Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Questions 121 - 139)

WEDNESDAY 13 MARCH 2002

MR JOHN WHITING AND MS HEATHER SELF

Chairman

  121. Mr Whiting, can I welcome you and your colleague to the Committee. For the sake of the shorthand writer, could you formally identify yourself and give your exact title?

  (Mr Whiting) Thank you. I would be pleased to do so. I have the honour to be President of the Chartered Institute of Taxation. I am also a partner in PricewaterhouseCoopers, based in London.
  (Ms Self) I am the Deputy President of the Chartered Institute of Taxation, and a former member of the Self Assessment Consultative Committee on Corporation Tax. I am also the group tax director of Scottish Power plc.

  122. Thank you very much, and thank you for the memorandum you submitted. In that memorandum, you tell us that "it is inevitable that self-assessment puts greater burdens on taxpayers and advisers than was the case with the old system". Given that the Revenue calculate the tax due on the returns received by 30 September, can you explain briefly why you think that is true?
  (Mr Whiting) Yes. In terms of income tax, inevitably there is more for the taxpayer or their agent to do in gathering information, collating it into the right form, and submitting it on the forms. Certainly, if the return can be submitted by 30 September, then the Inland Revenue will, of course, aim to calculate the tax in time, but being realistic, this is not always possible, therefore the taxpayer or agent has to calculate the tax bill. There is also a good deal more management of payments—monitoring of payments and repayments—that is thrown on to the taxpayer and the agent. Now, I do not think we would necessarily say that is of itself bad because we all have our civic duty to do in complying with tax affairs but, as much as anything, we just seek to acknowledge that there has been a shifting of the burden towards the taxpayer and agent.

  123. You also say that the revenue and the Government have a duty to make sure that the burdens of the tax system do bear as lightly as possible on taxpayers and employers and advisers. Do you think they are meeting that duty?
  (Mr Whiting) I think I am bound to say no, there are plenty of ways where they are not, and where the burdens are increasing. We have talked briefly about self-assessment of itself: I think we could point to a number of additional elements that are bearing more heavily on employers, for example, what they have to do or report, whether we want to talk about the tax credit system or many other things that it is now down to the employer to do to make the system right. We are talking here about income tax; I do not know if my colleague could comment on the corporate tax side as well just to balance the picture.
  (Ms Self) On the corporate tax side, the major additional burden is the requirement to calculate and make estimated payments of corporation tax on a current year basis, so large companies have to estimate their current year profits in advance in order to make those payments.

  124. We will be coming to corporation tax perhaps slightly separately from income tax a little later on. Do you think that the self-assessment system can be simplified to reduce some of these burdens without reforming the underlying tax regime?
  (Mr Whiting) I think you can achieve some simplification but undoubtedly, if we were able to simplify the underlying system, that would of itself deliver more simplification to the self-assessment system. If I could give one example, I think there is a good deal of scope for looking hard at who gets the tax returns, accepting that some people who get the returns necessarily have got quite simple tax affairs and, therefore, it would be possible to give them a much simpler tax return. The existing tax return goes part way towards that in the basic eight pages plus the supplementary pages, but there is a step further that could be done to get to the two or four page return for, dare one say it, pensioners with very simple affairs who necessarily get dragged into the system.

  125. So you are suggesting, in fact, that there should be two types of tax returns—the cheap and cheerful version and a complicated one?
  (Mr Whiting) I think I would say one could get down to a very basic two pager with more supplementary pages, rather than eight pages which automatically form the core tax return.

Dr Palmer

  126. Do you not feel, though, that there would be just as much risk of people finding that there was one item which they were not able to fit into that standard two pages? They would then have to write off for supplementary pages, and have a more frustrating and complex process than the present, fairly elegant modular approach where basically, if you have a simple situation, you find you only have to fill in maybe a dozen questions or so?
  (Mr Whiting) My response to that is I am really only developing the modular approach into a simple "starter for two", as it were, and then more of the modules to which I think you and I would both subscribe—the idea that you fill in the bits you need to, and I have in mind the people—very often employees—who get drawn in because they are into the higher rate, who really have little need of an awful lot of the questions. Yes, if they are prepared to put the time and effort into it, then perhaps it is not too great a burden, but I think my response, going back to the Chairman's idea of simplifying the overall burden and reducing that, would be simply that there is scope for a simpler return as the core which perhaps would not get you into so many modules as now.

Chairman

  127. I think we will want to follow that up. The Revenue told us in their memorandum that one of their aims when self-assessment was introduced was to establish a system that was less confrontational. Do you think, five years on, they have achieved that?
  (Mr Whiting) I suppose I could say it is a bit like Chairman Mao's observation on the French Revolution—"It is a bit early to say".

Mr Cousins

  128. It was Chou-en-Lai actually, but it is a good quote!
  (Mr Whiting) I stand corrected, but you have the sense of it. Genuinely, there is still a bit of time to go through because the confrontational nature comes a lot with the enquiry regime, and enquiries are really only getting going. There is scope for more confrontation in it and I think it is in recognition of that that all sides are keen to work together with the Working Together initiative that ourselves and other bodies have established with the Inland Revenue. It is to try and defuse some of the potential for confrontation that we would rather tease out some of the irritants perhaps within the system but frankly there is bound to be scope for confrontation when enquiries start, particularly, as often happens, when you do not know the reason for that enquiry—which can cause some difficulties and, dare I say it, some grief to the taxpayer.

