Select Committee on Treasury Minutes of Evidence


Further Supplementary Memorandum submitted by the Inland Revenue

1.  WORKING TOGETHER

What are the issues that have been raised in Working Together in relation to Self-Assessment?

  We listed in paragraph 52 of our submission the main areas we felt we needed to improve and these reflect considerable input from agents through the Working Together initiative:

    —  Minimising the number of people who are asked to make an ITSA return.

    —  Developing a better understanding of the problems experienced and perceived by taxpayers, especially those which impact on taxpayer behaviour.

    —  Improving our accuracy.

    —  Simplifying ITSA for taxpayers and our staff.

    —  Improving the rate of timely filing.

    —  Encouraging and simplifying electronic filing.

    —  Making further real improvements to our forms and statements.

    —  Improving our IT systems.

  Other issues from an agents viewpoint which have been raised with us include:

    —  They have difficulty with the acute peak of work in January in preparing accounts and returns.

    —  The would like more knowledge on the progress of returns while they are being processed.

    —  They would like to be consulted before repairs are made to returns when being processed if they are cases where an agent is acting.

    —  They would like a clearer statement of account and access to account details via the Internet.

    —  They would like facilities to file all parts of the SA return electronically.

2.  SA: RISK ASSESSMENT, ANALYSIS AND SCORES

How are Risk Scores utilised by the Inland Revenue?

  Under SA we have power to enquire into the completeness and accuracy of any tax return. It is not necessary, as it was before self-assessment, to justify an enquiry by identifying particular aspects of a return that give cause for concern. We do not publish our "risk parameters" or say which factors have led to a particular enquiry, because to do so might lead to information on the return being manipulated to generate a low risk score.

  We attach risk scores to returns rather than individuals, and all returns are risk assessed and scored. The purpose of the scoring is to help identify the cases which are most risky—it is not an absolute measure of risk, it is a relative measure. There are a large number of "risk factors" which are included in the analysis, but the score then has to be considered alongside other information which might be relevant—what might, at first sight, appear a high risk case may not be. For example, if turnover fell during the year this might be because the taxpayer was ill and not generating income. We take all this information into account, so that risk assessment is not a pure mechanical process.

3.  THE ELECTRONIC LODGEMENT SERVICE FOR SELF-ASSESSMENT

Could the Inland Revenue give information on the performance of the ELS system?

  The Electronic Lodgement Service for filing this year's SA tax returns went live as planned on Tuesday 17 April 2001. The "Go Live" went smoothly and there were no major problems reported with the Service.

  This has been a record year for the Electronic Lodgement Service which handled 350,000 SA returns, representing a 15 per cent increase over the previous year. The number of returns submitted in January was 160,000, compared to 145,000 in January 2001, an increase of 10 per cent. The ELS Service performed well throughout the peak filing period in January with no major problems reported.

  In the period April 2001 to March 2002 there have also been fewer Self-Assessment tax returns rejecting through ELS than in previous years. The current rejection rate is seven per cent compared to 13 per cent for the same period last year.

  We received nine formal complaints in relation to the ELS service in the period April 2001 to March 2002 compared to 45 in the previous 12-month period, April 2000 to March 2001.

  There are 11 software companies who produce software products for the Electronic Lodgement Service and these have all confirmed that they are happy to support ELS for the new SA tax year 2001-02.

NUMBER OF TAX RETURNS SUBMITTED USING ELS

6 April 2000-5 April 2001

Individual returns received
267,713
Partnership returns received
27,110
Trust returns received
2,014
Total
296,837


6 April 2001 to date (1 March 2002)

Individual returns received
309,750
Partnership returns received
29,381
Trust returns received
2,857
Total
341,988

4.  SELF-ASSESSMENT PENALTIES

Why does the number of penalty notices issued not equal the result of the number of returns sent out less the number of returns received by the deadline of 31 January?

  The difference in numbers is due to there being a number of cases where we do not have a current address for the tax-payer. There were 85,000 of these where a penalty notice was not issued.

5.  PENSIONERS

How many pensioners received late filing penalty notices?

  The figures we have on the number of pensioners receiving penalty notices have been extracted from a 10 per cent sample of returns for 1998-99 SA year (returns issued April 1999 and January 2000). For the purpose of the analysis, pensioners were defined as those in receipt of a state or widows pension, so younger pensioners (retired early on company pensions, but not yet receiving state pensions) were excluded. Subject to that, of 1.3 million pensioners in Self-Assessment, only 36,000 filed after the 31 January deadline. This amounts to just under 3 per cent of pensioners within Self-Assessment.

6.  SELF-ASSESSMENT AND THE PENSION CREDIT

Will the new pension credit increase the number of people in Self-Assessment?

  The pension credit, like the minimum income guarantee for pensioners which it will replace from October 2003, will not be taxable. Therefore the introduction of the pension credit from 2003 should not increase the number of pensioners within self-assessment.

7.  IT & CT INVESTIGATION/ENQUIRY COVERAGE

Has the investigation coverage fallen from 5 per cent to 2 per cent?

  We do not know where the figure of five per cent investigation/full enquiry has come from. During the last ten years, which includes periods before and after the introduction of SA, coverage has always been well below five per cent.

  The number of investigations/full enquiries taken up annually has in fact remained broadly similar through the period 1992-93 to 2001-02. While it might appear that coverage as a percentage of the taxpayer population has declined from pre to post-SA, direct comparisons are not possible:

    —  Since SA we have changed the definition of the population on which IT coverage is calculated. Prior to SA we excluded from the definition very small businesses with a turnover below a certain level whereas under SA we include all businesses within the definition.

    —  Until 1996-97 we measured settled cases whereas from 1997-98 we have measured cases taken-up for enquiry. The measure was changed partially because it was felt that measuring settled cases was more likely to distort behaviour and partially because of the changes introduced by SA regarding the opening of enquiries.

  Since the introduction of self-assessment, coverage expressed as a percentage of the taxpayer population has remained broadly stable. In 2001-02 there was an increase in income tax self-assessment coverage compared to the preceding two years. We look constantly to consolidate and improve our coverage, for example by introducing new working practices. However, we are also seeking to improve the quality of our enquiry work and the quality of our risk assessment thereby reducing the number of returns enquired into unnecessarily. It is therefore a matter of striking a balance between quantity and quality.

Inland Revenue

20 March 2002


 
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