SUGGESTING that all taxpayers should have to fill in a tax return is probably not going to endear you to many people. But, according to a veteran tax partner, introducing US-style universal tax returns would benefit the taxman, accountants and taxpayers.
Richard Mannion, national head of tax at Smith & Williamson, the top 10 accounting firm, says that requiring all taxpayers to complete a simplified tax return annually would have avoided last year’s PAYE fiasco, when it emerged that around six million people paid the wrong amount of tax because they were given the wrong tax codes.
For it’s part, HMRC has said that the introduction of a new computer system would help reduce tax errors in the future. In addition, the government is considering plans to give each employee a single computerised tax account, comprising employment and national insurance records, giving HMRC real-time information of all payments made.
Currently, both employers and pension providers make tax and national insurance payments for employees to HMRC and report them to the tax office once a year. Annually reporting those figures can result in under-payments and over-payments of tax, particularly when people change jobs often.
Around nine million tax returns were issued in the UK for 2008/09 tax year, according to a written answer in the House of Commons.
However, HMRC statistics show the total number of income taxpayers was 31.3 million in that year, which suggests that some 22 million taxpayers were outside the self-assessment system, Mannion wrote in an opinion article for Accountancy Age last month.
People who receive extra taxable income must notify the taxman within six months of the end of the tax year, so they can be sent a self-assessment return.
But the rules for disclosing income are not widely known among taxpayers, according to Mannion. He adds that employee benefits such as medical insurance can sometimes be interpreted as taxable income, meaning that the employee may have to notify HMRC and complete a self-assessment tax return.
Requiring all taxpayers to fill in a tax return would avoid much of the current confusion, Mannion says. All of the readers who commented online on Mannion’s article agreed with his argument, but they would appear to be in the minority, based on a selection of tax experts questioned on this proposal by Accountancy Age.
Bill Dodwell, tax partner at Deloitte, says that even HMRC’s new computer systems might struggle to cope, if more than 20 million taxpayers are bought into the self-assessment system through compulsory filing.
But wouldn’t mandatory tax returns create significantly more business for tax advisers? Dodwell is doubtful, arguing that most of the taxpayers who would have to fill in a tax return for the first time under mandatory filing would probably have simple tax affairs and an income of less than £45,000. This may make them reluctant to pay around £200 to an accountant for help in completing the return.
Anyway, the current tax system isn’t broken, according to Dodwell, who says that about 85% of people have the right amount of tax deducted first time.
George Bull, head of tax and professional practices at Baker Tilly, is also sceptical about the need for universal tax returns.
“For HMRC to require an extra 22 million taxpayers to complete self-assessment returns represents a huge additional administrative burden for HMRC, and an enormous burden and potential worry for the individuals concerned,” he says. “I say worry because the requirement would have to extend to all 31.3 million taxpayers, which would include low income groups, such as the elderly.”
What do taxpayers think about mandatory tax returns?
Emma Booth, campaign director for the Taxpayers’ Alliance, says: “Asking all taxpayers to complete a tax return is not the solution to collecting the correct amount of tax. If the system was simpler there would be less chance of miscalculations.”
She adds: “Self assessment for all would be a disaster. If anything it might make taxpayers angrier as they realise how much of their hard earned cash they are handing over.”
But not everyone is closed to the idea of tax returns for all. Richard Baron, head of taxation at the Institute of Directors, says although he is sceptical about universal tax returns, he wouldn’t rule them out.
“We really want to avoid extra form-filling if we can. So the first option should be to see whether we can get a lot more people’s tax right through PAYE real-time information – which we support,” he says.
If universal tax returns are introduced, it makes sense to get HMRC’s computer system to partly complete the tax return with information already known about the taxpayer, such as jobs and salary, Baron adds.
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