Further Supplementary Memorandum submitted
by the Inland Revenue
1. WORKING TOGETHER
What are the issues that have been raised in Working
Together in relation to Self-Assessment?
We listed in paragraph 52 of our submission
the main areas we felt we needed to improve and these reflect
considerable input from agents through the Working Together initiative:
Minimising the number of people who
are asked to make an ITSA return.
Developing a better understanding
of the problems experienced and perceived by taxpayers, especially
those which impact on taxpayer behaviour.
Improving our accuracy.
Simplifying ITSA for taxpayers and
Improving the rate of timely filing.
Encouraging and simplifying electronic
Making further real improvements
to our forms and statements.
Improving our IT systems.
Other issues from an agents viewpoint which
have been raised with us include:
They have difficulty with the acute
peak of work in January in preparing accounts and returns.
The would like more knowledge on
the progress of returns while they are being processed.
They would like to be consulted before
repairs are made to returns when being processed if they are cases
where an agent is acting.
They would like a clearer statement
of account and access to account details via the Internet.
They would like facilities to file
all parts of the SA return electronically.
2. SA: RISK ASSESSMENT,
How are Risk Scores utilised by the Inland Revenue?
Under SA we have power to enquire into the completeness
and accuracy of any tax return. It is not necessary, as it was
before self-assessment, to justify an enquiry by identifying particular
aspects of a return that give cause for concern. We do not publish
our "risk parameters" or say which factors have led
to a particular enquiry, because to do so might lead to information
on the return being manipulated to generate a low risk score.
We attach risk scores to returns rather than
individuals, and all returns are risk assessed and scored. The
purpose of the scoring is to help identify the cases which are
most riskyit is not an absolute measure of risk, it is
a relative measure. There are a large number of "risk factors"
which are included in the analysis, but the score then has to
be considered alongside other information which might be relevantwhat
might, at first sight, appear a high risk case may not be. For
example, if turnover fell during the year this might be because
the taxpayer was ill and not generating income. We take all this
information into account, so that risk assessment is not a pure
3. THE ELECTRONIC
Could the Inland Revenue give information on the
performance of the ELS system?
The Electronic Lodgement Service for filing
this year's SA tax returns went live as planned on Tuesday 17
April 2001. The "Go Live" went smoothly and there were
no major problems reported with the Service.
This has been a record year for the Electronic
Lodgement Service which handled 350,000 SA returns, representing
a 15 per cent increase over the previous year. The number of returns
submitted in January was 160,000, compared to 145,000 in January
2001, an increase of 10 per cent. The ELS Service performed well
throughout the peak filing period in January with no major problems
In the period April 2001 to March 2002 there
have also been fewer Self-Assessment tax returns rejecting through
ELS than in previous years. The current rejection rate is seven
per cent compared to 13 per cent for the same period last year.
We received nine formal complaints in relation
to the ELS service in the period April 2001 to March 2002 compared
to 45 in the previous 12-month period, April 2000 to March 2001.
There are 11 software companies who produce
software products for the Electronic Lodgement Service and these
have all confirmed that they are happy to support ELS for the
new SA tax year 2001-02.
6 April 2000-5 April 2001
|Individual returns received
|Partnership returns received||27,110
|Trust returns received||2,014
6 April 2001 to date (1 March 2002)
|Individual returns received||309,750
|Partnership returns received||29,381
|Trust returns received||2,857
Why does the number of penalty notices issued not equal the
result of the number of returns sent out less the number of returns
received by the deadline of 31 January?
The difference in numbers is due to there being a number
of cases where we do not have a current address for the tax-payer.
There were 85,000 of these where a penalty notice was not issued.
How many pensioners received late filing penalty notices?
The figures we have on the number of pensioners receiving
penalty notices have been extracted from a 10 per cent sample
of returns for 1998-99 SA year (returns issued April 1999 and
January 2000). For the purpose of the analysis, pensioners were
defined as those in receipt of a state or widows pension, so younger
pensioners (retired early on company pensions, but not yet receiving
state pensions) were excluded. Subject to that, of 1.3 million
pensioners in Self-Assessment, only 36,000 filed after the 31
January deadline. This amounts to just under 3 per cent of pensioners
Will the new pension credit increase the number of people in
The pension credit, like the minimum income guarantee for
pensioners which it will replace from October 2003, will not be
taxable. Therefore the introduction of the pension credit from
2003 should not increase the number of pensioners within self-assessment.
7. IT & CT INVESTIGATION/ENQUIRY
Has the investigation coverage fallen from 5 per cent to 2
We do not know where the figure of five per cent investigation/full
enquiry has come from. During the last ten years, which includes
periods before and after the introduction of SA, coverage has
always been well below five per cent.
The number of investigations/full enquiries taken up annually
has in fact remained broadly similar through the period 1992-93
to 2001-02. While it might appear that coverage as a percentage
of the taxpayer population has declined from pre to post-SA, direct
comparisons are not possible:
Since SA we have changed the definition of the
population on which IT coverage is calculated. Prior to SA we
excluded from the definition very small businesses with a turnover
below a certain level whereas under SA we include all businesses
within the definition.
Until 1996-97 we measured settled cases whereas
from 1997-98 we have measured cases taken-up for enquiry. The
measure was changed partially because it was felt that measuring
settled cases was more likely to distort behaviour and partially
because of the changes introduced by SA regarding the opening
Since the introduction of self-assessment, coverage expressed
as a percentage of the taxpayer population has remained broadly
stable. In 2001-02 there was an increase in income tax self-assessment
coverage compared to the preceding two years. We look constantly
to consolidate and improve our coverage, for example by introducing
new working practices. However, we are also seeking to improve
the quality of our enquiry work and the quality of our risk assessment
thereby reducing the number of returns enquired into unnecessarily.
It is therefore a matter of striking a balance between quantity
20 March 2002