WHO RECEIVES A TAX RETURN?
5. The Inland Revenue keeps the Income Tax Self
Assessment population under regular review to make sure that only
those people who in its opinion need to complete a tax return
get one, and "the people who don't need one can have their
tax affairs processed each year with the minimum amount of contact
with [the Revenue] ...."
TaxAid, a charity working with unrepresented taxpayers, told us
that "we find that some people are sent Self Assessment returns
when there is no need for them to do one. Often clients have needed
a Self Assessment return at some stage, for example when they
were self-employed, but this income source has now ceased. ...Such
taxpayers do not realise they could come out of Self Assessment,
and because the system is automated, the Revenue do not necessarily
review the need for a return before sending it out. One difficulty
for the unrepresented taxpayer who thinks he does not need to
do a Self Assessment return is that the return form does not explain
why it has been sent. We would like to see a clear explanation,
on the form itself or prominent in the notes, of the circumstances
and individuals to which Self Assessment applies. Taxpayers would
then understand why they have to fill in the return, or could
challenge its issue and return it uncompleted ..."
6. The Revenue told us that the legal position is
that a taxpayer who is issued with a tax return must complete
it and send it back. But where a return is issued in error, the
taxpayer should contact the Revenue and discuss the position.
The Revenue also told us that it does not publish the criteria
for issuing a Self Assessment tax return "because of the
enormous number of situations which could, or not, bring people
into Self Assessment, but we are looking at how we can provide
greater transparency so that people have a clearer idea of whether
they are in or not."
This is part of a review the Revenue is undertaking of ways of
improving Self Assessment, which is examining, as one of its priorities,
the types of people covered by the system with a view to removing
from taxpayers wherever possible the obligation of Self Assessment.
7. People receiving Self Assessment tax returns
are not told why they are issued, even though once received they
are obliged by law to complete and return them. The Inland Revenue
does not publish the criteria for issuing Self Assessment tax
returns because of the enormous number of situations in which
a return is issued. We believe this to be an unsatisfactory state
of affairs, which stems from the complexity of the tax system.
We note that the Inland Revenue is examining how it can provide
greater transparency so that people have a clearer idea of whether
they are covered by Self Assessment or not. We wish to see the
criteria for issuing Self Assessment returns published in the
interests of fairness to taxpayers.
8. TaxAid noted that where the system has identified
that someone is inappropriately within Self Assessment, and rectified
it by ceasing to send them returns, the taxpayer is not routinely
informed of this. "So one year they will get a return, and
the next year not; but they do not realise that this is because
they do not need to make a return. They then see the publicity
about the obligation to make a return, and associated penalties
[for failing to do so], and worry that they should be doing one.
This is particularly true of older, poorer pensioners. If the
Revenue decide not to issue a return because the taxpayer is outside
the criteria for being in Self Assessment, they should inform
the taxpayer and not simply stop sending returns without any explanation."
9. We put this point to the Paymaster General who
told us that "what is very important is that where somebody
has been in the system and they are out of the system, we should
be absolutely clear at that point with them - and we do not always
manage that - that they will not get the form again and they should
not get it ..."
The Paymaster General agreed that, as a minimum, when the Revenue
identified people who should not be in Self Assessment, it should
write to them thanking them for the returns they had completed
and informing them that the Revenue would not be sending any more.
10. We are concerned at the Revenue's failure
to inform taxpayers who need no longer submit Self Assessment
tax returns of this fact, causing unnecessary worry to taxpayers
waiting for tax returns that will not arrive. We therefore welcome
the Paymaster General's undertaking to the Committee that the
Inland Revenue will now write to taxpayers when they are no longer
required to submit a return to inform them of this fact.
11. The Inland Revenue estimates that some 1.2 million
of the 9 million people required to fill in a Self Assessment
tax return each year are pensioners.
The Low Incomes Tax Reform Group, which seeks to represent people
on low incomes who cannot afford to pay for tax advice, noted
that the Self Assessment system included pensioners who, by reference
to some Government measures, would be described as being 'in poverty'.
The Group provided three examples of pensioners with incomes ranging
from £6,048 to £8,250 who would receive Self Assessment
returns and noted that "prior to the introduction of Self
Assessment all three of these pensioners would have had a relatively
straightforward time with their tax affairs and simple forms would
have been used in conjunction with a simple assessing procedure.
The computer generated letters and forms used by Self Assessment
are not sympathetic to the needs of this group of Inland Revenue
customers and generate unnecessary paperwork and worry."
12. Both the Low Incomes Tax Reform Group and TaxAid
suggested that one way of removing the burden of Self Assessment
for many people, particularly pensioners, could be by raising
the limit for coding out untaxed income from its current level
of £2,500 to perhaps £5,000.
The Inland Revenue told us that "we are aware that there
are groups of low income people, pensioners particularly, who
at the moment are in Self Assessment. We very much want to help
them, and other people with low income, either by taking them
out of Self Assessment altogether or finding a way of making it
much easier for them to assess. So we are working with the Low
Income Tax Reform Group, and, through them, with Age Concern and
Help the Aged and TaxAid, to see how we can do this. I have to
tell you ... it is not easy, but I would want you to know that
we do genuinely want to find a way forward."
13. The Inland Revenue recognises that there are
too many people with low incomes, particularly pensioners, in
Self Assessment and is looking at ways of taking them out of the
system altogether or of making it easier for them to assess. We
support these aims and expect the Revenue to make real progress
towards achieving them over the next year.
1 Ev 1, paras 3, 4 Back
Ev 1, para 6 Back
Ev 1, para 3 Back
Ev 2, para 8 Back
Ev 51, para 5.2 Back
QQ2, 310, 311 Back
Ev 51, para 5.3 Back
Ev 57, paras 2-4 Back
Ev 58, paras 9, 10 Back
Ev 52, para 5.4, Ev 58, para 12 Back