Select Committee on Treasury Appendices to the Minutes of Evidence


Memorandum submitted by The Institute of Chartered Accountants of Scotland


  The Institute of Chartered Accountants of Scotland recall words written by Adam Smith (1723-1790): "The tax which each individual is bound to pay ought to be certain. The time of payment, the manner of payment, the quantity to be paid, ought all the be clear and plain to the contributor, and to every other person."


  1.1  Self-assessment was introduced as a clearer and more straightforward way of working out and paying tax. A perceived objective was to shift the burden of tax compliance from the Revenue to taxpayers. In parallel with this, another stated objective was to simplify tax.

  1.2  Income Tax Self-Assessment (ITSA) began in 1996-97, so it has now operated for five years. Corporation Tax Self-Assessment (CTSA) started on 1 July 1999, and has applied to individual companies for two or three years, depending on their accounting dates.

  1.3  A massive shift in the burden of compliance has been achieved by self-assessment, without any accompanying simplification; the volume of tax legislation continues to increase. The result has been to over-burden businesses with expensive administrative pressures, and to swamp individual taxpayers with onerous compliance requirements that many fail to understand. This has created an unhealthy sense of confrontation between the Revenue and taxpayers.

  1.4  We believe the compliance obligations imposed by CTSA and ITSA should be modified so that they are fair, simple and easy to understand.

  1.5  Following are two Executive Summaries of our recommendations, relating to CTSA and ITSA respectively, followed by our more detailed observations.


  The following is a summary of our observations and recommendations with regard to CTSA:

2.1  The Need for Early Amendments to CTSA

  The Government seems reluctant to make changes to CTSA until the system has been in place for several years and the Inland Revenue and companies have gained more experience of the new system in practice. However, we recommend that alterations should be made now, to lift unreasonable compliance burdens and remove other factors that might discourage businesses from operating in the UK.

2.2  Quarterly Instalment Payments

  As forecast in representations made before CTSA was introduced, many large companies that are required to pay corporation tax by quarterly instalments face enormous difficulties and high compliance costs simply in estimating their tax liabilities based on current year profits. Many events occurring late in a company's accounting period can produce quite significant shifts in profits, invalidating earlier estimates. To avoid these problems, large companies should be required to base their tax instalments on the profits of the immediately preceding accounting period. Like personal taxpayers, they should be allowed to postpone tax if they have reason to believe that current year profits will be lower than those of the previous year.

2.3  Group Payment Arrangements

  The stringent contractual conditions that the Revenue have imposed on Group Payment Arrangements should be relaxed, so that the administration of such arrangements would become easier for all parties involved.

2.4  Transfer Pricing

  Under CTSA, the transfer pricing regime places unfair burdens on all businesses. It creates a serious deterrent to many medium-sized and smaller UK businesses that wish to expand their operations globally, and it may also discourage inward investment from overseas. The approach to transfer pricing should be reconsidered to see whether the information rules could be relaxed. The Revenue should co-operate in making advance pricing agreements easier to obtain, particularly at the smaller end.

2.5  Controlled Foreign Companies

  The CTSA rules relating to controlled foreign companies are difficult even for large companies to comply with, and they give some smaller companies impossible compliance difficulties. The CFC compliance obligations should be simplified.


  The following is a summary of our observations and recommendations, based on the first five years' experience of ITSA:

3.1  The Need for "Working Together" by the Inland Revenue and Taxpayers

  The ITSA penalty and surcharge regime causes acute distress to many innocent taxpayers. The Revenue should aim to assess and collect tax without threats and confrontation. The Revenue, by "working together" with taxpayers, should help them to meet their compliance obligations.

3.2  Penalties for Late Filing of Personal Tax Returns

  Incentives should be offered for early compliance. Penalties should be reserved for serious cases of default, and mitigated where previously defaulting taxpayers bring their returns up to date. Penalties not currently restricted (to the amount of tax outstanding) should be so limited.

