Taxation – A simple challenge to the government

The initial banner headlines said ‘Revenue to merge with Customs’ technical committee at the Chartered Institute of Taxation. but was this the whole story of the Treasury sub-committee report? In fact, it was the 20th of 21 conclusions and recommendations, some of which are likely to have a more immediate, although admittedly less fundamental, impact.

The sub-committee was established in 1998 with the aim of scrutinising the work of the various departments for which Treasury ministers are responsible.

It began with the Office for National Statistics and continued to the Inland Revenue, where it focused on three particular areas: progress in the implementation of self-assessment; progress in encouraging compliance with tax obligations, with particular regard to the burdens imposed on small businesses; and the impact on resources of the transfers of various areas from the DSS to the Revenue.

The sub-committee consists of up to 12 MPs from all parties, and took evidence from a number of bodies, including the Chartered Institute of Taxation, which was one of a small number invited to give oral evidence.

The problems with self-assessment, particularly in relation to customer service issues, do not make happy reading. While self-assessment was a mammoth change to the tax system, in many ways its introduction went more smoothly than might have been expected.

But the remaining issues seem to many to be intractable.

Statements of account come in for particular criticism, and all of the complaints have been aired many times before, not least by the CIoT. The report concludes that ‘it is imperative that changes to statements of account for issue in January 2000 are made no later than November 1999 to allow time for any errors to be corrected. The Revenue cannot afford the loss of goodwill which another mistake would cause.’

The comment that the Revenue ‘cannot afford’ loss of goodwill is an interesting one since, of course, there is no financial penalty if it gets things wrong.

Personally, I have wondered for some time what the impact would be if there was an automatic penalty on the Revenue of £100 for every incorrect statement!

Having started with a relatively narrow focus on self-assessment, the committee’s proceedings then broadened into the wider issues of compliance.

There are several recommendations which aim to increase understanding of the tax system. The Revenue should be measured on how well it has promoted public understanding of the tax system; the committee somewhat piously hopes that this could ‘provide a powerful incentive for the Revenue and ministers to ensure that individual tax measures and the tax system as a whole are not unnecessarily complex’.

There is also a recommendation that the Revenue be given a target to reduce compliance costs, and a note that, in particular, there is a problem arising from the complexity of the tax system with which new employers and other businesses are confronted.

This was an issue raised particularly by the CIoT, which has commented on several recent occasions that a desire for fairness and complexity cannot always be reconciled – and indeed, that complexity itself may cause unfairness.

Another key area on which the CIoT, through the Low Incomes Tax Reform Group, has focused is the complexity of the tax system for the lower paid.

Here, there is a welcome recommendation that the government should repeat its Tax Back campaign – there are still far too many pensioners on low incomes who do not receive tax refunds which are due to them, and it should be just as much part of the Revenue’s duties to see that they do receive refunds as it is to collect the right amount of tax from those who have a liability.

Towards the end of the report is the recommendation of a study to assess the feasibility of merging the Revenue and Customs & Excise.

In many ways, this is the next logical step now that the Contributions Agency has been subsumed – but it must be questionable whether the immense upheaval for all concerned would really produce tangible benefits.

It is not the first time such an idea has been floated and, for now, it is a question of ‘watch this space’ – no doubt there will be further comment after the committee has reviewed Customs later this year. Finally, the report returns to the topic of simplification. Its last recommendation focuses not on the Revenue but on government, and asks it to set out its proposals for ‘a systematic programme of simplification with a view to reducing compliance costs and ensure that future tax changes are fully evaluated in terms of their effect on compliance costs’.

If the committee can achieve real change in this area, it will be a notable success.

Heather Self is a partner with Ernst & Young and chairman of the technical committee at the Chartered Institute of Taxation

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