Conclusions and recommendations
1. Taxpayers are taking longer
to file their returns and therefore the Department has less time
to process them and makes more errors.
It sends out the returns in April each year before most employed
taxpayers have received their P60 form and other financial information
they need to complete the returns. The Department should therefore
send out returns in late May. In time, it could then include on
returns information that it has already received, which should
help taxpayers to complete the form accurately.
2. Errors by taxpayers in completing
their returns cost £2.8 billion in lost tax and result in
additional costs for the Department in carrying out enquiries
to correct them. Some of
the errors are due to genuine mistakes or misunderstandings by
the taxpayer. The Department should provide clear information
to taxpayers on the most common mistakes and how to avoid them.
In particular it should target the groups such as partnerships
and sole traders who are most prone to filing inaccurate returns.
3. Some errors made by taxpayers
are because they do not have access to appropriate advice from
the Department. Telephone
helpline staff often lack the detailed knowledge to respond consistently
and accurately to enquiries and taxpayers have experienced difficulties
in contacting them at peak times. The Department should improve
the training for call centre staff and the access to specialist
advice for complex enquiries. It should also extend the hours
of service at peak periods of the year.
4. The Department makes errors
in processing 5% of tax returns resulting in £65 million
undercharges and £30 million in overcharges of tax.
The Department has also incorrectly imposed penalties for late
filing on some 30,000 taxpayers who actually filed on time. The
Department should improve its training of staff, the logging of
returns and its quality control arrangements, for example by undertaking
real time quality control checks as the returns
are being processed to prevent
errors and stop them recurring.
5. The Department makes errors
in calculating at least a quarter of taxpayers' PAYE codes so
employers then deduct the wrong amount of tax.
Taxpayers without professional advisers are less likely to challenge
the Department's errors in tax assessments, codes and penalties.
The Department should accept more responsibility for its mistakes.
It should advise taxpayers who are most likely to be subject to
coding and other errors, such as those with income from more than
one source, to check the accuracy of the data it has used.
6. The Department recognises
it needs better information to manage its business effectively.
As a minimum it should have systems that can track errors in processing
and coding and the imposition of penalties and their enforcement.
It should monitor the consequences for taxpayers and tax loss.
It should set a target to improve the accuracy in setting tax
codes from 73% to well over 90%.
7. It costs the Department £220
million a year to process tax returns.
The Department has targets for improving efficiency and expects
to achieve these by reducing the number of processing centres.
Further efficiencies could be achieved by comparing with the processing
costs of other taxes and benefit payments to identify and apply
good practice, such as not duplicating the input of data and developing
the main tax return so that the information on it can be scanned.
8. E-filing is cheaper and more
accurate than filing a paper return but only 17% of returns are
filed electronically. Other
countries have higher rates of electronic filing, for example
44% in the United States of America and 83% in Australia. The
Department should encourage more use of e-filing by making it
more user friendly, for example by pre-completing parts of the
on-line tax return forms with data it already holds. It should
make on-line filing of returns by professional agents mandatory.
9. There
are major peaks in workload around the September and January filing
deadlines. These cause problems
for the Department in processing large numbers of returns accurately.
Smoothing the peaks would improve accuracy and efficiency. Taxpayers
in other countries have only three to four months to file compared
to ten months in the UK. Subject to Lord Carter's recommendations,
the Department should consider bringing forward the filing dates
and/or have differential filing dates for various groups of taxpayers
to spread the workload.
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