Tax bodies in last ditch attempt to influence self-assessment regime

Mistrust, confusion, alienation, confrontation, self-assessment. Not words the Inland Revenue wants to see in the same sentence.

But the English ICA’s tax faculty used all of them last week in a stern warning to the Treasury Select Committee. Faculty experts claim the Revenue’s self-assessment regime will seriously damage the good relationship built up between taxpayers, agents and tax collectors.

They are not the only ones who are worried. The Chartered Institute of Taxation made similar noises in its submission and both bodies were sufficiently concerned to release their normally secret reports to Accountancy Age.

They list a host of problems all of which, they claim, have created widespread fear about the system’s introduction. Prime concerns include:

the Revenue’s emphasis on compliance rather than payment dates;

deficiencies in the department’s computer system;

scrapping the need to give a reason for an investigation;

unsatisfactory rules governing carryback of pension premium relief;

using Year One for the change in the basis of assessing business profits;

delaying until 1997/8 the full introduction of partnerships to self-assessment.

Tax faculty chairman Robert Maas, who supports self-assessment in principle, said the report reflects members’ fears. ‘So many things have gone wrong and, as the April deadline gets nearer, unreasonable decisions have been made without consultation. Self-assessment is not going to work if people believe it’s unfair,’ Maas said.

Much of the problem lies in poor communication between the Revenue’s thinkers and doers. Maas explained: ‘Too little guidance is given to local districts, forcing them to take the initiative and then get things wrong.’

CIoT technical committee chairman John Whiting said the Revenue needed to admit its problems. ‘It’s such a huge project that things are bound to go wrong. You can’t expect the Revenue to be perfect – it has to come clean and accept there are problems.’

Whiting’s main bugbear has been the Revenue’s refusal to offer tax relief to ‘innocent’ taxpayers on costs incurred during the 8,000 random audits predicted to take place each year. The department’s insistence that its hands are tied by ministerial decisions could be the biggest contributing factor to a breakdown in relations.

Whiting added: ‘We accept the need for random audits, but ringing concessions over costs would set the Revenue back a trivial amount, perhaps only u100,000 a year, yet generate an enormous amount of publicity and goodwill.’

But Revenue board deputy chairman Clive Corlett dismissed the idea.

‘It’s been the policy of successive governments that this is a cost the citizen bears on his own. It would not be appropriate to reimburse costs.’

He added: ‘We are always interested to hear the views of the profession.

They’ve made important contributions to the development of self-assessment, but all their main points have been considered by Treasury ministers as part of the continuing consultation.’

Corlett’s rejection did not meet with the approval of the select committee.

Quentin Davies MP rejected the Revenue’s argument, calling on it to reveal which audits were random and to pay a proportion of the costs.

‘The circumstances have clearly changed,’ Davies said. ‘This is a new issue raised by self-assessment.’

It is the Revenue’s stubbornness that annoys tax experts the most. Tax professionals are eager for the system to work, welcoming the predicted net compliance savings of up to u250m a year for the Revenue and the annual savings many taxpayers are set to enjoy.

But well thought out answers to problems generated by the new regime have been dismissed by the Revenue and ministers, leading to frustration and anger among tax accountants and taxpayers.

Maas concluded: ‘If I thought I could get anything from the Revenue, the faculty would never have needed to put this evidence to the select committee.

‘We’ve been forced to take our case to Parliament because, after three years of talking to the Revenue, it was apparent that on a number of issues it had already made up its mind.’

Whiting added: ‘The Revenue has drifted away from the original aim of keeping the taxpayers’ best interest in mind. If that had been its cardinal principle, it might have achieved more.’