Examination of Witnesses (Questions 264-279)|
WEDNESDAY 20 MARCH 2002
264. Can I welcome you to the Committee. Could
you identify yourselves for the benefit of the shorthand writer,
(Mr Hamper) Neil Hamper, Chairman, Taxation
and Financial Affairs Committee of the Policy Group for The Federation
of Small Businesses. I am a Chartered Accountant in public practice
and a Chartered Tax Advisor. My colleague, Simon Sweetman, is
a former Inspector of Taxes, and he will introduce himself.
(Mr Sweetman) I am the Vice-Chair of Neil's Committee.
I am a former Inspector of Taxes and now in business as a Tax
265. Thank you very much for your written evidence.
You say for the substantial minority of self employed that do
not use agents that the whole system remains, and I quote to you,
"Terrifyingly complex, particularly if they file after 30th
September." Can I put to you the question I put earlier:
what scope is there for actually simplifying Self-assessment without
changing the underlying tax regime? Who would like to take that?
(Mr Sweetman) I think the answer to that is that since
Self-assessment was introduced, the tax regime has actually become
considerably more complicated. You have the introduction of tax
credits; you have the introduction of different tax rates for
different kinds of income; you have allowances given in terms
of tax which did not happen before, and my feeling is that for
whatever reasons, we now have a tax system built for the electronic
age, and a lot of people still are not operating in those terms
yet. So I think it is very difficult to simplify the system considerably
without simplifying the underlying structure, and this is where
the very long tax calculation pages come in.
266. Sure, but without going back over some
of those big changes which do affect the underlying structure,
are there particular changes you would like to see to up your
numbers? Second order changes, if you like.
(Mr Sweetman) The other things that we referred to
in our submission are all attempts to, if you like, simplify the
structure of taxation. Yes, there would be simple changes that
would take a lot of people out of tax, like increasing personal
allowance and so on.
267. Do you want to add to that, Mr Hamper?
(Mr Hamper) I think that is a very valid point, that
if the threshold were increased, a lot of the problems at the
smaller end of the taxpaying population would certainly fall away
with, dare I say, not much loss to the Exchequer, as a broad brush
approach on that. Our colleagues mentioned earlier filling in
the tax calculation sheets. They are horrendously complicated,
even for practitioners, and for people that are unversed in tax
affairs, I think that really is something that needs to be addressed.
And it is complicated, because of the varying rates that my colleague
268. Just on that point of moving up the threshold
and taking some of the people out of tax all together, have you
done any calculations on your side to the loss of revenue? You
say you think it might be minimal.
(Mr Hamper) No, we have not in detail.
269. Fine. You have also suggested, to spread
the flow of tax returns more evenly through the year, making the
return of schedule D taxpayers coterminous with the accounts year.
How did you get on with the Revenue on that one?
(Mr Hamper) Originally, when self assessment was first
mooted, there was no attempt, if you like, to move from a 5th
April year end. It had been written in stone since whenever.
Mr Plaskitt: 1752.
(Mr Hamper) As such, the cost of moving from 5th April
to any other date would be phenomenally expensive, so the impression
I formed was that the Revenue were somewhat dismissive of even
attempting to try and move. I think the Revenue, as also administering
the system, would probably welcome some sort of change if it could
be accommodated, but they have to work within their own resources,
270. But the suggestion is that the resources
are all being bunched. In your memorandum, the whole suggestion
is that resources are all being bunched at the moment.
(Mr Hamper) Absolutely, I mean, it is a terribly inefficient
system. You are getting now the situation where the filing deadlines
are either 30th September or 31st January. 31st January is the
most critical filing date there. Everybody pulls out the stops,
and human nature being what it is, everybody leaves things to
the last minute, not just the accountants, and you have this horrible
bunching effect as the returns are initially got away from the
agents and the taxpayers and then of course the Revenue have got
the bunching effect after they have been processed to actually
sort and sift from then on. To us it would make logic sense to
actually try and spread the filing of tax returns over a calendar
271. That is why I do not quite understand your
perception of the Revenue's argument against that on resources.
(Mr Hamper) Well, we would have thought that the Revenue
would have welcomed that sort of change of doing it, rather than
sticking with 5th April and everything has to be brought into
line to 5th April. As a corollary, of course, the 31st January
filing date was built on 5th April.
272. Have you pressed this recently with them?
(Mr Hamper) No I have not.
273. In your memorandum, the Federation of Small
Businesses, you say, "A major problem for business taxpayers
is that on the second 31st January after commencement of the business,
they have to find the first year's tax in full, plus the first
instalment of the second year, so paying 150 per cent of a year's
tax all at once". That is a terrible burden for someone who
is just setting up in business. Have you made representations
against that, and what have been the responses?
(Mr Sweetman) Normally representations come continuously
through various committees that representatives from the Federation
sit on with the Revenue. But the Revenue's view, I suppose, is
that in a way this is generous, because it is 18 months or so
before people have to pay any tax at all. I think the problem
is that it does not take human nature into account, and I think,
as Jane Moore explained in her evidence, people find, with the
best will in the world, that there is a creditor more pressing
at a particular time, and it is difficult to accumulate that.
It is also difficult for people to calculate it. I, for instance,
have been in business in my present self employment for less than
a year, and it is quite difficult for me to calculate how much
money I should be putting away for tax, and I am supposed to know
274. You suggested the possibility of the business
taxpayers paying income tax by direct debit in monthly instalments.
Would that not be a solution? What is wrong with that?
(Mr Sweetman) I think we come back again to this point,
again referring to the trial which was conducted and which, from
my recollection, I understood it to have finished, but they have
never mentioned the results on payment by instalments, but we
come back to the problem that the Revenue find it difficult because
they cannot make any claim for the tax in advance of the date
when it becomes due. I think this too would be comparatively straightforward
to operate for people once they were settled in business and had
some idea of the tax liabilities and the Revenue had some idea
of the kind of tax liabilities that they would pay from year to
year. It is a problem in the first year.
275. Are you suggesting that people would not
take this up because they would effectively be paying tax in advance
of when they actually needed to?
(Mr Sweetman) That was always the objection, but from
what one had heard about the scheme in the North East, people
did this quite happily, but, as I say, it has not come out.
276. I am not suggesting it be made a requirement,
but it could be an alternative to paying in a lump sum at the
end of the year.
(Mr Sweetman) Yes, and one of the things the Revenue
have never wanted to do is pay interest on money that is paid
to them early, which might be quite an attractive proposition,
and certainly offering better rates than the banks are to small
277. So you have not heard from the Inland Revenue
as to whether they intend to take this North East of England trial
forward, the Gateshead trial?
(Mr Sweetman) No. At a regular Committee, we have
been constantly expecting to be told about it.
278. Can we just check: the Gateshead trial
that Jane Moore was referring to earlier is the one that you are
referring to now, and the one that you refer to in your written
(Mr Sweetman) That is right, yes. The Operations Consultative
Committee had talked for a long time about the possibility of
payment by instalments and eventually the Revenue set up a trial
in the North East, whether it was Gateshead or Newcastle, and
we heard from them that it was going well, but that is all.
279. Going back to the question I put to the
previous witnesses, would it not help small businesses if they
have something like payment of the gas and electricity bill, where
they paid a fixed instalment every month, and then settled up
at the end, rather than having a large bill coming at them all
(Mr Sweetman) I am sure that would be very helpful,