Select Committee on Treasury Appendices to the Minutes of Evidence


Memorandum submitted by Richard Mannion FTII FCA


  I am a partner with Solomon Hare Chartered Accountants and Chartered Tax Advisers Bristol specialising in the taxation affairs of individuals and businesses. I was President of the Chartered Institute of Taxation from May 2000 to May 2001. I was a founder member of the Working Together Initiative, which is now a fully fledged part of the Inland Revenue's working practice. Because of my involvement with Working Together I believe I have a unique insight into the operation of the self-assessment system.

  The Chartered Institute of Taxation (CIOT) is the senior professional body in the United Kingdom concerned solely with all aspects of taxation. It is multi-disciplinary with a membership broadly based across the professions and across occupations in industry, commerce, the public sector and the taxation authorities. The bond between members, whether they are salaried employees, partners in large professional firms or sole traders is a common interest in taxation. Members of the Institute have the practising title of "Chartered Tax Adviser".

  The views expressed in this submission are the personal views of the author and do not necessarily reflect the views of Working Together or the Chartered Institute of Taxation or Solomon Hare.


2.1  Background

  The teams of people from the Inland Revenue and the professions who worked on the introduction of the self-assessment system did an excellent job. But unfortunately the teams were disbanded before the system had been fully tested in practice.

  As with all significant changes in system it was inevitable that problems would arise in practice. By the time of the first filing date on 31 January 1998 there was evidence of considerable frustration on all sides.

  Those frustrations were borne out by a research study on self assessment commissioned by the Chartered Institute of Taxation in 1998 which made reference to cases of incorrect processing, examples of poor communication and complex situations that did not fit neatly into the new system.

  The study identified the two most important changes to help self assessment operate more efficiently as:

    (1)  "real liaison and consultation to avoid badly thought out procedures; and

    (2)  open up communication links with the Revenue. . . . pathways of communication must be developed more than at present."

  In November 1999 the CIOT and the Institute of Chartered Accountants in England and Wales (ICAEW) submitted a joint proposal to the Inland Revenue to build on and improve the existing communication paths already in place and to put in place a formal reporting structure so that:

    —  procedural problems within local/regional offices are identified early;

    —  recurring problems are notified and recognised for attention at senior level;

    —  timely corrective action is taken;

    —  results are monitored regularly;

    —  all actions/resolutions are communicated effectively back to those at local and regional level.


  The formal Agreement was later announced formally by the Chancellor of the Exchequer in the 2000 Budget Press Releases (Rev 10) "Helping to get it right") published on 21 March 2000.

  Subsequently the Association of Taxation Technicians, Association of Chartered Certified Accountants, Institute of Chartered Accountants in Scotland and the Northern Ireland CCAB have all signed up to the formal agreement.

2.3  Register of Issues

  All issues which are reported centrally to the Inland Revenue Head Office, whether via area meetings, direct from practitioners or from the Revenue network are placed on a provisional register. These provisional issues are then reviewed by the Working Together team.

  In appropriate cases the issue will be logged onto the main register of issues and allocated to a senior Inspector for attention. When the Inspector's response is received it will normally be communicated back down the line to the source of the initial report and where the matter is of wider relevance, it will be considered for inclusion in the next Working Together Bulletin.

  The register appears in the Working Together dedicated area of the Inland Revenue's web-site (


  3.1  I consider that from a conceptual point of view the self assessment system is a significant improvement over the old system of estimated assessments, appeals, postponements and appeal hearings. It is however unfortunate that the new system was based on the old over-complex system of taxation originally developed in the 19th century when the overriding objective was that no one humble Inspector of Taxes should know all of the affairs of the local gentleman, with the result that different types of income were taxed under completely different codes.

  3.2  It is a fundamental requirement of self assessment that the ordinary member of the public is expected to know and understand all of the tax law that applies to their personal circumstances so they can not only return their taxable income and gains correctly, but also self assess their own liability. However for many years new provisions have been bolted onto existing provisions without any regard as to whether the end result is understandable to anyone other than the Parliamentary draftsman who drafted it.

  When I was President of CIOT I wrote to all MP's inviting them to prepare their own tax return without professional help and to let me know how they got on. Only one of the MP's who responded said that he thought that the process was straightforward. The general consensus was that anyone with moderately complicated affairs would need to seek professional help.

  I contend that there is something fundamentally flawed about a system that even well educated members of the public find too difficult to follow. In March 2001 I publicly invited the Inland Revenue to work with the professions to try to find ways to achieve real simplification (not just rewriting the complicated legislation with simpler words). The Deputy Chairman of the Board of Inland Revenue Ann Chant publicly accepted that invitation on behalf of the Inland Revenue. So it is clear there is a real desire for simplification on all sides, but I anticipate that it will only be possible to make real progress if Parliament recognises the urgent need for action and ensures that the necessary resources are made available. Otherwise I fear that the rate of simplification will never keep up with the rate of further complication as new laws are bolted onto the existing structure.

