Select Committee on Treasury Eighth Report


14. The Inland Revenue accepts that it is its job to make Self Assessment as easy and as straightforward to use as possible. It said that it tried to do this in two ways, by producing products and forms that people found easy to use, and by backing that up with help and guidance where they needed it. The Revenue told us that "we have ... a substantial number of customers who find Self Assessment relatively straightforward, but there are parts of the system which some people find difficult to use. The main areas of concern, for some people, are the return itself, the statement and the calculation guide; most problems are with the statement and the calculation guide. ..."[17]

15. Many of the submissions we received referred to the complexity of Self Assessment. The Institute of Chartered Accountants in Scotland noted that "the Tax Calculation Guide (even in its simplified version) is a confusing document that can baffle the most experienced professional tax specialists. The plethora of tax rates applied to different types of income makes the computations incomprehensible to most taxpayers. To make Self Assessment more acceptable, the number of rates should be reduced and the calculation procedures generally simplified."[18] A tax practitioner commented that "the tax calculation could be used as the entrance exam for Mensa. The main reason for its difficulty is the illogicality of having different tax rates for certain types of income like interest and dividends. ... I would suggest there is something fundamentally flawed with a system that even well educated taxpayers find too difficult to follow."[19] The Institute of Chartered Accountants in England and Wales commented "Self Assessment made the administration of the tax system easier to understand than the previous system of meaningless estimated assessments. However, change in the administration of the system cannot of itself make the system more comprehensible. The tax system is as complex as ever, although certain administrative procedures are now easier to follow. ..."[20] The Institute also noted that "having a tax system which is understandable to the intelligent layman should have been regarded as a pre-requisite for introducing Self Assessment. Taxpayers are more likely to file their tax returns and make tax payments on time if they can easily complete the forms and understand the basis for the tax that they have to pay."[21]


16. The Chartered Institute of Taxation referred in their evidence to a paper they had submitted to the Revenue on tax simplification setting out personal tax 'Quick Wins' designed to challenge the Government and the tax authorities to acknowledge the problem of complexity by committing to make annual changes to the tax system aimed solely at simplification.[22] Mr Whiting, the President of the Institute, told us that they had submitted three papers on simplification "one aimed at personal tax which we submitted last summer, one on Corporation Tax which went in the autumn [and] one on VAT which went in in January ... we have been pleased at the reception of them; we have had constructive discussions on all three with the Treasury, with the Inland Revenue and Customs as appropriate, and we await results ..."[23] However, Mr Whiting also noted that not many previous suggestions for tax simplification had been accepted, as "all too often it is a case of there not being space in the Finance Bill for a measure which is just simplification, or it would cost too much money ..."[24]

17. Subsequently, when the Committee took evidence on the 2002 Budget, Treasury officials acknowledged that the Budget contained no measures specifically on Self Assessment simplification. Mr Gibbs, Head of Tax Policy, said that "there are a lot of measures in the Budget which will, I think, quite significantly simplify the tax system, but primarily on the corporate side. ... we have regular meetings with the Chartered Institute of Taxation, both in the Treasury and jointly with the Inland Revenue. I have to say that none of the specific proposals we have had have been terribly useful or of the sort that we have felt able to implement through the system in a way that is consistent with its underlying objectives ..."[25]

18. We put this point to the Paymaster General who told us that "there were several changes in the Budget which assisted taxpayers in their returns, particularly the self-employed and in the area of company taxation. I would freely admit to the Committee that it is proving very difficult, for instance in the priority of wanting to remove taxpayers wherever possible from the obligation of Self Assessment, to settle on a clear system which does not end up making it more complicated for them. I would share the views of the Committee that I would have hoped to have been further on, but we are not and we need to press forward as quickly as we can. ..."[26]

19. We are disappointed that the Budget contained no measures specifically designed to simplify Income Tax Self Assessment. Given the existing level of complexity, we support the proposition that there should be annual changes to the tax system aimed solely at simplification. We therefore recommend that this be included as one of the Inland Revenue's key performance targets against which the Revenue should report progress annually.


