Tax Returns: Self-Assessment (Hansard, 5 February 1998)

§ Lord McIntosh of Haringey
My Lords, 8 million taxpayers sent their self-assessment tax returns in by the 31st January deadline. This represents almost 90 per cent. of those who received a return, which is a very satisfying achievement in this first year of the new system.

§ Lord Newby
My Lords, I thank the Minister for his reply. Despite the relatively high proportion of forms already submitted, there are still a large number outstanding. I understand that, of those forms that have been submitted, a very large number contain errors and that at some point all those people must pay a penalty. In those circumstances, will the Minister urge the Inland Revenue to adopt a lenient policy to avoid many hundreds of thousands of taxpayers being asked to pay a penalty simply because they have found the 745 introduction of the new system and the need to fill in for the first time that most daunting piece of paper—a tax form—both difficult and confusing?

§ Lord McIntosh of Haringey
My Lords, it is not the case that all the people who have not sent in their tax returns will pay a fine of £100. First, the Financial Secretary to the Treasury has made it clear that in cases where there are relatively minor errors taxpayers will be given 14 days to correct them without any penalty being imposed. Secondly, it has been made clear that no penalties will exceed the amount of tax due so that if, for example, £50 were outstanding there would be a penalty of only £50. Thirdly, we understand that a very considerable number of taxpayers, including the self-employed, have sent money in advance even before they completed their tax returns. They shall certainly not be subject to penalties.

§ Lord Peston
My Lords, can my noble friend enlighten noble Lords on what all the fuss is about? I suppose that, like me, my noble friend submitted his tax form on time. I believe that it is an easy and straightforward form— certainly much easier to fill in than completing a lottery ticket. Can my noble friend take into consideration the view that those who have sent in their forms on time and have already received—certainly in my case—too large a tax Bill do not wish to see leniency shown to those who have not done what appears to be perfectly reasonable?

§ Lord McIntosh of Haringey
My Lords, my noble friend is quite right to assume that I sent in my tax return on time. Indeed, I sent it in before the 30th September deadline, which meant that the Revenue did the calculation for me. I found that I was one penny out. I cannot remember in which direction the penny was, but I know that very reasonably and properly the Inland Revenue did not send me either a cheque or a demand for one penny. The change to a self-assessment system is one that avoids many of the difficulties which particularly the self-employed have suffered in previous years with estimated assessments—the requirement for detailed accounts and a confrontational aspect to tax collection. I hope that that will at least diminish, if not disappear.

§ Lord Taverne
My Lords, as it is important that a tax system should be as acceptable as possible, or—to be more realistic perhaps-should achieve the least degree of unacceptability, does the Minister agree that a draconian and rigid approach to the introduction of a new system would not just be unfair in many cases, but it would be unwise, and, in the long run, might cost the Revenue dear?

§ Lord McIntosh of Haringey
My Lords, I would agree, but that is a hypothetical question. I do not accept that what has been introduced is a draconian or rigid system. All the penalties which now apply to late or inaccurate returns, including those relating to interest payments for late payments, have been in existence for a number of years. The self-assessment system has been within public knowledge for a number of years now. It has 746 been extensively piloted in Southampton and Leicester. It has not been found to be significantly less acceptable than the system which it supplanted.

§ Lord Brooke of Alverthorpe
My Lords, as my noble friend will be aware, with the introduction of self-assessment the Inland Revenue has taken the opportunity to move the basis of assessment for the self-employed from prior year to current year. When that was announced originally, the impression was given that that change would be tax neutral. While that will be the case in the future, will my noble friend tell the House whether, in the current year, additional taxes will be raised on the self-employed, and, if so, the extent of them?

§ Lord McIntosh of Haringey
My Lords, my noble friend is of course right that the change to self-assessment has happened concurrently with the important transitional year of the current-year basis of assessment for the self-employed, although the two are not necessarily connected. He is also right when he says that in the year in which the change takes place the Revenue's cash flow will benefit and the self-employed will therefore suffer. Apart from that transitional year, the effect of the current-year basis of assessment is, as he rightly recognises, tax neutral. The same tax will he paid on the same amount of profit.