Written evidence submitted by TaxAid
SUMMARY
TaxAid is a charity that advises unrepresented, low-income
taxpayers within the category of 3.8 million taxpayers
that HMRC designates as "Will Always Need Help". These
unrepresented taxpayers are defined by HMRC as those "with
low literacy, poor financial skills, lacking English language
skills and/or coping with disabilities, including mental health
issues".
TaxAid's experience of unrepresented taxpayers who
come forward for help is largely because they do not understand
their obligations. The tax system - from policy to implementation
- seems to assume that taxpayers have either a single employer
(to meet PAYE obligations) or a tax agent to meet the wide range
of requirements of those in self-employment. This is far from
the case. Low-income and vulnerable groups are particularly likely
to have multiple low-paid part-time employments, alongside taxable
benefits and small self-employments. We submit that all incoming
(and potentially much wider) tax policy should be subject to an
impact assessment that makes a report on "how easy or difficult
is it for this (element of) tax policy for the unrepresented to
meet its obligations".
Ease and efficiency should be considered both from
the perspective of the unrepresented and their ability to understand
and meet their obligations, and with regard to the cost of HMRC
implementation and processing where small value tax on low incomes
of unrepresented taxpayers is concerned.
1. BACKGROUND
Founded as a charity in 1992, TaxAid aims to help
unrepresented taxpayers on low income to understand and meet their
obligations under the tax system. In practice this means that
the majority of its work is in the provision of free, specialist
tax advice to people on incomes below 60% of median income who
are in crisis with a tax problem and cannot afford to pay for
advice. Crises are likely to arise from unanticipated tax demands,
failures of unrepresented taxpayers to understand the complexity
of their tax obligations, and/or HMRC error or unsuitability to
assist. Last year it resolved over 11,000 tax problems related
to a huge range of tax issues primarily through tax professionals
on the national helpline and email with referrals for more intensive
help in face-to-face meetings or teleconferencing.
1.1 TaxAid's clients are usually within the category
of 3.8 million taxpayers that HMRC designates as "Will Always
Need Help", defined as those "with low literacy, poor
financial skills, lacking English language skills and/or coping
with disabilities, including mental health issues". However,
otherwise capable people experiencing a life-changing event (loss
of job, family breakdown, starting a small business, retirement,
bereavement) are also likely to struggle with understanding their
obligations, and particularly so if poorly served by HMRC.
1.2 TaxAid uses its experience of clients' problems
to represent their interests at a wide range of HMRC consultations.
This experience with unrepresented taxpayers also gives us insight
into two elements of your inquiry:
2. What are the key principles which should
underlie tax policy?
We submit that all incoming (and potentially much
wider) tax policy should be subject to an impact assessment that
makes a report on "how easy or difficult is it for this (element
of) tax policy for the unrepresented to meet its obligations".
Tax Credits as they currently stand are an example that would
fail the test, despite substantial improvements to the system
over the years since it was introduced, and recent specific adaptations
to standard processes to improve the experience of the "needs
help" group (eg, assisted renewals).
2.1 TaxAid's experience of unrepresented taxpayers
who come forward for help is largely because they do not understand
their obligations. The tax system - from policy to implementation
- seems to assume that taxpayers have either a single employer
(to meet PAYE obligations) or a tax agent to meet the wide range
of requirements of those in self-employment. This is far from
the case. Low-income and vulnerable groups are particularly likely
to have multiple low-paid part-time employments, alongside taxable
benefits and small self-employments. Such people are among the
most vulnerable both in terms of capability of meeting complex
rules, and of complicated working patterns.
2.2 An important group is those with mental health
conditions who are encouraged to do some work, not least for therapeutic
reasons. Very often their condition will prevent them from attending
a workplace, or doing so reliably and punctually, and so they
must necessarily work for themselves and comply with all the obligations
of Self Assessment.
2.3 The viability of self-assessment for the
unrepresented is largely predicated on the assumption that most
of the working population is correctly dealt with under PAYE,
and no self-assessment is needed. Recent problems with PAYE have
made evident that, where PAYE does not work correctly, the responsibility
for the correct tax lies with the individual, who can find they
are unexpectedly within the Self Assessment system for earlier
tax years.
2.4 It also depends heavily on the self-employed
paying professional agents (accountants and tax advisers) to apply
complex tax rules and prepare accurate returns. Vulnerable groups
are least able to afford professional advisers, yet often least
well-equipped to deal with matters on their own.
3. How much account should be taken of the
ease and efficiency with which a particular tax can be imposed
and collected?
As far as tax policy that impacts on the unrepresented
is concerned the ease and efficiency should be part of the above
impact assessment. Ease and efficiency should be considered both
from the perspective of the unrepresented and their ability to
understand and meet their obligations, and with regard to the
cost of HMRC implementation and processing where small value tax
on low incomes of unrepresented taxpayers is concerned. For example:
3.1 the collection of tax on small (and fluctuating)
foreign incomes of UK residents is overly burdensome - and costly
to assess - for both the taxpayer and HMRC; and
3.2 the collection of tax on state pensions through
Self-Assessment (where this is the only source of income) can
also be difficult for the individual to deal with, and inefficient
because of the problem of collecting tax in arrears from those
on low incomes.
3.3 Individuals going abroad to work for short
periods are technically liable to UK tax (with credit for foreign
tax paid). In many cases, individuals taking up seasonal work
abroad (waiters, bar-work, holiday reps, tour guides) will not
declare this income in the UK - and inadvertently be evading tax.
Others will be shocked to find they should report this income
(and pay tax, after claiming double tax relief ). Where foreign
tax has been paid, the UK tax due is often small.
3.4 The application of the 10% savings rate is
very complex for a relief which applies in a small number of cases,
with a maximum value of £256.
4. De minimis allowances, in the above and
other tax policies, seem to be set with no reference to the costs
of collection (let alone the further need for enquiries and possible
enforcement).
5. Aspects which hinder basic understanding
of the tax system include:
5.1 multiple thresholds (eg £7,475 for
income tax personal allowance in 2011-12, £7,225 for Class
1 and 4 NI, £6,420 for tax credits, £5,315 for Class
2 small earnings exception etc); and
5.2 aspects which muddy the position between
independent taxation and household taxation (tax credits, proposed
withdrawal of child benefit for 40% taxpayers, married couples
allowance).
6. Because the unrepresented are a special
group whose interests are taken up by few individuals or organisations
(the Low Incomes Tax Reform Group of the Chartered Institute of
Taxation being an exception), TaxAid would be pleased to be invited
to appear before the Treasury Committee to address questions that
the above raises.
January 2011
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