3.3  The Administrative Tangle of Fixed Penalty Notices

  The issue of fixed penalty notices and subsequent cancellation of many of them cause distress and confusion—especially among people with limited means and no easy access to professional advice. The penalty legislation should be amended so that notices would not be issued at such an early stage. Taxpayers should be given more helpful guidance on the penalty regime.

3.4  Surcharges on Personal Tax Paid Late

  Parliament never intended surcharges to be imposed on taxpayers who make innocent errors and later correct them. The Revenue should levy surcharges on a more selective basis.

3.5  Interest on Personal Tax Payable and Repayable

  Interest rates on income tax and capital gains tax (and CTSA from the normal due date) should be the same as for CTSA quarterly instalments, reflecting commercial rates for the time value of money, as intended by Parliament. The interest rules can operate unfairly where part of a taxpayer's income arises under the Construction Industry Scheme, and should be changed.

3.6  Selection of ITSA Returns for Inland Revenue Enquiries

  The Revenue should publish guidelines explaining their method of selecting cases for enquiry.

3.7  The Low Take-up of Electronic Filing

  The Revenue should seek to improve the take-up of e-filing by offering positive incentives. Cost savings from ITSA should be shared with taxpayers. A customer-orientated approach requires a fundamental change in attitude by the Revenue.

3.8  Tax Return Forms, Tax Calculations and Filing

  More constructive help should be given to taxpayers. The Tax Return Guide should state that all supplementary pages and notes can be downloaded from the Revenue's website. The tax rate structure and the calculation procedures should be simplified considerably. Steps should be taken to reduce the bottleneck caused by the 31 January filing date.


4.1  The Need for Early Amendments to CTSA

  While the Inland Revenue continues to have useful discussions with representatives of business and the professions through its Self-Assessment Consultative Committee (Corporation Tax), it is apparent that the Government is reluctant to make changes to CTSA until the system has been in place for several years and the Inland Revenue and companies have gained more experience of the new system in practice. However, for many businesses the need for change is urgent. We recommend that some alterations should be made without delay, to lift unreasonable compliance burdens and remove other factors that might discourage businesses from operating in the UK.

4.2  Quarterly Instalment Payments

  4.2.1  It is fundamentally unsound that any company should be obliged to prepare an accurate estimate of its corporation tax liability for the current year, at a time when this liability can be affected significantly by transactions and other events that have not yet taken place.

  4.2.2  The requirement on a "large" company to estimate taxable profits for an accounting year as early as half way through that year is onerous in the extreme. By contrast to this stringent "current year basis" of calculation, individuals can pay tax to account based on their income of the previous year, with the ability to postpone tax if they can show that the current year's income is likely to be lower.

  4.2.3  In some large companies with a steady pattern of business, and tightly controlled budgeting and management accounting systems, the information needed to estimate quarterly taxable profits is fairly readily available. However, this is not typical of all large companies. Many businesses are subject to marked seasonal fluctuations in trading, substantial capital disposals that cannot be predicted, or the impact of external factors outside their control. It is often simply not feasible to prepare quarterly estimates of taxable profits for the whole accounting period with any degree of accuracy. Events occurring late in a company's accounting period can produce quite significant shifts in profits, invalidating earlier estimates—for example, capital gains or losses, foreign exchange movements, bad debts, or factors relating to controlled foreign companies. Companies—even some that until recently were relatively confident about the accuracy of their forward estimates of profits—have found their forecasting proven wrong as a result of external events, notably the terrorist outrages of 11 September 2001 and the subsequent sharp downturns in the US and global economies.

  4.2.4  Before CTSA was introduced, the Revenue received many representations stating that companies would face difficulties in estimating accurately their current year corporation tax liabilities. The difficulties now being faced by many large companies are precisely those that were forecast in those representations.

  4.2.5  When the present transitional period expires, the final quarterly instalment due only three months after the accounting date ought to complete a large company's payment of corporation tax for the accounting period. With the pressures already involved in preparing year-end accounts, we think that, within the required timescale, many large companies will be unable to estimate their corporation tax liabilities sufficiently accurately for this purpose.

