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MALCOLM GUNN FTII, TEP looks at some of the strains and stresses of the self-assessment system.
I USED TO lament my lot in life until I started reading reports of Parliamentary select committees. Being summoned before them must be the modern day equivalent of getting called in by Squeers of Dotheboys Hall: 'Now, you listen to me, Stovold, you are an incompetent, pathetic, snivelling, hopeless little wretch who has never got one single thing right, now stop blubbering and go and scrub the loo of my study until it is totally spotless!'.
MALCOLM GUNN FTII, TEP looks at some of the strains and stresses of the self-assessment system.
I USED TO lament my lot in life until I started reading reports of Parliamentary select committees. Being summoned before them must be the modern day equivalent of getting called in by Squeers of Dotheboys Hall: 'Now, you listen to me, Stovold, you are an incompetent, pathetic, snivelling, hopeless little wretch who has never got one single thing right, now stop blubbering and go and scrub the loo of my study until it is totally spotless!'.
Those who get this treatment are not ordinary mortals like me, but senior civil servants and Government ministers; so the reports are rather fun to read. One came out on 25 July 2002 and the topic was the Inland Revenue self-assessment system. For the first time ever, one had to feel sorry for Dawn Primarolo. Heaven knows whether you get to know in advance what the questions are going to be, but, no matter what, once you are in the hot seat as was Ms Primarolo anything can blow up at the drop of a hat.
In the firing line
A few months back, Nick Montagu, Inland Revenue chairman, got a heck of a wigging from a Select Committee and it was touch and go whether his head was to be put on a spike outside the committee room door. Fortunately he kept his cool and his head. This time poor Dawn copped it with masses of stuff on self assessment including why some people get a tax form when others do not. Of course, the real answer there is: 'Goodness knows, there is little rhyme or reason to anything about tax', but say that to the committee and they will have you polishing their desks till midnight. Dawn's answer contained many words but no actual information: 'What is very important is that where somebody has been in the system and they are out of the system, we should be absolutely clear at that point with them - and we do not always manage that - that they will not get the form again and they should not get it and if by error they do …'. It was good enough; no duster and polish appeared.
The end is nigh?
Does the tax form have to be so huge? True answer: 'Of course it does, you wallies; have you seen the size of this year's Yellow Books?'. Dawn's answer: 'I hesitate to say how many pages might be relevant on a self-assessment form so I will just speculate here on a target and perhaps the committee will accept it as that. If we could get the form down to four pages, we shall be doing extremely well. If we get it down to fewer, that would be brilliant.' Yes she had even sat down to fill in her own form, even though it seemed that she did not actually manage to finish it. The committee was most impressed, but I await next year's self-assessment form with trepidation. If the slimmed version has no box on it for 'corresponding deficiency relief' it could be the end of life as I knew it.
More questions came bowling out and the answers flowed. Where a return is issued in error, apparently according to Ms Primarolo the taxpayer should contact the Revenue and 'discuss' the position. Privately, one has to admit that it may not be worth the phone call; the 'discussion' is likely to produce a straightforward response - fill the form in and send it back!
Self-assessment review
She disclosed that she has asked for a review of the system and this started in February. The initial focus is on making the return shorter and the next priority is to look at whether so many people need to be within self assessment. In particular, the problems of pensioners and others on low incomes are being examined.
Do better - or else!
In the end, the report of the Select Committee contained three major rants on where everyone was failing miserably:
(1) People receiving self-assessment tax returns are not told why they are issued. We believe this to be an unsatisfactory state of affairs, which stems from the complexity of the tax system. We wish to see the criteria for issuing self-assessment returns published.
(2) We are concerned at the Revenue's failure to inform taxpayers who need no longer submit self-assessment tax returns of this fact, causing unnecessary worry to taxpayers waiting for tax returns that will not arrive.
(3) Too many people with low incomes, particularly pensioners, are in self assessment. We expect the Revenue to make real progress in looking at ways of taking them out of the system over the next year.
