Difficulties facing self-assessment

Taxpayer confusion surrounding the implementation of self-assessment will lead the Inland Revenue to waive tough penalties and extend deadlines for late returns. But it will probably keep quiet about such major concessions until after the first deadline for sending the forms back, 30 September, to avoid taxpayers sliding into complacency.

According to industry insiders, the Revenue’s system is creaking already.

Problems could start as early as 31 January when the first payments on account are due.

Richard Murphy, senior partner of south-west London firm Murphy Deeks Nolan, claims 80% of his clients have come up with estimates that were much too low on their statements of account – this reveals the amount the Revenue expects to collect from each taxpayer.

The Revenue has also made basic errors, including demanding tax on rental income by 31 January, instead of accepting it in two installments.

Inevitably, there will be massive taxpayer discontent and confusion when they actually receive their self-assessment forms in April. An announcement on waiving penalties will have to be made.

The Revenue, however, is still confident about coping with the implementation of the new regime. But the very nature of self-assessment means there will be a flood of claims as taxpayers rush to squeeze in their forms by the 30 September deadline. After then they’ll have to work out their own tax liability.

Self-assessment will be doomed from the start if people react as they usually do to officialdom and stick their tax returns in a drawer and forget about them.

Things look even gloomier for 1998 when the final deadline expires for sending back 1996/97 tax returns. Most will be submitted at the last possible moment in January 1998. That’s when the problems will really start.