  4.2.6  The Corporation Tax (Instalment Payments) Regulations 1998 (SI 1998/3175) require each large company to be able to demonstrate to the Inland Revenue that the amount of each instalment payment was consistent with the quality and quantity of information available to the company, at the time the payment was due, regarding its total liability for that period. Guidance published by the Revenue on 8 June 1999 outlines the circumstances in which the Revenue may seek penalties on the grounds that a company may have deliberately or recklessly failed to comply with its payment obligations. The requirements thus placed on companies apply grossly unfairly to many types of business that have difficulties in predicting future transactions that may affect their tax liabilities. Unduly onerous pressures are placed on such companies, and they face excessively costly and non-productive procedures in their attempts to guard against exhaustive Revenue enquiries and potential penalties.

  4.2.7  We recommend that the legislation be amended so that large companies would base their quarterly instalment payments on the profits of the immediately preceding accounting period, to avoid the high compliance costs otherwise involved in estimating current year profits. Like personal taxpayers, they should be allowed to postpone tax if they have reason to believe that current year profits will be lower than those of the previous year.

4.3  Group Payment Arrangements

  4.3.1  Group payment arrangements for large companies were enabled by section 36 Finance Act 1998 and introduced by Inland Revenue guidance issued on 26 February 1999. Initially the contractual arrangements required were somewhat cumbersome, and proved inflexible in practice. For example, although there is no need for all companies within a group to participate in a group payment arrangement, the removal of an existing group company from such an arrangement has been found to be fraught with difficulties.

  4.3.2  Given that the Revenue has now gained valuable experience of group payment arrangements in practice, we recommend that the stringent contractual conditions imposed on such arrangements should be relaxed, so that their administration would become easier for all parties involved.

4.4  Transfer Pricing

  4.4.1  Transfer pricing has long been a significant tax issue for companies operating across national frontiers. A small number of large multinationals, who account for the major proportion (by value) of total UK corporation tax receipts, are accustomed to anticipating the possibility of transfer pricing challenges by the Inland Revenue, and taking steps (albeit often tiresome and expensive steps) to avoid or contain the costs of resultant enquiries. They and their advisers have developed expertise in this field, and some have taken advantage of section 85 Finance Act 1999 to negotiate advance pricing agreements with the Inland Revenue.

  4.4.2  The transfer pricing legislation creates potential traps for not only the small minority of unscrupulous businesses seeking to manipulate cross-border prices, but also the much greater number of honest but less aware companies venturing into the international trading arena for the first time. Although companies in this latter group may account collectively for only a small proportion of total UK corporation tax receipts, they create substantial employment opportunities and their prosperity is crucial for the long-term well-being of the UK economy. Their development of international business frequently brings substantial benefits to the UK, and should be nurtured rather than discouraged. The transfer pricing regime is a serious barrier to their successful trading.

  4.4.3  Business conditions, financial expertise and language should make the UK an ideal choice as a location for investors from outside the European Union to establish EU holding companies or centres of operations. However, the stringency of the transfer pricing regime is one of a number of factors that can make the UK unattractive to foreign investors, and persuade them to base their activities in other EU countries instead.

  4.4.4  We appreciate that the Revenue has a duty to police transfer pricing and seek tax adjustments as appropriate, and we are aware that the number of transfer pricing investigations has multiplied in recent years. However, the imposition of the transfer pricing regime on a self-assessed basis places unfair burdens and risks on smaller businesses that may have relatively small exposure to transfer pricing and little or no expertise in this field. The proprietors and managers of such businesses often fail to understand the importance of the tax rules when determining transfer prices, let alone the importance of the stringent requirements to maintain documentary evidence to support such prices. When the true implications are understood, it is frequently impracticable for such businesses to meet the requirements of the Revenue guidance at reasonable cost, and the transfer pricing rules can then become a serious deterrent to UK companies wishing to operate globally.

