Memorandum submitted by the Low Incomes
Tax Reform Group (LITRG) of the Chartered Institute of Taxation
The LITRG is pleased to be able to contribute
to the Sub-committee's deliberations on Self-assessment.
2. The constituency that we seek to represent
consists of those people on low incomes who cannot afford to pay
for tax advice. This is a wide band of people, many of whom must
interact with the Self-assessment (SA) system.
3. For our submission we are, however, concentrating
exclusively upon one segment of our constituency, namely those
pensioners who, by reference to some Government measures, would
be described as being "in poverty".
4. It may at first glance appear to the
layman that there must be some mistake if such an individual falls
into the clutches of the 8-page form and an explanatory booklet
of 30 pages of fine print. Regrettably this is not so.
5. If one examines Inland Revenue (IR) pronouncements
on the subject you could also be forgiven for thinking that there
is some misunderstanding. For example:
The IR primary guide to SA (SA/BK8)
states that the category of pensioner who might be within SA is
confined to pensioners with "more complex tax affairs".
In evidence to the NAO the IR stated
that "Self-assessment applies to various groups notably the
self-employed, trusts, partnerships, subcontractors, landlords
and the higher rate taxpayer".
6. Below we go on to explain how it is that
a system conceived to deal with the complex, in fact extends to
the simple and, in so doing, turns the simple into a potential
7. We are taking it as read that the completion
of an SA return is not a straightforward matter especially having
to understand the notes and ensure that all sources of taxable
income are returned and placed in the correct boxes. During a
year we interact with hundreds of pensioners with tax concerns
and through this experience we can observe that:
Pensioners worry a great deal about
whether they are getting their tax right.
Many have failing sight and the SA
form is not produced in large print.
Many have hearing difficulties and
find the SA Helpline inaccessible.
Many have mobility problems and find
themselves unable to have a face to face conversation about their
Many may receive their first SA tax
return in retirement.
Most have predictable incomes.
8. The IR has in recent months been grappling
with help for people with such concerns. The IR's new "enabling"
agenda with its focus on the needs of different customer groups
is to be commended, as is its willingness to consult. However,
we worry as to whether sufficient resources are being made available
to the IR in order for them to carry through many of the initiatives
which will benefit the constituency we represent. We believe that
those who are poor and excluded from professional tax help deserve
and should expect the IR to "go that extra mile" to
THE SA PROBLEM
9. We take below three examples of pensioners
who receive SA returns:
Jessie is a widow of 85 resident
in a care home. For the last tax year she had the following sources
State retirement pension
National Savings Pensioner
Jessie is asked to complete a SA form
even through she is not a taxpayer.
Helen is a single lady now aged 87,
she has sight and mobility difficulties and her tax office is
400 miles from her home. For the last tax year she had the following
sources of income:
State retirement pension
National Savings Pensioner
Helen's occupational pension is taxed
under PAYE. The IR know of her untaxed interest from Pensioner
Bonds and make an adjustment to her coding so that the will pay
the right amount of tax in the year. Helen is still asked to complete
an SA return at the end of the year. Her distant tax office has
arranged (at the request of LITRG) for her local office to send
two IR officers round to her house. These officers will help her
put the figures in the right boxes on her return. The return is
then taken away and processed and will show an overpayment or
underpayment of a few pence.
Ron is aged 74 and a widower. For
the last tax year he had the following sources of income:
State retirement pension
National Savings Income
Ron is asked to complete an SA form
in order to collect the small underpayment of tax arising from
his Income Bonds.
10. Prior to the introduction of SA all
three of these pensioners would have had a relatively straightforward
time with their tax affairs and simple forms would have been used
in conjunction with a simple assessing procedure. The computer
generated letters and forms used by SA are not sympathetic to
the needs of this group of IR customers and generate unnecessary
paperwork and worry.
11. The IR is aware of these issues and
is very sympathetic to the needs of this constituency. We have
had a helpful and constructive dialogue and we appreciate the
constraints of the IT systems, but feel that some innovative solutions
are now required.
12. The Paymaster General announced in July
1999 that she was raising the trigger point for a SA return to
be issued due to untaxed income from £500 to £2,500
(IR Press Release 128/99). For the pensioner population on low
incomes who have invested their life savings in Government sponsored
investments, such as National Savings, the limit is too low. We
suggest it be raised for pensioners to £5,000. This would
take Jessie and Helen out of the SA net with no loss of income
to the IR but at the same time provide significant manpower savings.
13. This would enable the PMG to repeat
her quote from 1999:
Paymaster General Dawn Primarolo said:
"This change will cut down on red tape and
bureaucracy, and will especially benefit those pensioners who
will no longer have to fill out SA forms. The Revenue is committed
to improving all its procedures where necessary, and today's announcement
will help simplify the tax affairs of many people."
14. Raising the trigger point to £5,000
does not help Ron as he has tax to pay and the IR has the problem
of how to collect the tax he owes (he is not within PAYE).
15. We offer three solutions to this problem:
By statute reinstate the IR's powers
to raise assessments outside the SA structure when it is for the
better management of the tax system and the taxpayer agrees. We
can have an extremely simple exchange of correspondence between
the taxpayer and the IR to achieve the correct tax payable. Pensioners'
incomes at the low end of the income range are remarkably stable.
Require in these limited cases that
the DWP operate PAYE on the State pension so that the liability
can be collected through monthly deductions. The DWP already operate
PAYE on some other welfare benefits.
Keep Ron within SA but design a single
page form to gather details of his three income sources and dispense
with the "all things to all men" standard SA return.
We would accept the challenge of sitting down with the IR to achieve
the end of having a Pensioner's Simplified SA Return.
OTHER SA ISSUES
16. We recommend that SA returns for issue
in April to pensioners should be accompanied by a note explaining
that if the return falls outside the criteria set down by the
PMG in 1999 then that return can be regarded as issued in error
and returned to the tax office uncompleted. With the significant
fall in interest rates, someone who was within the SA rules in
2000-01 could well be below the PMG's parameters for 2001-02,
but the number of older people on low incomes who know of these
rules can be numbered on the fingers of one hand. So proactive
IR guidance is essential.
17. LITRG is also concerned at the level
of processing errors occurring on SA returns. Many older taxpayers
on low incomes assume that the Inland Revenue will automatically
get it right and many are unable to understand the complexities
of the tax calculations issued to them. The result is that those
least able to work with the system may be suffering unnecessary
liabilities as a result of incorrect processing. Taking more pensioners
out of the SA would be likely to reduce mistakes, as our alternative
recommendations are less prone to error, both by the taxpayer
and the IR.
18. For pensioners, the prospect of an Inland
Revenue enquiry, albeit random, is extremely daunting. The older
taxpayer is more likely to consider that they have done something
wrong rather than accept that the selection is entirely arbitrary.
For a pensioner with the standard 3 to 4 entries on the tax return
such types of enquiry are generally irrelevant and distressing.
The NAO report on Income Tax Self Assessment mentions that "the
Inland Revenue intend to increase the scope and scale of automatic
cross checks between taxpayer declarations and third party information
such as interest paid by banks and building societies". Since
most of the income received by pensioners can be cross-checked
in this manner LITRG recommend a reduction or elimination of this
type of random enquiry for low-income pensioners and more use
of third party checking where this is feasible.
19. There is still some way to go before
the SA system meets the aspirations of older people on low incomes.
There are some very positive signs that the IR recognises the
problem and we are ready to work with them to assist in finding
Low Incomes Tax Reform Group
22 February 2002