A Christmas List

TaxAid

A Christmas List

Less jargon, less cynicism and a joined-up approach would make tax much easier for people to understand, says TaxAid's ROSINA PULLMAN.

TAXAID'S VISION IS of a future where the poor are not disadvantaged by the tax system. An ideal tax system would be simple, efficient and fair. The more complex the system, the less chance there is that unrepresented taxpayers can cope with it adequately. Growing problems stem from a requirement to self-assess within a system which is ever more complex.

Portfolio workers

For most people, income tax and particularly pay-as-you-earn tend to work well in straightforward situations without a lot of changes. But those on low incomes are particularly likely to be in part-time, multiple or 'portfolio' jobs perhaps together with periods on benefits or in self-employment.

One question many portfolio workers face is whether their work is an employment or self-employment. This is often a highly technical question. Carole works as a painter. When she started work she asked the Inland Revenue about registering as self-employed, and keeping records. Some time later she began to do some special effects work, particularly for advertising shorts and films. She then found the Revenue now considered her an employee, in accordance with special employment status guidance for the film and television industry. One factor is whether most of the work is done on the engager's premises, which is likely to be the case given the size of film sets. Another measure is that of working for only a few organisations.

As Carole earns about £1,200 in a good month it makes a big difference if she can claim deductions for expenses under self-employed rules. From her perspective she seems to get the worst of all worlds. Most work is for a day or two at a time, so her employers do not have to operate PAYE. She still has to self assess, she does not get holiday pay, or any security of work, but it seems she cannot claim expenses which would normally be deductible for a self-employment.

Inappropriate self-employment status is also a trap the vulnerable can be pressured into. Maria is a domestic worker from the far east who was recruited by an agency to work in a family, caring for an elderly lady. Despite the fact that this was full-time and her only job, no PAYE was operated and she was told she was self-employed. She did not understand the implications of this, but now finds that no tax has been deducted, so she is being pursued for nearly £2,000 of tax which has built up, and she has no National Insurance record.

Joe's bill for £200 for tax owed came as a shock to him, given that at 85 years old he had never been in debt before. He found the demand for payment in a single sum by the end of January frightening and impossible to meet, especially when he was still trying to come to terms with his wife's death. They had each lodged a form R85 to get the interest paid gross on their joint building society account. Now that he is entitled to all the interest (and no longer entitled to a married couple's allowance) he is a taxpayer again. He did not think to withdraw his form R85, so tax was not deducted at source. Fortunately, in Joe's case we persuaded the Revenue to agree to instalments. We hope that others in Joe's position will be spared a similar shock, as the Revenue has now publicised the problem to banks and building societies. Staff are encouraged to suggest to customers in Joe's position that they may need to withdraw the R85. But it seems harsh that Joe had to plead hardship in order to pay his tax bill by instalments, and to pay interest for the privilege. If he received income under PAYE, he could have asked for the tax to be coded out, even if he would have been in a better position to find the money.

Desirable improvements

What would TaxAid like to see to improve the tax system for the poor? Leaving aside any prospect of radical changes to the tax system, there are actions and attitudes which the Inland Revenue could promote that would make a difference. A bit of joined-up thinking would help, and the merger of the Inland Revenue and HM Customs and Excise provides an opportunity for this. For the unrepresented to self assess, the key requirement is certainty. Currently, it feels like a system that relies on tax practitioners, rather than being truly conducive to self assessment. As soon as choices entail different tax effects, e.g. running a business as a self employed sole trader, or incorporating a limited company, the taxpayer needs advice and not just information. However, the provision of this advice to the unrepresented is not within the remit, nor perhaps in the interest, of the Inland Revenue.

Some small concessions along the following lines would make tax a fairer and less hostile environment for those who are disadvantaged by not having representation.

No jargon

Letters that are jargon-free are needed, and which laymen who may struggle with English can understand. The Inland Revenue is making great efforts with the Tax Law Rewrite project, and constantly seeks to improve its information and publications. But terms which are clear to practitioners may not always communicate the same message to the man in the street (for instance 'determination', as detailed below).