  4.4.5  We note from the Inland Revenue Statement of Practice 3/99 that an advanced pricing agreement may be declined where it appears to involve an "inefficient use of resources". It is greatly to be regretted that, where the Revenue feels obliged to conserve resources in this way, the outcome is likely to be a much greater expenditure of resources by companies who are denied the benefits of such agreements. There is a need for the transfer pricing regime to be relaxed—particularly to reduce the threats it may pose to smaller businesses.

  4.4.6  Now that the Revenue has gained some experience of CTSA in practice, we urge that the approach to transfer pricing be reconsidered to see whether there is scope for reducing existing compliance obligations that may operate as unduly onerous deterrents to international business.

4.5  Controlled Foreign Companies

  4.5.1  Like the transfer pricing regime, the rules relating to controlled foreign companies are difficult even for large companies to comply with. They present some smaller companies with compliance responsibilities that cannot be met without excessive costs. The CFC compliance obligations ought to be reconsidered in the light of CTSA experience to date, to see whether they can be simplified.


5.1  The Need for "Working Together" by the Inland Revenue and Taxpayers

  5.1.1  We are gravely concerned at the distress caused to individual taxpayers by the penalties and surcharges levied under income tax self-assessment. The personal tax self-assessment penalty and surcharge regime appears to have the effect of an arbitrary tax on disorganised people, levied in a manner that seems designed to cause maximum worry and distress to many of the weakest members of our community. This impression has been reinforced by discussions we have had with the charity TaxAid.

  5.1.2  We believe it is very important that the Inland Revenue should alter their approach towards the vast majority of taxpayers who are honest, law-abiding citizens, and should learn how to assess and collect tax from such people without resorting to threats and confrontation. It is unfortunate that individuals or their agents no longer find it easy to seek informal Revenue advice on points of doubt in relation to their tax returns. The genuine fostering of a spirit of "working together" could have a major impact by encouraging taxpayers to meet their compliance obligations. The converse is undoubtedly true also, as evidenced by the current frustrations of many taxpayers.

  5.1.3  The complexities of the existing personal tax regime demand that a lenient view be taken of individuals who encounter difficulties in understanding their compliance obligations. Any other approach would seem hypocritical when it is clear that even the Revenue has difficulty in fulfilling its duties and obligations. Examples of recent failures by the Revenue have included: (a) widespread errors in the PAYE coding notices issued to incorporate new company car benefits, in spite of the fact that representations regarding that new regime had expressed fears that it would be unworkable in practice; and (b) the issue of many incorrect late-filing penalty notices.

5.2  Penalties for Late Filing of Personal Tax Returns

  5.2.1  Income tax is a progressive tax that is related to the means of those who suffer it. It is difficult to find fault with the principle that those with higher incomes should pay more tax. In a similar vein, many would support the concept that incentives for prompt compliance with the tax law, or penalties for failing to comply, should be related to the ability to pay and therefore reflect (in most cases) the relative impact on the Exchequer.

  5.2.2  By contrast, the existing penalties are regressive. On the one hand, a £100 penalty for late filing is of little consequence to many an individual with high income, and is therefore ineffective as a deterrent to such people. On the other hand, the experience of our members and our discussions with the charity TaxAid show that demands for £100 fixed penalties are of the greatest moment to many of those to whom they are sent—often inappropriately. The existing flat rate penalty has no equitable impact on those trying to avoid or defer payment of tax, but causes frustration, resentment and anger among taxpayers generally.

  5.2.3  The penalty provisions do not currently operate in a fair and reasonable manner. Many of those who receive penalty notices do not realise that the fixed penalty ought not to exceed the tax outstanding at 31 January, or that the penalty may be waived if a reasonable excuse is proffered. Those who quite properly seek to have incorrect penalties reduced or cancelled frequently find the Revenue reluctant to comply. We fear that the aggressive approach taken by the Revenue results in many taxpayers failing to appeal against incorrect penalties, but simply paying them either because of ignorance or to avoid undue hassle. Where penalties have been charged in excess of the tax due, the Revenue are in possession of sufficient information to enable them to repay excess penalties automatically, but we believe they do not do so. The Revenue should now conduct a review of all penalties paid since the commencement of ITSA, ensuring that any penalties over-assessed and paid are refunded with interest.