  3.3  Much of the effort of the Working Together Committee goes on trying to find work-arounds where existing procedures are unable to cope with day to day situations.

  3.4  I enclose examples of the current issues currently facing the Working Together Team (Appendix 1).


4.1  Action by the Inland Revenue

  I set out below a summary of the action that I consider is required urgently by the Inland Revenue both to protect the existing system and also to improve it:

    (i)  Proportionality

    I have the impression that Inspectors of Taxes are trained to believe that a return is either entirely right or entirely wrong, which means that considerable amounts of effort are wasted in arguments over relatively trivial amounts of tax. Bearing in mind the scarce resources available on all sides in this process I recommend that Inspectors should be encouraged to exercise a degree of judgement and to consider whether the items under consideration are material. In this connection I am pleased to note that the Revenue's new performance measures for compliance will focus more on quality of work rather than numerical targets.

    (ii)  Education

    I applaud the Inland Revenue's decision to set up Business Support Teams to help small business, but I feel there is much more to be done in the area of education of taxpayers, particularly if the Revenue is to fulfil its enabling/educating role. The series of booklets SABK were excellent, but more needs to be done. My own suggestion would be for a series of public information television broadcasts or perhaps a Revenue sponsored television drama profiling the conduct of a tax investigation.

    (iii)  Consistency

    Some years ago the Inland Revenue made its manuals available to the general public and again I applaud that decision. The Revenue need to make it clear whether the contents are guidelines that the local Inspector can choose to follow or reject, or whether they constitute the party line. At present there is too much inconsistency between one Inspector and another and between one area office and another, although I acknowledge that the new area management structure is designed to shorten the lines of communication between Head Office and the network.

    (iv)  Resourcing

    I generally support the Inland Revenue's Change Management Programme which resulted in 60 or so clusters of tax offices rather than 550 individual districts. But my own observations indicate that this programme has exposed significant under-resourcing in certain areas with a consequent effect on customer service. If the self assessment system is to survive and indeed be improved, then I consider that the Inland Revenue will need more resource not less. I also observe that the Revenue has suffered from ongoing industrial relations problems which are holding back the desire to move to a customer facing/enabling role. For example having to shut local offices at 4.30pm on 31 January because of an overtime ban did nothing for relations with taxpayers and agents.

4.2  Action by Government

    (i)  As indicated in paragraph 3.2 above the Government must lead a programme designed to achieve real simplification in the law and the system as a matter of urgency.

    (ii)  At present some 9 million taxpayers are dealt with under the self-assessment system compared to some 25 million on PAYE and a number who are dealt with separately as repayment cases. The self-assessment system is substantially dependent on new entrants making themselves known to the Inland Revenue.

    I question whether it is sustainable to have three separate systems running in parallel and I suggest that in the long run the ultimate objective should be for the majority of adults to be required to make a return of income and gains on a regular basis under the self-assessment system. I am aware that bodies like the Low Income Tax Reform Group are very concerned about the impact of such a rule on the elderly, the infirm and the poorly educated, but I would suggest that many of the anticipated problems could be dealt with by (i) simplifying the legislation and the system and (ii) having different types of return so that individuals with simple affairs were asked to complete simple returns.

    Taking that a stage further, with the development of technology it is possible to envisage a situation where the Inland Revenue will be able to populate most of the entries on a return for any given individual. For example a taxpayer whose only sources of income were pay and benefits in kind would receive a return which included details of the pay and benefits already included and would just be asked to confirm that there were no other sources to be declared. Similarly a taxpayer whose only sources comprised state and other pension benefits would receive a return which included those details.

    (iii)  Structural change is needed to the system to encourage the filing of returns more evenly throughout the filing window, to avoid the bunching of returns at 31 January and also to increase the number of returns filed before the deadline.



  1.1  I am aware that the Inland Revenue are looking at ways of encouraging taxpayers to file their tax returns earlier to avoid the 31 January rush. I consider there is no one magic solution to this problem and that this will only be resolved with a bundle of carrots and sticks. In particular I am sure it would help if the enquiry window was to run for 12 months from the date the return was filed rather than 12 months from 31 January because of the public perception that early filing increases the risk of enquiry and lengthens the enquiry window.

  1.2  The results of the Steedan case mean that we have an extremely confusing set of deadlines for filing tax returns. If a tax return is received in the tax office on 1 February it will not attract a late filing penalty, but the enquiry window will be extended to 30 April 2003. A return found in an office letterbox on the morning of 2 February will be deemed to have been received on 1 February.

  1.3  It is clear to me that filing by internet (FBI) will help to solve a number of the current problems with incorrect processing of returns, and consequently the Inland Revenue should be given whatever resource is necessary to ensure that FBI is able to cope with all taxpayer's returns (not just those with simple affairs) and the system is robust and trustworthy.


