Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Questions 218-239)

MS JANE MOORE AND MR ROBIN WILLIAMSON

WEDNESDAY 20 MARCH 2002

Chairman

  218. Jane Moore, could I welcome you to the Committee. Could you identify yourself and your organisation for the Shorthand writer.

  (Ms Moore) Technical Director of Tax Aid, a charity which gives free tax advice.
  (Mr Williamson) Coordinator, Low Incomes Tax Reform Group, which is a Committee of the Chartered Institute of Taxation.

  219. I thank you both for the memorandum you have submitted. Jane Moore, in yours, you say that Self-assessment can only go so far to making the system simpler. Do you think there is in fact scope for simplifying Self-assessment without changing the underlying tax regime?
  (Ms Moore) I think that Self-assessment itself, the actual bare bones, the deadlines, the timetable and the concept of submitting a tax return and then paying the tax is actually quite straightforward, and there is not a great deal of scope, perhaps, for simplifying that. What can be simplified is the way in which it is made accessible to people, in terms of simpler forms, better information, and the sorts of support that is available for them, and clarifying some of the areas where there is confusion at the moment, such as the filing deadlines, and which are the ones that attract penalties, things like that. Perhaps there are areas which cannot really be simplified without simplifying the underlying legislation, I fear.

  220. Robin Williamson, you referred to the fact that pensioners can be considered, in some measures, to be in poverty, yet fall into the clutches of Self-assessment. Is that a relatively new phenomenon?
  (Mr Williamson) This is a phenomenon which is certainly as old as Self-assessment, and in terms of the tax system generally, goes back to the 1970s when personal tax allowances first started to part company with the rate of inflation. The Rooker Wise Amendment which addressed the question of aligning the tax allowances with the rate of inflation did not come in until the 1980s, by which time a great many pensioners in poverty were already within the tax system. The particular complexity of Self-assessment for these people is the compliance aspect, the 8 page form, the 30 page explanatory material, though we are working together with the Inland Revenue very constructively to address these complexity issues.

  221. I am just interested in your argument. At first glance, you appear to blame on some mistake of an individual who is in receipt of benefit or classified by some Government measure as being in poverty, does fall into the Self-assessment net. You say, "Regrettably, this is not so." But presumably your argument is that they should not; is that right?
  (Mr Williamson) They should not. Our argument is that they should not fall into Self-assessment at all, because Self-assessment was originally set up for people with complex tax affairs and the self employed, so that the sort of pensioners whose financial affairs are outlined in our written submission should not be within Self-assessment, and our recommendations in the written submission are geared to trying to get them out of Self-assessment. Or, failing that, at least make the process of assessing them a great deal simpler than it is at the moment.

  222. In the submission that the Revenue made to us, they said, "One of the aims of Self-assessment when it was first introduced was to establish a less confrontational system." Do you think they have achieved that, Jane Moore? Do you think, in practice, it is less confrontational?
  (Ms Moore) I think it depends on whether you have straightforward affairs where you file a return, pay the tax, and that is fine, or whether you have an enquiry or difficulty paying your tax, because I think those are two areas which are actually quite potentially confrontational. More so than under the old system, although partly, I would say there has been a change in Revenue approach, which may or may not be due to Self-assessment; maybe the change in approach would have happened anyway. There has undeniably been a toughening up on tax collection, for example, which is fair enough, but perhaps not always done in a sensitive way in appropriate cases.

  223. But if it was one of the aims of Self-assessment, to be less confrontational, do you think after five years we could say they have achieved that, or not?
  (Ms Moore) I would say not.

  224. Robin Williamson, what would you say?
  (Mr Williamson) I would add little to what Jane Moore has just said. I think much of our specific problem with pensioners lies in their own perception of not just the Revenue, but any government body so that anything, even if it is not intended to be confrontational, is more likely to be construed by them as being confrontational. We run some pilot projects in the West Midlands and South West of England where tax professionals give their time to give free tax advice to pensioners on low incomes. This is a constant theme of those surgeries. We have elderly ladies afraid of going to prison for not doing things right. This is a very big problem with pensioners. Jane mentioned the question of enquiries where the confrontational aspect is probably at its most marked. This is why we have first recommended that enquiries for this particular pensioner group be reduced or even eliminated in favour of more cross checks between taxpayer declarations and third party information sources, such as banks and building societies, where those pensioners who save have some funds.
  (Ms Moore) Can I just add something. I think there certainly are areas which are less confrontational now. There is no doubt that the Revenue is a willing listener. We work a lot with the Revenue and our suggestions are well received. But there is a gap between perhaps public perception of Self-assessment and the Revenue and what they are doing, and what the Revenue are trying to do in terms making the thing more accessible. I think there has been an improvement in the Revenue approach, definitely.