  5.2.4  The widely but imperfectly publicised penalty regime causes worry and concern even to people who do not need to submit tax returns. Other people become confused and distressed, thinking that they will be charged penalties for failing to meet the other widely publicised "deadline" of 30 September.

  5.2.5  There is a substantial group of non-filers, many of them self-employed, who neither complete returns nor pay tax because these tasks are simply beyond them. Their reasons may include matters as diverse as personal difficulties, financial problems, illness, absence of reliable advice, language barriers, lack of education, and phobias about completing forms. Many of them need help but cannot afford it or do not know how to find it. The threat of penalties simply magnifies their predicament, and alienates them from the Revenue.

  5.2.6  We are not convinced that the television and radio advertising campaign featuring "Mrs Doyle" was necessarily well targeted or effective. It is possible that the simple nature of the character portrayed may have added to the fears and misunderstandings caused by ITSA. We recommend that the effectiveness of this and other initiatives should be monitored to ensure that future initiatives to improve ITSA compliance are results-driven.

  5.2.7  There appears to be a hard core of persistent non-filers, on whom the existing penalty regime has little impact. We believe the Revenue's plans to invoke higher (tax-geared and daily) penalties may be effective in encouraging such people to comply, but we would emphasise the importance of ensuring that such a move is accurately targeted. The existing administration of the penalty procedures gives us no confidence in the Revenue's ability to achieve such targeting.

  5.2.8  The penalty system should be altered so that penalties are levied only in cases where taxpayers have deliberately or negligently failed to comply. The Revenue should be encouraged to exercise much greater discretion to reduce or waive penalties where previously defaulting taxpayers have brought their returns up to date. The legislation should be changed so that penalties not currently restricted (to no more than the tax outstanding) are so limited; this would include daily penalties under section 93(3) Taxes Management Act 1970, and fixed and daily penalties for partnership returns under section 93A of the same Act.

  5.2.9  A positive and supportive approach is needed, instead of antagonism. We strongly urge the Government to replace the existing "stick" of penalties with a corresponding "carrot" of incentives, which we believe could encourage early and willing compliance. This has succeeded in the US and Australia, where tax repayments are commonplace and, at relatively modest cost, the promise of early repayment has succeeded in encouraging prompt electronic filing.

  5.2.10  There are precedents in the UK for paying incentives to influence taxpayers' compliance behaviour—the £10 payment offered to individuals e-filing their 1999-2000 returns on the Internet, and the £50 one-off payment now on offer to businesses e-filing their VAT returns. An offer of "something for nothing", perhaps in the form of a modest automatic tax rebate to those who file by 30 September, could have a much more positive impact on compliance than any confrontational penalty regime. An alternative form of incentive might be the offer of a more lenient interest regime to those who had filed their tax returns by (say) 31 July; perhaps they could be forgiven interest of up to (say) £30 if their tax payment due by the following 31 January was slightly late.

  5.2.11  Currently the Revenue fails to offer even the most elementary incentive—an early repayment when a return is lodged promptly. Many individuals lodging their returns during April 2001 had to wait several months, without interest, for tax repayments that were due to them.

5.3  The Administrative Tangle of Fixed Penalty Notices

  5.3.1  In a written answer on 6 February 2002, Paymaster General Dawn Primarolo reported that the number of "first fixed penalty" notices issued under section 93(2) Taxes Management Act 1970 for the fiscal year 1998-99 was 744,000, and that approximately 40 per cent of these penalty notices were later cancelled. Similarly, the number of 'second fixed penalty' notices issued under section 93(4) for 1998-99 was 378,000, and of these more than 13 per cent were later cancelled.

