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Income Tax Self-Assessment

Volume 622: debated on Wednesday 21 February 2001

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11.13 a.m.

Why the procedures for self-assessment of income tax liability were changed for 1999–2000, and whether they have any proposals to simplify the process for 2000–01.

My Lords, the self-assessment tax return has not changed significantly since self-assessment was first introduced, except to reflect legislative changes. The Inland Revenue did, however, consolidate four separate tax calculation guides into a single guide for the tax year 1999–2000. It acknowledges that the single version has not been well received and has caused confusion. In response to this feedback, the tax calculation guide for 2000–01 will be available in two versions: a standard guide for taxpayers with relatively simple financial affairs and a comprehensive guide for those whose financial affairs are more complex. However, one does not need to use the tax calculation guide at all if one does as I do and sends in one's tax return by 30th September, as the Inland Revenue will make the calculation for the taxpayer.

My Lords, I am as ever grateful for my noble friend's advice, but some of us have difficulty in meeting the deadline of 30th September and must, therefore, do the calculation ourselves. Is my noble friend aware that last year and the year before the process was simple and I could make the self-assessment calculation in about 45 minutes but this year the task defeated me? Although the staff of the Inland Revenue are always incredibly helpful to idiots like me who struggle with the process, several times during the long day when I dealt with it they told me that this year the procedure was much more complicated and that they were fed up with it because everybody had difficulties. Can my noble friend assure the House that the process will be simple enough to enable all of us to do the self-assessment next year without having to rely on accountants?

My Lords, my noble friend is not an idiot, and I certainly do not suggest that his difficulty last year, as opposed to previous years, was as a result of any change in his capacities. As I made clear in my Answer, last year the Revenue tried to bring the tax calculation guides together within a single document. That was the source of the trouble. Previously, there was a more straightforward income tax guide for the 4 million of the 6.6 million taxpayers who use self-assessment and whose affairs are relatively simple, and there were separate guides for capital gains, for share schemes, for capital gains and share schemes combined—because they often go together—and for lump sums. I believe that it was the attempt to bring them within a single document that caused the difficulties experienced by my noble friend. As I said, it is planned to separate them again for the coming tax year.

My Lords, can my noble friend tell the House whether self-assessment has had any impact on tax evasion? Do all these complications enable people to evade tax?

My Lords, compliance with self-assessment is very high—90 per cent of returns are received on time—and the forms produce of the order of £22 billion a year, so we are talking about very large sums of money. It is difficult to say whether tax evasion has increased or decreased. Obviously, if we knew what tax was being evaded and who was evading it, we would put a stop to it; it is an unknowable statistic in the classic sense. But we have been able more accurately to target inquiries on suspicious returns than was the case in the past.

My Lords, does the Minister believe that it would be helpful to publish an "idiot's guide" to these matters?

My Lords, I do not believe that the Revenue would presume to address its main source of income as "idiots".

My Lords, the Minister states that my noble friend Lord Dubs is not an idiot; does he believe that that observation applies also to those who kept the House sitting until a quarter to four this morning? Is the Minister able to give an assessment of the out-turn—the yield—as a consequence of the change from the previous to the present system of assessment?

My Lords, I do not believe that the first question is for me. I was here until 3.28 this morning and was not best pleased, but that is really a matter for the House rather than for an individual.

As to the yield, I gave the figure of £22 billion. As compliance levels are very high, the yield depends on the demand rather than the assessment system. I do not believe that there is any particularly good evidence that yield has been affected by self-assessment. This project was introduced on time and on budget and saves the Revenue money, which enables it to demand less tax in future years. In particular, the self-assessment facility over the Internet means that the processing of tax returns is very economical because there is no extra stage of data entry.

My Lords, can the Minister say how many people—idiots or otherwise—failed to meet the 31st January deadline? Can he also say what is the anticipated bonus to the Revenue in terms of interest?

My Lords, more than 90 per cent of 6.6 million taxpayers using self-assessment met the deadline. Nearly all the others followed within a few days. Therefore, there is no particular effect on interest. It is sad that the vast majority of returns arrive very close to the deadline; in other words, they come close to the period before 30th September, the deadline for the Revenue doing the assessment, and they come close to the 31st January. Again, without calling anyone an idiot, it is perverse of people to run themselves up against these deadlines.

My Lords, the Minister referred to tax returns on the Internet. Can he tell us how many tax returns have been submitted on the Internet? Have there been any lessons learned from this year's experience that can be applied to next year?

My Lords, about 40,000 individuals submitted their returns on the Internet. In addition, 285,000 returns were submitted by agents on behalf of individuals, partnerships and trustees using the electronic lodgement service. There is still a long way to go before the full value of the Internet return system is achieved. Certainly, when I tried I was told that my tax is kept in a secure category, as are the tax returns of all Ministers and all Members of Parliament. So I would not have been allowed to use the Internet even if I had succeeded in getting a registration number.