Mr Plaskitt

  129. Carrying on with the theme of simplification for a moment, in your submission to us you refer to the introduction of self-assessment as the necessary modernisation of the tax system. Five years on, are you now arguing that the modernisation itself needs modernising?
  (Mr Whiting) I think my response to that is that there is always scope for moving on and developing and building on experience. I stick to the views which we have always held that self-assessment is, and was, a necessary modernisation when you look at the system that there was there before, which is why in the earlier discussions I would say that despite the fact there has been shifting of the burden one accepts a certain shifting of the burden, but I think it is a modernisation. Broadly it is a better system, but there are improvements that could be done.

  130. Is there not something to be said for stability in the tax system as well?
  (Mr Whiting) Certainly, and I think we would subscribe to that.

  131. If you subscribe to that I am slightly puzzled that you are calling for deliberate annual changes in the system. Does that not cut across your objective of wanting stability?
  (Mr Whiting) There is a need for stability certainly but, dare I say it, we have plenty of changes anyway so I think stability, being realistic, is possibly not achievable. In terms of saying that we are calling for annual changes, I do not know that we are calling for annual changes. I think we are looking and saying that this system has been with us for a while, and that there is scope for improving its way of working and looking, as much as anything, for efficiency gains.

  132. It is just that your document says that you are challenging the Government to make annual changes to the tax system to achieve simplification, and that suggests that some of the simplifications are not apparent. If you have got a picture of the simplifications that are needed, why not put them all forward and say, "Do that lot and then it is simpler, you can leave it alone and it will also be more stable", instead of this incremental "Let us change something every year" approach?
  (Mr Whiting) You say we should put forward our submissions. We have so far put three papers in to Government and I have a fourth in my briefcase compiling simplifications. We have done them in three monthly bites, if you like, for digestibility, but we are laying out as we see it "Quick Wins", as we have termed them, on simplification. We would be delighted if the Government embraced them all in one go—they are aimed both at the Inland Revenue and at Customs & Excise—but being realistic we did not anticipate that that would be possible, partly because some of them take time to think about. I think our challenge and our comment in terms of annual simplification is that, as well as the inevitable changes that come through from the Chancellor, it would be very nice if at each Budget and succeeding Finance Bill there were some measures that the Chancellor announced purely under the heading of "Simplification".

  133. I understand. How would you score your progress so far in the three papers you have submitted? In the various ideas and proposals in the simplification, how many have fallen on fertile ground and how many on stony?
  (Mr Whiting) The papers we have submitted were one aimed at personal tax which we submitted last summer, one on Corporate Tax which went in in the autumn, one on VAT which went in in January and we are about to do one on employment issues—as I say, we have broken them into bite-sized chunks. We have been pleased at the reception of them; we have had constructive discussions on all three with the Treasury, with the Inland Revenue and Customs as appropriate, and we await results, I think.

  134. Have you had any results that you could point to already?
  (Mr Whiting) Only in terms of discussions, simply because it has been a case of, as is inevitable with the tax system, waiting for the Budget and the Finance Bill process.

  135. But there have been previous budgets and Finance Bills to which you have, no doubt, submitted suggestions. Have you seen any suggestions taken up and delivered?
  (Mr Whiting) Not many in terms of simplification. All too often it is a case of there not being space in the Finance Bill for a measure which is just simplification, or it would cost too much money. So it is partly in response to that that we grouped a batch together to put in under a coherent heading and just said "Here are our thoughts"—and we provided the Committee with a copy of one of those papers—"purely aimed at simplification; let us just talk about these as a group and a topic rather than in a sense allowing them to be lost in annual Budget or Finance Bill submissions".

  136. Do you follow these up in the Working Together initiative?
  (Mr Whiting) They are followed up if they are of that nature but, if they are wider ranging issues—if they are to do with capital allowances on expensive cars, for example—then they have been followed up in separate discussions with the Treasury and I think I would say that we will keep an eye on things and will not let the subjects drop.

Mr Cousins

  137. Has the change to self-assessment produced new work or new business for you, or some combination of both?
  (Mr Whiting) That is an interesting question which we have tried to evaluate and do a little research. Inevitably responses are subjective but our impression is that there was a bit of a hump of work in the immediate change over to self-assessment, particularly in terms of information giving. The impression we got from our members, and certainly from my own personal experience as a practitioner, was that there was a great deal of information to be given to clients and taxpayers in general and a great deal of explaining to do, which largely was done gratis. There was then in some cases a number of people who came slightly fearful of self-assessment, but many of those went away again very quickly. Now things have settled down, if you like, with self-assessment and my personal assessment is that there is not much extra continuing work. The work has changed and rather than dealing with estimated assessments, for example, which was a fairly fruitless procedure at times, we are perhaps dealing with enquiries. So life has changed a bit but the impression we get is that, overall, there has been no great boom in tax work for tax advisers.

  138. That has dealt with the work but what about the flow of business? Are you saying there has been no increase in business?
  (Mr Whiting) Not a particular increase in business to tax advisers, if that is what you are saying.

  139. The Revenue's figures are that about half the people that submit self-assessment returns—
  (Mr Whiting) Those are our figures as well.


 
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