20. The Inland Revenue told us that the Income Tax Self Assessment tax return had been developed with customer input and testing. It comprises a core of questions appropriate to most people and sets of additional questions (for example, relating to self employment) that do not apply to all. The computer system automatically selects the additional sets of questions to accompany the core tax return based on the taxpayer's last completed tax return. For people with new sources to be taxed, for example capital gains, the Revenue gives advice which explains that they need to ask for the appropriate additional set of questions.[27] The Revenue also noted that "we have ongoing consultation with accountants and taxpayers to identify ways that we can improve Income Tax Self Assessment forms. Most recent changes have been the improvements to the statement of account and the shorter six-step tax calculation guide."[28]

21. We received evidence on the need for a simpler tax return form from several witnesses. TaxAid noted that "the Revenue have made a commendable effort to produce a form which caters for all aspects of the tax legislation that might affect a taxpayer. For many TaxAid clients, the majority of sections on the form do not apply and they have to fill in just a few boxes, but they are daunted by the eight page form and the questions on page two, which employ technical terms which the average taxpayer may not understand. ...the Self-Employed pages of the return could be made simpler. ...[The] supplementary pages [for Land and Property, or Foreign, or Non-residence, or Capital Gains] are not user-friendly for the unrepresented individual. We realise that this is because they are attempting to cover some complex areas of tax. But more could be done to guide such taxpayers through the sections they are likely to need. The issues likely to crop up are limited in range and could be predicted and identified."[29]

22. The Institute of Chartered Accountants in England and Wales believed that many of the forms had been designed to support the computer system rather than to make the form readily understandable. "As a result, the forms continue to cause widespread confusion and waste considerable time for taxpayers, agents and Inland Revenue staff. ...For example, the tax return form requires dividends received to be split into five or six categories. ..."[30] The Chartered Institute of Taxation considered that "there is a good deal of scope for looking hard at who gets tax returns, accepting that some people who get the returns necessarily have got quite simple tax affairs and, therefore, it would be possible to give them a much simpler tax return. The existing tax return goes part way towards that in the basic eight pages plus the supplementary pages, but there is a step further that could be done to get to the two or four page return for ... pensioners with very simple affairs who necessarily get dragged into the system."[31] The possibility of a shorter tax return for certain categories of taxpayers was supported by the Low Incomes Tax Reform Group who noted that such a system was operated in other jurisdictions such as Canada, where there is a two page form for over 65s under a certain income limit.[32]

23. The Paymaster General told us that the Revenue's first priority was to get everybody out of the Self Assessment system who does not need to be there and then focus on what information is required from the taxpayers who remain. The Paymaster General thought that if the Revenue could reduce the tax return to four pages it would be doing extremely well. While the idea would be to reduce the amount of information requested, it would be counter-productive not to seek sufficient information on the form and have to go back to the taxpayer for more.[33] The Paymaster General also told us that "it would be completely wrong of me to say that our first objective is simplicity. Our first objective is fairness, supported by simplicity and compliance."[34]

24. We recognise that the tax return reflects the complexity of the tax regime and the need to obtain sufficient information to calculate their tax liability from taxpayers with different circumstances. But we consider there is scope for a shorter and simpler tax return, particularly for those with relatively straightforward affairs. We therefore recommend that the Revenue continues its efforts to develop a suitable form.

17   Q2 Back

18   Ev 98, para 5.8.1 Back

19   Ev 87, para 4 Back

20   Ev 40, para 10 Back

21   Ev 40, para 14 Back

22   Paper by the Chartered Institute of Taxation entitled "Attacking Complexity: Quick Wins for Tax Simplification Personal Tax Quick Wins", page 2 Back

23   Q133 Back

24   Q135 Back

25   The 2002 Budget, Second Report, Session 2001-02, Volume II, HC 780-II, Qq160, 162 Back

26   Q311 Back

27   Ev 2, para 9 Back

28   Ev 6, para 39 Back

29   Ev 52, paras 6.1, 6.2, and 6.3 Back

30   Ev 42, para 31 Back

31   Q124 Back

32   Q232 Back

33   Qq315-319, 321 Back

34   Q330 Back

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