  Chairman: Thank you.

Mr Plaskitt

  225. Your group has called for the trigger point to be raised to £5000. How did you come to that figure, and, if it were, how many people would come out of the Self-assessment catchment?
  (Mr Williamson) That is a figure which, if you take the original figure, which is £500, that was raised to £2,500, which was a great deal more than doubling the original figure. If we were to simply double the present figure to £5,000, that would have an even greater effect in terms of taking out, I cannot give you numbers, I am afraid, but certainly all the people who are in the similar sort of situation, as we see, as the first two pensioners who we have set out in our written submission who have saved all their lives, often typically single elderly widows, saved all their lives in granny bonds, National Savings products, following government advice, but because these are not taxed at source, they suddenly find themselves having Self-assessment, and doubling the income limit would effectively double the amount of savings which they can actually accumulate before they get to that.

  226. So your approach to the £5,000 was double the existing limit rather than working back through the types of people within certain categories, and your view was that £5,000 represented a threshold of substance rather than something that was purely numeric, is that right?
  (Mr Williamson) Yes, £5,000 would be something which could also be implemented, we believe, without great additional, or indeed any additional, cost.

  227. There is always going to be a line drawn somewhere.
  (Mr Williamson) Yes.

  228. There needs to be, presumably, a defence for having the line at whatever point it is at. So what, in your view, is the defence for putting it at £5,000 as opposed to £7,000 or £6,000?
  (Mr Williamson) If it was £7,000, better still.
  (Ms Moore) Well, I think £5,000 represents a sensible nest egg of about £100,000 say, or property income of the typical sort of level that we see, and which we think will take a lot more people out of having to do Self-assessment, not necessarily out of paying tax.

  229. Yes, your group proposed this £5,000 as well.
  (Ms Moore) Yes, I also am a member of the Low Incomes Tax Reform Group, so there is a certain similarity in some of the things we have considered.

  230. So you would suggest there is a point of substance behind choosing the £5,000. It is not just drawing the line somewhere for the sake of easing pressure on some people, but you have not actually quantified how many. Can you do that? Do you know how many—
  (Ms Moore) I am afraid we do not know.
  (Mr Williamson) If it were to be combined with a very much simpler system for collecting tax above that limit, then that would be a—

  231. Mr Williamson, your group is suggesting replacing it by having correspondence between pensioners and the Treasury and the Inland Revenue. How is that going to work?
  (Mr Williamson) This would work simply by pensioners stating in the course of correspondence what their income was and what their tax allowances were, and the Revenue then issuing a simple form assessment of the kind that was issued before Self-assessment, when we got the "one size fits all" return.

  232. But this is not feasible, is it, having people sit down and writing letters to the Inland Revenue? The Inland Revenue look at all these different letters: some will cover some points, some will not cover others. There is going to be an awful lot of toing and froing before they get the information. It is going to be more confusing, is it not, than just starting with a form at the very outset?
  (Mr Williamson) A form is another way of doing it. We do not see a hard and fast distinction between a letter which states what the pensioner's income was and the allowances and deductions they are claiming, and a form which is a simple statement of just that, and gives clear guidance as to the income which pensioners typically need to declare and the typical allowances. They have these forms in other jurisdictions. I have one here which is used by Revenue Canada, and sent to over 65s who are under a certain income limit. It is two pages. It simply lists, "Do you have these types of income?", and invites them to claim certain types of deductions. That is a form rather than a straight form of correspondence in whatever form a pensioner chooses.

