plus the first instalment of the second year, so paying 150 per cent of a year's tax all at once". That is a terrible burden for someone who is just setting up in business. Have you made representations against that, and what have been the responses?
  (Mr Sweetman) Normally representations come continuously through various committees that representatives from the Federation sit on with the Revenue. But the Revenue's view, I suppose, is that in a way this is generous, because it is 18 months or so before people have to pay any tax at all. I think the problem is that it does not take human nature into account, and I think, as Jane Moore explained in her evidence, people find, with the best will in the world, that there is a creditor more pressing at a particular time, and it is difficult to accumulate that. It is also difficult for people to calculate it. I, for instance, have been in business in my present self employment for less than a year, and it is quite difficult for me to calculate how much money I should be putting away for tax, and I am supposed to know about it.

  274. You suggested the possibility of the business taxpayers paying income tax by direct debit in monthly instalments. Would that not be a solution? What is wrong with that?
  (Mr Sweetman) I think we come back again to this point, again referring to the trial which was conducted and which, from my recollection, I understood it to have finished, but they have never mentioned the results on payment by instalments, but we come back to the problem that the Revenue find it difficult because they cannot make any claim for the tax in advance of the date when it becomes due. I think this too would be comparatively straightforward to operate for people once they were settled in business and had some idea of the tax liabilities and the Revenue had some idea of the kind of tax liabilities that they would pay from year to year. It is a problem in the first year.

  275. Are you suggesting that people would not take this up because they would effectively be paying tax in advance of when they actually needed to?
  (Mr Sweetman) That was always the objection, but from what one had heard about the scheme in the North East, people did this quite happily, but, as I say, it has not come out.

  276. I am not suggesting it be made a requirement, but it could be an alternative to paying in a lump sum at the end of the year.
  (Mr Sweetman) Yes, and one of the things the Revenue have never wanted to do is pay interest on money that is paid to them early, which might be quite an attractive proposition, and certainly offering better rates than the banks are to small businesses.

  277. So you have not heard from the Inland Revenue as to whether they intend to take this North East of England trial forward, the Gateshead trial?
  (Mr Sweetman) No. At a regular Committee, we have been constantly expecting to be told about it.


  278. Can we just check: the Gateshead trial that Jane Moore was referring to earlier is the one that you are referring to now, and the one that you refer to in your written evidence?
  (Mr Sweetman) That is right, yes. The Operations Consultative Committee had talked for a long time about the possibility of payment by instalments and eventually the Revenue set up a trial in the North East, whether it was Gateshead or Newcastle, and we heard from them that it was going well, but that is all.

Mr Beard

  279. Going back to the question I put to the previous witnesses, would it not help small businesses if they have something like payment of the gas and electricity bill, where they paid a fixed instalment every month, and then settled up at the end, rather than having a large bill coming at them all at once?
  (Mr Sweetman) I am sure that would be very helpful, yes.

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