Much more ground was also covered, for which see Allison Plager's article in this issue of Taxation. I hasten on to offer my own perspective on life at the sharp end.
From the factory floor
A reader wrote in recently highlighting some of the oddities of the self-assessment system, and although, as it happened, it was not possible to publish the material, the points certainly struck a chord with me. Here are some examples, straight out of the Gunn filing cabinet.
Dropping out of the system
Martin got into some financial difficulties and could not pay his tax bills. He suddenly left the area, disappeared and did not pay my bill either - please remind him if you see him. Demands for the unpaid tax came in regularly and probably another self-assessment return went to his old address. I expect it is still sitting on the doormat. However, no further action from the Revenue will be forthcoming other than some fixed penalties being issued for the missing return and the issue of demands for payment of outstanding liabilities to the old address. He is dropping neatly out of the system and I would guess that no further self-assessment returns will be issued.
Contrast this with the pre-self assessment system when estimated assessments would have been issued year by year and the tax bills would have clocked up to sizeable sums over many years. Martin could not keep a low profile forever and eventually it would all catch up with him, but not apparently under self assessment. Now compare all this with the next case.
More unpaid tax
Tony could not pay his tax bill either (where do I find all these clients?). Admittedly, this was because of nothing other than poor financial planning, but often people pay this year's tax out of this year's income, although actually this year's tax may be on the income up to the previous 30 April. If the profits take a nose-dive, the taxpayer hits big trouble all round, not the least in paying the tax bill.
Tony, however, did not run off to some wild and unspecified region. He asked the Revenue for time to pay. The attempt was not worth the postage stamp on the letter. The answer was a mixture of 'get a loan, ask your mother, sell your furniture but, no matter what, the bailiffs will be coming within three weeks'. I wrote to the Adjudicator about the fierce treatment of the case, as the liability was only overdue a week or two, but for various reasons that approach did not help.
In future, should I advise people like Tony to do what Martin did?
Unprocessed returns
I thought that my last case, which is Robbie's, was a one-off oddity, but when I got the letter from the reader it seemed that it is not. Robbie's accounts got held up for some years owing to a partnership dispute and various other matters. Eventually, it all got sorted out and a sheaf of returns went into the Revenue all in one go together with a cheque to cover all the tax found to be due. What happened next? The latest return was duly processed but all the others fell into a black hole somewhere. According to the computer, Robbie had vastly overpaid the Revenue and back came a cheque. If Robbie was as honest as Martin, he would have pocketed the money and told me to do nothing. Like as not, that would have been the end of the matter for ever, except that my fellowship of a certain institute would have been in serious jeopardy. Fortunately, Robbie was made of better stuff than Martin and despite a wall of silence from the tax office in response to my letters, eventually it all got sorted.
The reader who contacted me apparently had several cases of this sort, so it must be yet another gremlin in the system somewhere.
Cracking up?
These oddities of self assessment, coupled with the stress points examined by the Select Committee, indicate that all is not well with self assessment. There are many other issues besides: the continuing incomprehensibility of the statements of accounts issued; the automatic allocation of tax payments to earliest liabilities, fragmenting them over dozens of little interest payments, when they are exactly the amount of a more recent known liability; the bunching of returns at the filing date (an incurable problem); the automatic issue of penalty notices when none is actually due; lost returns; wrong allegations about returns never being received; wrong allegations about lateness of receipts of returns or tax payments, despite date stamping at the time of handing in; the issue of threatening letters over alleged defaults when all has been done timeously; bizarre and inexplicable changing of clients' addresses - my private office has, according to the Revenue, become the home address of numerous people actually living miles away; the extortionate rate of interest produced by the 5 per cent surcharge; surcharging underpayments arising through arithmetic mistakes by the taxpayer; not to mention issues arising out of the enquiry régime.
Perhaps I had better stop there or I will get to sound like a member of a select committee.
