Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Questions 180 - 199)

WEDNESDAY 13 MARCH 2002

MR ROBERT MAAS AND MS ANITA MONTEITH

  180. Now, you have said that the practical operation of the system has "resulted in significant additional costs for taxpayers and their agents". Does that mean you have quantified those?
  (Mr Maas) We have not quantified the costs but—

  181. But you know they are significant?
  (Mr Maas)—if we look at our postbag over the last ten years the number of problems people write into us with on self-assessment are far bigger than anything else that I can ever recollect. I have been involved with the Institute's Tax Committee for getting on for 25 years, and I cannot recollect anything like the number of problems on any other issue.

  182. You have outlined a number of the practical problems. Which of these has produced the additional costs?
  (Mr Maas) The errors produce an awful lot of additional costs. What often happens is that an accountant will calculate the tax payable, the Revenue will process the return, will say it is the wrong amount, will come up with a different figure and will make a repayment to the taxpayer very often, and you then have to convince the Revenue that your figure is right and their figure was wrong, and you have to get the client to repay the repayment that was made to them in error. There is an awful lot of extra work involved in sorting out these problems. To be fair, under the old system, the Revenue would say, "This is what we think the tax is. Do you agree?" , and whilst that in some ways was a better system it did mean the client had to wait for his money. Now they say, "We will send out the cheque for what we think is right", and when it does work it is better but it does not work often enough.
  (Ms Monteith) That is one of the reasons why Working Together was set up. I gather from the tone of some of the questions earlier that perhaps it is not fully appreciated that Working Together was not set up to deal with policy issues but really operational issues, and if you look at the types of issue that we deal with they are very much of an operational nature—for example, the use of call centres, the use of a national rate telephone number that agents have to use. This may seem a small issue but, if you need to ring several times and get passed around to deal with somebody's affairs because you cannot find anyone to answer your question, it becomes very expensive for an individual or an agent who is dealing with that. That is the sort of thing that Working Together would look at.

Dr Palmer

  183. I wonder if you would agree that the issue of complexity in tax forms can really be divided into separate issues where, on the one hand, you have the complexity of the tax system itself, with a trade-off between subtlety and fairness versus simplicity where the more you try to target a particular tax the more you create exceptions and extra questions and on the other hand, quite separately, you have the question whether the form is optimal given a particular tax system?
  (Mr Maas) I would agree with the split though I am not sure I would agree with your analysis of the first one. The complexity of tax arises from a lot of things—much of it from not using the system to collect tax but to change people's behaviour or achieve social objectives. I certainly agree with the distinction, however.

  184. Would you also agree that, looking at the form which was the second part of the split, there is a trade-off between brevity and completeness? The previous evidence included a suggestion that many people would be sent a very short, two-page form and they could ask for extra bits. The drawback about that is that, if lots of people needed extra bits, that would be more irritating than having a larger form where they could skip some of the pages. Do you have a view on that?
  (Mr Maas) Yes. Firstly, if you have a single large form, the current form is needlessly complex. For example, it requires dividends to be split into six different categories, which was a valid distinction when ACT was there and tax credits were repayable but it is no longer a valid distinction so it is utterly unnecessary on last year's return form. There are, therefore, bits of the form that could be simplified. The real problem with the form, to be fair, is that what happened, rightly or wrongly, is the Revenue programmed its computer system first and then designed the form to fit the computer programme. It would have been much more sensible to have designed the form first and then to have built the computer programme around it. The other point I would like to make is that I would agree with John Whiting that I think, for certain types of taxpayer, it would be much more sensible to have a separate form. I would not myself say, however, "And then they could ask for extra pages" because if you look at what taxpayers you are talking about—and you can look at, for example, higher paid employees, where the person is going to have his salary and his benefit in kind and a little bit of investment income—in most cases that little bit of investment income is such a small figure that it makes probably no real sense to require him to break it down into different categories. You could simply have a form for him saying "Investment income" and, if it is less than a thousand pounds, just put the amount in; if it is more, ask for a extra page.[3] There is a lot you could do. Having said that, unfortunately all the time you come back to costs because, if you have separate forms, although it would simplify and make it easier to complete the form, it would undoubtedly greatly increase the Revenue's costs because they would have to process them differently.

  185. Yes. Going by my own experience—and in this sort of area we are all a bit anecdotal—I quite appreciate the modular nature of the form which seems to me to go quite a long way to meeting the issue, but when I came back to work in Britain after working abroad I found I could do a form very quickly and then I was missing the foreign page. I really wonder whether that kind of experience is quite common—that people find they can do nearly all their affairs except a little bit—and whether it is not better to have a modular set?
  (Mr Maas) The Revenue do try hard, to be fair. They try to issue the taxpayer with a form based on the previous year's return for all the pages. The only exception to that is capital gains. It would be sensible if every high rate taxpayer had a capital gains tax form, as you always have to ask for the capital gains tax form. Having said that, however, the Revenue's website has all the forms on it so you do not have any longer to ask and wait; you can download the form and complete it.