  5.3.2  Over the three fiscal years 1996-97, 1997-98 and 1998-99, more than 800,000 fixed penalty notices were issued and later cancelled. In addition, it is reasonable to assume that a significant number of those notices that were issued and not cancelled were subsequently reduced, under the provisions of section 93(7) Taxes Management Act 1970, to the level of tax ultimately payable. It is also realistic to assume that many incorrect notices issued will have been paid unnecessarily as a result of taxpayers' fears or ignorance.

  5.3.3  So far as we are aware, there are three main reasons why fixed penalty notices, once issued, might be cancelled. The penalty might be reduced to nil under section 93(7) Taxes Management Act 1970 because there was no tax payable, or the taxpayer might establish for the purposes of section 93(8)(a) of the same Act that there was a reasonable excuse for not delivering the return, or the penalty notice might be found to have been issued as a result of an administrative error. There have been many reported cases where penalty notices were issued erroneously after timeous submission of tax returns.

  5.3.4  There can be no doubt that the system of issuing fixed penalty notices, and subsequently cancelling many of them, is causing a high level of confusion and distress, particularly among people with limited means and inadequate access to professional advice.

  5.3.5  The legislation should be amended to ensure that penalty notices are no longer issued prematurely as a blunt instrument to threaten large numbers of taxpayers, but are used to penalise only those ultimately found to have defaulted. The Revenue should be obliged to issue widespread guidance explaining clearly the exact circumstances in which such penalties may become due, and the ways in which they may be reduced or cancelled.

5.4  Surcharges on Personal Tax Paid Late

  5.4.1  When the provisions of section 59C Taxes Management Act 1970 were enacted in February 1994, to impose surcharges on unpaid income tax or capital gains tax, the circumstances in which surcharges would be levied were the subject of detailed discussion in the Finance Bill debates.

  5.4.2  Stephen Dorrell, then Financial Secretary to the Treasury, referred to the proposed statutory wording "An officer of the Board may impose a surcharge" in clause 59C(5) and explained the provision as follows: "When a taxpayer, as a result of a bona fide mistake, misjudgement and so on, makes a wrong declaration which he corrects after the due date, that person should not be subject to a surcharge. Indeed, he will not be subject to it. . ." and ". . . provided that the taxpayer volunteers the information and pays the amount promptly, a surcharge would not be imposed by the Board."

  5.4.3  By contrast, the Revenue's internal Self-Assessment Manual states clearly: "Where a taxpayer fails to make payment by the surcharge trigger date, the SA computer will automatically impose a surcharge."

  5.4.4  It is clear from the assurances that were given in Parliament that the surcharge would be imposed with a light touch, so that taxpayers who make innocent errors and later correct them should not be surcharged. However, as with the fixed penalties, the Revenue's procedures involve the automatic imposition of surcharge notices, causing confusion and distress to many taxpayers who should not be surcharged.

  5.4.5  As with the rules for fixed penalties, the legislation on surcharges should be amended to ensure that surcharge notices are no longer issued prematurely, but are used to penalise only those ultimately found to have defaulted. The Revenue should be obliged to issue widespread guidance explaining clearly the exact circumstances in which such surcharges may become due, and the ways in which they may be reduced or cancelled.

5.5  Interest on Personal Tax Payable and Repayable

  5.5.1  Stephen Dorrell stated in the 1994 Finance Bill debates: "I wish to align the Government with (the) proposition that if a taxpayer has an outstanding obligation which is paid late as a result of a bona fide mistake on a self-assessment which that person later corrects, he or she is due interest because of the time value of the money. . ."

  5.5.2  There is an excessive differential between the interest rate charged by the Revenue on unpaid tax (currently 6.5 per cent) and the rate paid by the Revenue on overpaid tax (currently 2.5 per cent). These differential rates clearly do more than simply allow for the time value of money, as referred to in this Parliamentary assurance; the high differential imposes an element of penalty that Parliament never intended.

