Examination of Witness (Questions 340
WEDNESDAY 22 MAY 2002
340. When you say "we" do you mean
the whole of the system is being developed internally in the Inland
Revenue or is there a consultant, a partner?
(Dawn Primarolo) This is the Revenue.
341. There is no external body of experience
being brought into this; it is entirely internal?
(Dawn Primarolo) Yes. We are drawing on external experience,
but the development is in partnership with staff who are employed
inside the Revenue. We are not doing it in isolation; we are drawing
very heavily on the experience of others and experience of other
countries and how they are developing it. It is quite difficult
to describe. It would be very helpful for the Committee if you
were able to go to Somerset House and have the officials demonstrate
to you how it can be used and the design on computers which we
342. In the States where they have 50 or 60
per cent electronic filing of tax returns, people buy software
packages commercially which are designed to slot into the American
Government system and which are adapted each year as the tax system
changes, which people can try out for themselves on their own
PCs and there is a guaranteed standard of accuracy about the performance
of the software. I just wondered whether this would be a sensible
kind of partnership between the public and private sector.
(Dawn Primarolo) Yes, that is what we are trying to
do, working with the software developers. I missed that point.
We are working with the software developers so that the products
can be used on an interface with the Inland Revenue. We are trying
to encourage that and I hope that we shall be able to give you
some examples of that work as well, if you were able to go to
Somerset House for this presentation. There will be the work we
are doing on the self-assessment itself, the work on the corporation
tax and a briefing on the work we are doing with software providers
to get exactly that type of package which enables people to use
it in that way. It has to come through an interface into our system
and to make sure that we can recognise that, rather than us trying
to develop a system which everybody has to use which then will
not fit their needs or their systems.
343. In my pre-1997 incarnation I ran an internet
service, so I was very motivated to try this out. At that point
two things stopped me. One was that some of the forms were not
yet supported and I wanted to ask whether they are all supported
now, specifically foreign investments or something like that.
The other was simply that there did not seem to be any very strong
positive incentives. Given that it saves the Inland Revenue at
least a fair amount of clerical work, would it not be reasonable
to reward the filer in terms of a significant discount?
(Dawn Primarolo) Yes. If we look at the Carter review
and the proposals in the Finance Bill and Carter recommendations
on work with intermediaries and encouraging that at some considerable
cost to the Revenue, that is a way forward where we are trying
to encourage it. We are at a position where 50 per cent of taxpayers
are doing it under their own steam. The really big incentive in
this system is the September deadline whereby we would do the
calculation. I must be perfectly frank with you. The problem of
putting incentives into the system, although we have looked at
it and we shall continue to, is the problem of what is called
deadweight cost but also fairness to the taxpayer. If somebody
is already doing it, they do not get the incentive and those are
coming on for the first time too.
344. I am not sure we are talking about the
same thing. I meant incentive to submit via the internet so you
would get £25 off your bill if you submitted via the internet
instead of doing it on paper.
(Dawn Primarolo) We can look at that, but when we
have looked at it before, the expense and the deadweight costs
do not lend themselves initially to this. I would go back to the
point I made right at the beginning and which most people now
make about the system which is that before we start putting incentives
into the system, let us make sure that everybody who is in the
system should really be there and it is as simple as possible.
We are looking at the possibility but we already have quite strong
incentives in terms of support and I have not seen anything yet
which has convinced me that any more can be gained for the cost.
In fairness I would say that we keep an open mind on this but
it does not immediately appeal to us.
345. Would you be pleased if we got to the American
stage and 50 per cent of people sent in their forms by the internet?
It would save the Inland Revenue a lot of work, would it not?
(Dawn Primarolo) It certainly might help us with the
data as well in being more accurate. The difference in the American
system is that all taxpayers are in it and it is a different proposition
from having a small proportion of taxpayers, relatively speaking,
in self-assessment as opposed to 21 million in PAYE. There is
a difficult balance to strike there in terms of incentives and
being fair to everybody else. I would not rule it out, but I also
think that we have to be quite sensitive to the differences between
the American tax system, the obligations and its responsiveness
in repaying overpayments and things like that before we start
taking just one issue around the incentives.
346. Are all forms now supported by the internet
system or is that still to come?
(Dawn Primarolo) Most. The answer is most.
347. Do you have an idea when they might all
be supported? Could you write to the Committee and say when you
hope to have all forms supported or is that not possible?
(Dawn Primarolo) I could certainly write to the Committee.
Whether it would be illuminating at this stage I am not quite
sure. May I take it away and send you a note?