Chairman

  186. You refer in your memorandum I think to the fact that there are a very large number of processing errors. Have you quantified that?
  (Mr Maas) We cannot quantify it. We get that from the feedback we have from our members, that is all, and some of them are quite large. We had an instance where a member was given a £50,000 tax repayment because the Revenue did not process the self-employment page. The system does say, "If the computer throws up a big repayment, check why", but unfortunately it does not always happen!

Mr Beard

  187. In your memorandum you say that one of the major problems is with Revenue enquiries. What are the problems?
  (Mr Maas) In the past what happened with Revenue enquiries is the Inspector of Taxes would say, "I have concerns about this set of accounts", and we would say, "What are they?", and he would say, "Well, these are my main concerns", and we would then say, "Well, suppose we send you this, or that", and he would say, "That is fine". What happens now is they refuse to tell you what their concerns are; they simply just ask for information and very often they will ask for information that I cannot see the relevance of and I will write and say, "Why do you think it is relevant?", and so that takes time and sometimes they say "It is irrelevant", and although there is a procedure where if I do not think it is relevant I can appeal against it, my experience is I must have appealed—either myself or others—against thirty or forty cases and in not a single one of them have the Revenue felt sufficiently strongly they wanted the information then to take that appeal to the General Commissioners. So there is a growing feeling that they ask for information for the sake of asking for information, without any realisation that producing information is often very costly to the taxpayer and often very intrusive, particularly when they ask for personal bank statements, because people say "What has my personal life got to do with the taxman?", and quite fairly, so. In some cases it is very valid that the Revenue should ask but in most it is not. Also, because of the system where they no longer tell you what is worrying them until a very late stage, the whole enquiry system can become extremely confrontational.

  188. Is it not likely that that is so that people cannot work their way round the concern by other means?
  (Mr Maas) I can see the point in what you are saying but the downside of it is that under the old system, very often, for example, the Inspector would say, "I am very worried, the gross profit percentage is very low", and you could say, "Oh, yes, sorry, we should have thought to tell you, that the guy was off sick for six months of the year". Now he just says, "Well, I think the gross per cent is very low", and you then get lots of questions and a long drawn-out enquiry and after a year or whatever you convince him the guy was off sick for a year. So it creates a lot of additional work which, in turn, creates a lot of ill feeling.

  189. So what are you saying they should do as an alternative?
  (Mr Maas) I think they should go back to the old system. When self-assessment was first mooted the Revenue came to accounting bodies and said, "We would like to discuss a system for dealing with enquiries", and we sat down and devised a system which got round all these problems. Basically they said "This is the procedure we will adopt to a timetable", and it was a flexible timetable and it was agreed by both sides, and they said, "We are going to use this on every full enquiry after 1 April 1998". In fact, they very rarely used it and they have now abandoned it completely.

  190. You said also in your memorandum that the Revenue scrapped the previous system discussing their concerns with agents, and you are calling for its reinstatement?
  (Mr Maas) Yes.

  191. Have you put this point to the Revenue?
  (Mr Maas) Yes.

  192. What did they say?
  (Mr Maas) It is quite clear that the local Inspectors of Taxes do not like it. When I have tried to find out why they do not like it, basically they have said that they do not think it is necessary under self-assessment, which does not make any sense because it was introduced specifically in the context of self-assessment.

  193. Can you expand on that, why do they not think it is necessary?
  (Mr Maas) I do not think that self-assessment renders it unnecessary when it was introduced specifically because of self-assessment.

  194. Yes.
  (Mr Maas) What I think it is is that because the local districts have power to require information within 30 days, I think a lot of local inspectors do not feel that there is any point in having an agreed timetable when they can impose a timetable on the other side.

  195. These discussions, were they about individual cases or were they about general points of practice?
  (Mr Maas) The initial discussion was why do we not sit down together and try and devise a system for dealing with enquiries which will stop them being long and drawn out.

  196. Yes.
  (Mr Maas) Which was what part of the work was.

  197. You are not getting any responses, you are saying?
  (Mr Maas) The Revenue basically never used it. What seemed to happen was the people who were enthusiastic about it within the Revenue moved on to other jobs and it just fell into disuse.

  198. Is it because there is a poacher gamekeeper relationship between the two and a conflict of interest arising?
  (Mr Maas) It is hard to say. I am not sure there is a poacher gamekeeper relationship because I think both sides recognise that it is in everybody's interest to deal with things as expeditiously as possible. I think it is probably that perhaps the Inland Revenue are much more suspicious of our clients than we are.

  199. Suspicious of your clients or suspicious of you?
  (Mr Maas) Well, it could be both.

  Mr Beard: Thank you very much.


3   Note by witness: The US seems to have no problem with this. It requires investment income to be itemised only where it exceeds $400. If the UK did the same, most people would not need to detail their income. Back


 
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