Different attitude

Front-line staff at the Revenue can be negative about those who are self-employed. A common attitude seems to be that an honest person would get a proper job and be on PAYE. The wording of the enabling letters which have caused some unwarranted anxiety for the compliant self-employed and those in the construction industry are perceived as evidence of this negative attitude.

Joined up approach

Thirdly, a joined up approach to 'customer-relationship management' might improve communication. It is confusing enough that the rules are different across tax, National Insurance and tax credits. But there is no reason for individuals to have to understand the internal organisation of the Inland Revenue. People are often very frustrated that the Revenue has not listened, when what has happened is that they have given important information to the 'wrong' department. For the service to be seen to be efficient, shared information is a minimum, particularly for the unrepresented who have little reason to know who to contact for what. So, for instance, when self-employed people stop trading, it should be enough to tell one bit of the Revenue, without having to tell the income tax self-assessment office, NICs office, VAT office and tax credits offices.

Separate consequences

People who are being chased for unpaid tax could reasonably expect one point of contact who could look at their overall situation in respect of all their obligations and benefits handled by the Revenue. This would avoid the problems one client experienced on averting the threat of distraint for tax income arrears, only to find that an unco-ordinated action immediately followed for recovery of National Insurance. When chasing for debt, Receivables' welcome new policy is to refer people to the tax credits helpline to question their eligibility. But now that the Revenue has a role both to collect tax and pay out tax credits, it seems strange to many taxpayers that there is no single point of contact in the Revenue which records a true picture of what tax, less benefits, is due or owed them.

There are good operational reasons for separating collection, payments and assessment of liability. But it comes as a shock to our clients that Receivables has no access to information (nor any interest in) why tax is due. Outside the tax profession, few people, including generalist debt advisers, understand that a 'determination' is a guess at the tax due which is legally enforceable unless or until a tax return establishes the true amount. Consequently, many a trader has been advised to go bankrupt, quite unnecessarily, on the basis of what appears to be a confirmed debt. After all, those who handle credit card debt are not familiar with creditors enforcing payment on the basis of estimates.

A little help …

As the unrepresented rely heavily on information from the Inland Revenue, they feel poorly served if Revenue staff are not accountable, for instance by accepting responsibility for their advice and giving their name over the telephone. An unfortunate outcome can also be that good practice goes unrewarded. If a Revenue employee goes out of his way to explain matters clearly, it can help the taxpayer feel he has been treated fairly, even if the end result of an enquiry is unexpected extra tax. Conversely, even if a problem is rectified, the taxpayer can feel aggrieved if he has not been given an explanation he can understand.

In the spirit of goodwill, it is tempting to contemplate a tax threshold which does not require tax to be paid by those on the minimum wage, which surely reflects a level that people need in order to live. How efficient is it to take and hand back in credits for those on tiny incomes?

Generous support

But as there seems no imminent prospect of removing the poor from the tax system, TaxAid's alternative objective is that everyone, irrespective of income, should have access to the information and advice they need to cope.

TaxAid is extremely fortunate in that the profession generally is very supportive. In particular the Big Four firms have offered us the facilities and volunteers we need to start a pilot project to provide services advising those on low incomes in the West Midlands. So this Christmas TaxAid is appealing to the profession to make it possible to take on additional tax professional helpline advisers and a local co-ordinator to expand beyond a pilot project and take our first steps in wider advice provision.

TaxAid depends on the generous support in time, money and expertise of people in the tax profession. Without this support we would not exist and those on low incomes often would have nowhere to turn. For tax-efficient giving, please contact us at TaxAid, Room 304 Linton House, 164-180 Union Street, London SE1 0LH, tel: 020 7803 4950, e-mail: donations@taxaid.org.uk. We are immensely grateful to each of our supporters: merry Christmas and God bless you every one.

Rosina Pullman is director of TaxAid.

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