  5.5.3  A joint Inland Revenue and H M Customs and Excise Press Release (REV/CE2) issued on Budget Day 2000 reflected the same sentiment. It announced that interest rates for large company CTSA quarterly instalment payments up to the normal due date would be "brought more closely into line with commercial rates" on the pretext of "making the tax system easier and cheaper to comply with". The subsequent Inland Revenue Press Release 72/00 on 29 March 2000 brought this into effect by reducing the differential between the relevant interest rates (currently 5.0 per cent and 3.75 per cent).

  5.5.4  The interest rates applicable to income tax and capital gains tax (and indeed also those applicable to CTSA from the normal due date) should be brought into line with those used for CTSA quarterly instalments, so that they too reflect commercial rates with no element of penalty.

  5.5.5  Where part of a taxpayer's income is received gross and part suffers tax by deduction under the Construction Industry Scheme, interest can be charged unfairly. If such a taxpayer estimates his current year's income and tax position to the best of his ability and uses that estimate as grounds for reducing his payments to account that were based on his previous year's position, he may be charged interest on a residual tax liability even though the total tax he has suffered exceeds the original payments to account requested. The rules should be changed to remove this inequitable result.

5.6  Selection of ITSA Returns for Inland Revenue Enquiries

  5.6.1  We have concerns about the methods used for selecting ITSA tax returns for detailed enquiry by the Revenue. Before ITSA was introduced, enquiries were raised on individual cases where Inspectors of Taxes, based on their skills and judgement, had reason to believe that questions needed to be raised. Under ITSA, enquiries seem to be initiated on the basis of target enquiry levels dictated by general Revenue policy, and this suggests that honest and conscientious taxpayers may find themselves facing the costs and inconvenience of in-depth enquiries without just cause. We recommend that the Revenue publish clear guidelines explaining their method of selecting cases for enquiry, and any related performance targets.

5.7  The Low Take-up of Electronic Filing

  5.7.1  In the National Audit Office report "e-Revenue" dated 14 February 2002, the Comptroller and Auditor General reports the slow take-up of electronic filing of personal tax returns. Of some 9 million personal tax returns anticipated for the year 1999-2000, the Revenue expected to receive only 315,000 (ie 3.5 per cent) over the Internet, but the actual number e-filed was in fact only 39,000 (ie 12.3 per cent of those expected). Of these returns that were e-filed, 4 out of 5 attempted submissions did not succeed first time. Any commercial concern reporting such results would find it hard to remain in business.

  5.7.2  The National Audit Office states that future take-up depends upon taxpayers (or, we would add, the agents of represented taxpayers) "finding for themselves" some clear benefit in e-filing. On the contrary, we believe that enthusiastic take-up will only occur if the Revenue, as the provider of this e-filing facility, changes its attitude and strives to find or create such a benefit to offer as a visible incentive. This has not been achieved to date because the Government has chosen to retain the whole of the substantial cost savings realised by ITSA, rather than allowing the Revenue to share the benefit with those they like to regard as "customers".

  5.7.3  To promote e-services, the Revenue has been encouraged to adopt a more customer-orientated approach. This would require a fundamental change in attitude across the whole range of its interface with the public; it is unrealistic to expect taxpayers to feel like valued customers when they are fearful of penalties and surcharges being applied in an unreasonable and aggressive manner.

5.8  Tax Return Forms, Tax Calculations and Filing

  5.8.1  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.

  5.8.2  An individual with complex tax affairs may wish to start and complete his self-assessment tax return in a single session. However, if supplementary pages are needed, the Tax Return Guide advises that they should be ordered by phone, and they can take up to a week to arrive. The delays in obtaining these extra pages cause some returns to be filed late. Although the tax return form makes a passing reference to the availability of supplementary pages and their accompanying notes for immediate download from the Revenue's website, no mention of this is made in the Tax Return Guide. This guide should be amended so that more taxpayers are made aware of the download facility.

  5.8.3  The concentration of tax return filing in January creates serious administrative problems for the Revenue and tax practitioners, especially following so closely after the Christmas and New Year holiday season. Effective incentives should be offered for early filing to relieve this bottleneck.

Institute of Chartered Accountants of Scotland

22 February 2002

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