348. Instead of giving people a discount, another
way to incentivise it would be to give taxpayers and their agents
access to the information on the system so they could check whether
the information was there and so on.
(Dawn Primarolo) That is what our corporation
tax portal is designed to develop. You would be quite interested
in that so they could see where they were on their payments or
on assessments and that they could do that directly themselves.
That is precisely the way that it is designed. We started around
that principle on the corporate return and I think you will be
quite interested to see how far we have got in trying to give
that direct access into the information rather than having to
go through anybody else.
349. That sounds good. If that is successful,
can you foresee that being expanded to the personal sector?
(Dawn Primarolo) Yes. There are always security issues
here which in terms of taxpayer confidentiality are very important
and we need to make sure that is right. Yes, we started with the
corporate portal. Having established it, we would hope to see
that it would be extended there to self-assessment.
Chairman: We want to move on now to the
area of penalties, determinations and surcharges.
350. We are seeing some quite mixed messages
overall in returns, late returns in particular. On the one hand
there are still some outstanding returns from 1996-97, but I understand
that late returns have reduced in recent times. What impact do
you think penalties have had on people making their returns in
a timely way?
(Dawn Primarolo) The penalties put pressure for the
returns to be in, or appear to, even though we are past the deadline
for those returns to come in and we reach 97 per cent
by July and we think that is the interaction of the penalty which
is pushing people forward. Penalties and encouragements in the
system are difficult to balance. For those who have complied with
the system voluntarily it is really not fair that we do not then
have a way of trying to push the remainder into the system. First
we have to help and encourage, but where taxpayers resist our
charms on that front, penalties traditionally are the way we move
to 97 per cent in that period which has got to be good.
351. What would you say to those people who
think that penalties are merely punitive and some would even say
that they are an arbitrary tax.
(Dawn Primarolo) We have to address ourselves to the
taxpayers who have complied with their obligations and fairness
to those taxpayers and in order to maintain high compliance levels
with the system we have to be seen to ensure that those taxpayers
who have not discharged their obligations are then put under pressure
to do so. To be honest, personally I think it is a question of
fairness to those taxpayers who have got their returns in on time
and therefore have a right to look to the Revenue and say "You
are making sure you get the rest in, are you not? Why should they
have an advantage over me?". What levels you set those penalties
at and how that operates is a finely balanced issue. In looking
at the total of outstanding tax which can occur, I have to say
I am reasonably comfortable that it is proportionate and is responding
on a basis which is fair to all taxpayers. That is the choice
we have to make.
352. What assessment has been made of those
people who, for whatever reason, have not complied? I have a concern
that some of them are possibly more vulnerable than others and
have not really got to grips with the system as a whole and have
their own problems and perhaps do not really understand not just
their own obligation but how to deal with it.
(Dawn Primarolo) This comes back to the points we
were making at the beginning of our discussion this afternoon.
It is about the obligations on the Revenue to make sure that people
are clear about their obligations and that we are contacting them
to remind them they have not put in their returns and equally
contacting them before the next stage of penalty is incurred to
try to find out why and whether or not we can pick that up in
the system. We cannot not have a penalty system but how it applies
and what the obligation is on the Revenue to find out why some
people are not complying is very great. Some people just appear
not to be able to get their return in on time, they are very busy
and they appear to be prepared to make the choice between spending
time doing that or finding the penalty applied and then some interest,
and to take that as a result. I think you are talking about the
people we might consider to be more vulnerable and who for other
reasons have not complied. It goes back to the point about whether
they should even have been in the system in the first place and
if they are rightfully in the system that we are providing those
supports and reminders at each stage before we go to the next
level of penalties, which is what we try to do. Some people feel
that getting phone calls from us is uncomfortable. Can members
of the Committee explain to me how we can communicate with people
in all honesty without making people go arrgh? They pick up the
phone, "Hello, it's the Inland Revenue. We notice you have
not put in your self-assessment return and we just wanted to talk
to you about it" and put it down again.
353. Do you leave messages on their answerphones
if they are not in?
(Dawn Primarolo) I have no idea whether we do. If
we do, I hope it is nice, "Don't worry. I'm here from the
Inland Revenue to help you".
354. I am not at all sure that people would
welcome that. There is a clear dichotomy. You are making a valid
point but for those people who do not find their relationship
with the Revenue a comfortable one, not because they are recalcitrant
and naughty people who simply do not want to comply, but because
they are anxious and possibly even fearful, it may be that a phone
call from the Revenue is the last thing they want and it would
actually make the situation more difficult. What efforts are there
to make sure that people do understand the penalty system which
in itself is progressive? Each phone call might seem progressively
(Dawn Primarolo) We offer help at every stage, including,
if they would prefer that, we visit them at home or they make
an appointment to come in and discuss the matter with us.
