Finance Bill

Written evidence submitted by the Low Incomes Tax Reform Group (LITRG) of the Chartered Institute of Taxation (FB 05)

Simple assessment for non- Self Assessment cases Clause 155 and Schedule 23 Finance Bill (no 2) 2016

1 Clause 155 and Sch 23 introduce a new simpler procedure to collect outstanding tax from individual taxpayers and trustees. Currently, if tax is underpaid on (say) the state pension or other income on which PAYE is not operated, a taxpayer may be invited to make a ‘voluntary payment’. If they do not, they are required to complete a Self Assessment tax return to confirm the liability. That is clearly an over-complex way of collecting what are usually small sums from people on relatively low incomes, therefore this simpler method is welcome. We particularly welcome a drafting change that was made in response to a recommendation of ours, namely that HMRC can issue a simple assessment at the same time as a notice withdrawing a notice to submit a return (Sch 23, para 3 – new TMA section 28H(2), endpiece).

1.1 However, there are a number of points we wish to draw to Parliament’s attention.

1.2 Guidance. Operational success of simple assessment will rely to a significant degree on guidance. HM Revenue & Customs (HMRC) published a policy paper on 9 December 2015 [1] explaining how they might use these powers, but guidance should be more detailed and should be suitable for the general public so they can understand how this new system is intended to work. As the provisions are drafted, any difference between tax deducted and tax payable could be assessed in this way. We assume this is not the intention and that such simple assessments will be restricted to collection of sums exceeding certain thresholds in order to minimise the costs and administrative burdens associated with self assessment.

1.3 We would therefore like the Government to confirm when full guidance will be available, and that this will be consulted upon before final publication.

1.4 The simple assessment will be based on figures in HMRC’s possession provided by banks, building societies, the DWP, and so forth. There is a risk that taxpayers might accept the figures provided by HMRC without question and, in particular, without claiming any additional expenses or reliefs to which they might be entitled. This is a crucial point for those already on low incomes. Confusion could also occur if more than one simple assessment is issued for the same tax year, so HMRC needs to ensure that the wording is clear where this happens.

1.5 HMRC must consult in detail on the format of the simple assessment and its accompanying guidance notes.

1.6 The form of the simple assessment must make it easy for the taxpayer to check its accuracy. For example, providing a composite figure for interest received would require the taxpayer to undertake considerable work to substantiate the figure if they held more than one interest-bearing account, especially given the new savings allowance and other reliefs and nil rates for savings income and dividends. HMRC will be given that information by the relevant banks and other financial institutions and it makes sense, therefore, for the assessment to contain details both of the institution(s) involved and the relevant account number(s) as well as interest paid on each account.

1.7 HMRC should flag up to taxpayers where claims to allowances might be possible but have been missed.

1.8 We suggest that such simple assessments should identify the main reliefs and claims that might be considered – for example claims for mileage allowance, professional subscriptions and the marriage allowance. In addition, taxpayers need to be made aware where any claims might be made in relation to employer error or HMRC error.

1.9 To enable the taxpayer to carry out a more thorough check, HMRC should also flag up where there may be inaccuracies in the banks’ reporting of account information – for example where accounts are held in joint names, particularly where HMRC hold an instruction that interest is not owned equally by the account holders – or where accounts are held in trust or operated by a power of attorney.

1.10 Digital vs traditional channels. It is not clear how these simple assessments will interact with the new digital tax accounts. It is essential that non-digital options remain and that taxpayers understand this. Placing information about simple assessments solely on a website such as GOV.UK is unsuitable for those many taxpayers who are digitally excluded, or who will become digitally excluded through age or failing capacity after managing their digital account for some time.

1.11 We recommend that HMRC issue simple assessments on paper, with non-digital possibilities of querying them, but offer taxpayers the opportunity to opt in to receiving them online if they so wish.

1.12 The taxpayer is given a two-stage process to challenge any simple assessment by first lodging a ‘query’ about the assessment then, if the query is not answered to their satisfaction, by exercising a formal right of appeal (Sch 23, para 6 – new TMA 1970, section 31AA). As this is a different process to that which many taxpayers may have been accustomed to, again we would note that clear guidance and education will be needed.

1.13 The proposed two-stage appeals process will also need to be clearly explained in guidance notes accompanying the simple assessment. But the draft legislation places no obligation on HMRC to turn around queries within a particular timeframe.

1.14 We recommend that HMRC are given deadlines to respond to queries and suspension requests (as they are already with their internal review process for direct taxes)

1.15 We therefore propose the following amendments:

1. Page 564, line 43, at end insert: "within 60 days of its receipt".

2. Page 565, line 8, at end insert: -

"(6A) HMRC must notify the person of their decision under subsection (6) above within 30 days of the person’s query."

2 About Us

2.1 The Low Incomes Tax Reform Group (LITRG) is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes. Everything we do is aimed at improving the tax and benefits experience of low income workers, pensioners, migrants, students, disabled people and carers.

2.2 LITRG works extensively with HMRC and other government departments, commenting on proposals and putting forward our own ideas for improving the system. Too often the tax and related welfare laws and administrative systems are not designed with the low-income user in mind and this often makes life difficult for those we try to help.

2.3 The CIOT is a charity and the leading professional body in the United Kingdom concerned solely with taxation. The CIOT’s primary purpose is to promote education and study of the administration and practice of taxation. One of the key aims is to achieve a better, more efficient, tax system for all affected by it – taxpayers, advisers and the authorities.

July 2016

 

Prepared 4th July 2016