  2.1  The Inland Revenue have instituted a quality control process which is supposed to involve a sanity check to identify processing errors, but current indications are that too many incorrect amendments are still being made.

  2.2  I believe that a fundamental error was made in devising the new system so far as carry-back claims were concerned. If an individual paid a pension contribution between 6 April 2001 and 31 January 2002 he or she could elect to carry that contribution back to the tax year 2000-01. However on making that election the contribution is neither a relief of the year 2001-02 nor of the year 2000-01. It becomes a "dangling debit."

  This is extremely confusing for all concerned and for the first few years of self-assessment the Inland Revenue computer was unable to cope with such a carry-back, which meant it had to be the subject of manual intervention resulting in lengthy delays and problems with the Revenue's receivables management staff trying to collect tax that was not due.

  I suggest that a change in the law is required here so that if a claim to relief is carried back to the previous year then it should be deemed to have arisen in that previous year for all tax purposes. Where the return for the previous year has already been filed this would mean that an amendment would need to be submitted, but this should not involve any additional time compared to the present system and would result in greater certainty for all concerned.


  3.1  In the body of this submission I mentioned the possibility of the tax return being wholly or partly populated before being issued to the taxpayer for checking eg state pension.

  3.2  I am concerned to hear that additional information which is written in the white space of a taxpayer's return is not made available to the officer who carries out the checking process.


  The tax calculation could be used as the entrance exam for Mensa. The main reason for its difficulty is the illogicallity of having different tax rates for certain types of income like interest and dividends. These rates appear to have been introduced for political reasons despite the impact on the tax calculation. Again I would suggest that there is something fundamentally flawed with a system that even well educated taxpayers find too difficult to follow.


  Far too many incorrect late filing penalty notices have been issued because of the failure to log the receipt of the return correctly. This is partly due to the substantial number of returns that are filed in the last few days up to 31 January. Issuing incorrect penalties causes distress and bad will towards the Revenue and I would suggest that the issue of penalty notices should be delayed until the Revenue are sure that all returns have been logged and an individual check should be made before the notice is issued.


  6.1  I hear considerable anecdotal evidence about lengthy delays in processing returns and dealing with post. Following the transfer of work from one area to another over the last year I have also heard of cases where the file has gone missing or the tax return has been lost.

  6.2  If an agent submits a tax return for a client using sophisticated tax software it is unlikely that the tax calculation will be incorrect. However if the Inland Revenue incorrectly process that return they write to the client saying that the return has been "corrected." The taxpayer assumes that the Revenue must be right and this can cause friction between the taxpayer and his agent.


  Statements of account have been a complete disaster area—they are virtually impossible for anyone to understand. The statement received by an agent is not a true copy of the statement received by the taxpayer.

  One of the main issues here is that the decision was made not to charge interest on interest. If the legislation was changed so that interest was charged on interest it would be possible for the taxpayer's statement to follow more closely the Barclaycard type of statement that he or she is familiar with.


  Many agents have reported problems with the Electronic Lodgement service. Firms were required to put in considerable time and effort into setting up a system without any real tangible benefit in return. The Government's offer of a discount to taxpayers who filed by internet merely added insult to injury.

  In my view the way forward is to devote the necessary resources to ensuring that FBI is sufficiently robust to cope with all taxpayers' returns and to encourage agents to use that route. However, given the previous experience with ELS the Revenue are going to have to be sure that the problems have been ironed out before they encourage agents to switch to FBI, because if agents meet with initial difficulties they could be turned off for the long term.


  The Inland Revenue and CIOT carried out a joint survey into the conduct of enquiries. Subsequently a working party comprising representatives of both the Inland Revenue and the professions has been carrying out further work. This is an area of potential conflict which could be helped by a series of workshops carried out by Inspectors of Taxes for local agents explaining how cases are risk assessed and the context for certain decisions being made. I believe there is real scope for Inspectors to bring agents into the risk assessment process, for example by warning about concerns with a particular trade or a particular practice (eg claims for use of home) and asking agents to devote particular attention to their clients' affairs in the knowledge that the Inspector will be carrying out a close review subsequently.


  Generally I support the Inland Revenue's move towards a more robust approach to debt collection, but the enabling role means that the Revenue need to make a clear distinction between those who won't pay as opposed to those who can't pay and who need help. This area of Receivables Management was one where there were inconsistent approaches across the country and it was important that those involved in collection were reminded of the party line.

  One area that requires ongoing attention is in relation to those cases where an agent is acting. The agent/client relationship can be damaged where the collector seeks to collect tax which is not due in a case where the agent's file is more up to date than the Collector's computer record because of a processing delay in the tax office. Clearly there is an opportunity for the Revenue to work in partnership more closely with agents in this area of Receivables Management.

Richard Mannion FTII FCA

12 February 2002

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 25 July 2002