  233. Have you floated your novel idea of entering into this quaint correspondence with every pensioner with the Revenue? What do they think?
  (Mr Williamson) We have floated all the ideas which we have put forward in our written submission with the Revenue. When we first put them forward which was back at the beginning of the year 2000, they were anxious to review all the various ways in which pensioners on low incomes could easily be taken out of Self-assessment without specifying which particular options they would favour. Since then, that Review has gathered pace, and, as I said at the beginning, we are working very closely and very constructively with the Revenue to address this issue. The correspondence idea is one of a number, and if there are a number of practical difficulties with it, then—

  234. Is it still in the running, do you think, the correspondence idea?
  (Mr Williamson) I think this is something that should come out of the Review which we will have with the Revenue. Maybe it is something that should be left on one side and a simple form should be allowed to take its place in conjunction with raising the limit to £5,000, or whatever other figure is decided upon.

  235. On the subject of the simple form, can I turn to you, Ms Moore. Your submission to us calls for something like that, and I think I understand you by saying something even simpler than the 8 page form that exists at the moment, but your idea is that the Inland Revenue might have to send out different additional forms together with the simple form to some people. That sounds a bit nightmarish to me. What is the idea?
  (Ms Moore) They already send out additional pages with a tax return. A typical TaxAid client might have the 8 page form on which he would perhaps fill in three boxes, which would be his name and his National Insurance number, nothing else, and then the self employed pages. Possibly he also had an employment, so he would have one of those as well. Maybe he had a bit of foreign income, he would need that as well. So that situation already exists, and I think my point about the additional pages is that they are very inaccessible. If you look at foreign page for example, it is a nightmare, I mean, I struggled with it. Our clients have no hope, really, and if they are going to have these bits of foreign income, which is not that unusual, they do need either that form simplified so that everyone can understand it, or something a bit simpler for those who have not got the benefit of an accountant to fill it in for them.

  236. Do you think it is administratively better to have one form that combines all the possible questions where some sections might not apply, as opposed to a whole clutch of different forms, which may or may not get bundled correctly for each individual taxpayer?
  (Ms Moore) Which is the system we have at the moment. I have no particular problem with the basic form plus add-ons here and there. I think that works better than one form made to fit everything. You only have to look at the long version of the Tax Calculation Guide to see that trying to put everything into one document does not work, it defeats people when they look at it. But people look at the 8 page form and are put off by it because they think, "8 pages, got to do all of that", and actually very often they do not. The boxes that our clients need to fill in would be easily identified, and I could probably point you towards ten or twelve, the rest of them blank, and equally in the supporting pages, certain lines come up again and again and again and could be made a lot easier to fill in for those people.

Dr Palmer

  237. One more question on that, if I may: do you think that an alternative approach to helping there would be to extend the current approach of supplying additional forms as experience suggests be necessary? For instance, if you have filled in a foreign form one year, you get it again the next year. Could you imagine a little shrinking version, that if one of your customers had in fact found that he only needed to fill in the demographic data and the self employed data, that they would get a form consisting only of that?
  (Ms Moore) There would have to be a level beyond which they could not reduce it because you would have to cater for people having new things that had not cropped up the year before, so they would need to have some broad outline of the main areas of things that are taxable as an aide memoire, I think, and so just the form based on the year before would not work, I do not think.

  238. But that is what happens now, is it not? On page 2 you get the list of forms you might want, and if you want one you have not got, it tells you how to get it. So I am asking you whether you think that the current approach could be further modularised.
  (Ms Moore) Yes, I think it could be. I mean, just the name and demographic data would not be enough, you would need to have a bit more. I know that was an extreme example. But perhaps a couple of pages would do the trick rather than eight.

  239. Moving on to taxpayer legal penalties for late filing. You describe two kinds of late filers: people with no particular excuse, and those who simply cannot cope. You acknowledge that for the former, penalties may prove effective; you say in the latter case, penalty is not really an incentive to file, it just makes you feel more stressed. In practical terms, how can the Revenue distinguish between which of these categories the late filer belongs?
  (Ms Moore) That is a difficult question. I am not sure to what degree the Revenue actually manage to have contact with some of these people where there are five years of tax returns stacked up now. I know they are doing research at the moment, but I do not know the outcome as yet of why people file late, and why there is a backlog of returns in a certain hard core of cases. Really, without actually speaking to the person concerned and finding out, it is very difficult to know what the reason is. I should imagine they do tend to do that.


 
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