We are trying at every stage. I really do not know how we could
do anything further than at every stage to make contact and ask
whether they are experiencing difficulties, whether they need
clarification. On the other side of the equation what we find
is that when people have then had contact with the Department
they on the whole love our staff who they find very friendly and
approachable and their fears are allayed. Some do not have that
pleasant experience but most do. If the argument is that if you
send out too much information to explain the whole issue that
puts people off because it is too much information in the first
place and it worries them, if we cannot take that approach, and
our experience tells us we cannot, because there is too much and
that can intimidate people who might be experiencing some difficulties,
it seems to me that the only other way is to mix and match, sending
the relevant information so they understand what needs to be done.
Then at every point before the next stage we must try to make
contact with them to ask them whether there is a difficulty, whether
we can help them, do they want to come in to speak to us about
it, we are past our deadlines or whatever and try to take it forward
in that way. Unless you have a suggestion, which I am perfectly
prepared to take on board, I do not really see that we could do
much more than that without being considered to be excessive in
our attention to some individuals.
355. I am thinking about two examples. People
know very little about what the maximum penalty can be and very
often people who are experiencing indebtedness in general start
to withdraw in on themselves because they just see something piling
up. Perhaps if people understood their maximum liability, they
would be less fearful about a growing problem.
(Dawn Primarolo) Yes.
356. Another thing which occurs to me is that
the process of appeal is not very well understood and the sorts
of circumstances where the Revenue might consider an appeal appropriate,
that level of understanding and the fact that the Revenue is capable
of being understanding might better enable people to come forward
with information and be more compliant.
(Dawn Primarolo) I agree. May I ask Stephen to deal
specifically with the point about how we make sure people understand
the interaction with the maximum penalties and being clearer and
then the appeals procedure, what we do now and what possibly we
could do better in the future.
(Mr Banyard) There are three stages of penalty. There
is the fixed penalty which comes out if you miss the January deadline.
We have redesigned that this year and it has a clear notice that
if you do not understand why you have it, ring up the tax office
and find out. We have tried to do that. That penalty notice brings
in another five to seven per cent of the returns. After that we
want to make greater use of two powers we have: one is determinations.
In that case we would have to determine the tax we think is due,
we would write to the taxpayer, we would tell them about it and
they have every opportunity to come in and talk to us about it.
At all these stages we first of all say, "Oi, you haven't
sent your return in. Is there a problem? Can we help you?".
(Dawn Primarolo) We say, "Excuse me, I think
you might have overlooked ...".
(Mr Banyard) If we then get to the next stage beyond
determinations, which is daily penalties, in most cases the evidence
is that we do not actually need to use them. Simply writing to
somebody and saying we intend to use them brings in most of the
returns. We have to go to the General Commissioners to get the
power to do it. When they have granted the power, then we write
again. Almost all of the remaining returns which are overdue come
in. We think that the powers we have and the explanations we make
will actually bring in the returns without having to exercise
those powers, which is what we want to do. It is worth saying
that we are putting a lot of our emphasis now into pre-emptive
work before the returns are due in, phoning people up and asking
whether we can help and telling them they need to get their tax
(Dawn Primarolo) The point you are making is that
there are some vulnerable people who are caught in that system
and even if they do in the end comply, it is a fraught and unpleasant
experience for them and why do we put them through that and could
we look more closely at trying early on to identify where those
problems might occur without being too oppressive in the application
of the rules?
357. Could you whip very quickly through the
numbers of tax returns not sent in which should have been sent
in for each of the years since 1996-97?
(Dawn Primarolo) I do not actually have that figure
right here. I think we have given it to the Committee before.
358. Mr Banyard may be able to help us.
(Dawn Primarolo) Yes, he may be able to, but I am
happy to confirm it in writing as well.
359. Just to get an idea of what the performance
is. If we establish that, we can then try to understand how good
or bad the penalty system is. In rough terms.
(Mr Banyard) In rough terms 800,000, 9.4 per cent,
did not come in at 31 January.
3 See Ev 100. Back
Note by witness: This has been checked subsequently and
the correct figure is 95 per cent. Back
Note by witness: It might not be possible to visit every
taxpayer at home, but we would offer to do so in appropriate cases. Back
See Ev 100. Back