Would you trust the taxman to fill in your returns?
Between now and Christmas, 400,000 ‘auto-filled’ tax returns will be processed. How many will be right?
In recent days a few thousand taxpayers who would previously have needed to file their own tax return have instead received a “simple assessment form” – already fully completed by HMRC’S computers. This is the beginning of a process that will see 400,000 such forms sent out by Christmas.
Ultimately, according to HMRC, “millions will benefit”.
The recipients, in theory, will swiftly read, comprehend and agree the figures – and then pay the bill.
In practice, though, tax practitioners fear huge error rates and a failure of taxpayers to understand the workings will lead to mistakes and misunderstandings.
Nimesh Shah, a partner at tax firm Blick Rothenberg, warned that as many as one in 10 returns could have errors, based on his experience of HMRC’S accuracy in record-keeping. George Bull, a partner at RSM, has concerns the error rate could be even higher.
HMRC has chosen to start the scheme with two relatively small groups: new state pensioners whose income is above the £11,500 personal allowance and PAYE taxpayers – most employed people – who have underpaid tax by a relatively significant amount, perhaps because they enjoy a workplace benefit on which further tax is due.
Ordinarily the taxman can simply “code out” such underpayments, meaning you pay a little extra tax each month until the bill is cleared. Where this is not possible, a new simple assessment form will be issued.
Caroline Miskin, of the Institute of Chartered Accountants in England and Wales, said common situations where “coding” wouldn’t work included people who have underpaid and are no longer employed or who have become self-employed.
Simple assessment will not completely replace the annual tax return, as it only applies in situations where HMRC is able to get all of a taxpayer’s income information. The taxman has no way of knowing what the self-employed earn, for example, so tax returns will always be necessary for some.
But thanks to an ambitious and ongoing programme to draw information together from thousands of sources, the net is widening.
Iain Mccluskey, a tax partner at PWC, the accountancy giant, described simple assessment as a “welcome simplification” of Britain’s ever-complex tax system. He pointed out that similar methods are already common in places such as Hong Kong and Sweden.
“Certainly there will be teething issues,” he said. “People will be naturally cynical about HMRC’S ability to do this. My feeling is the tax office is improving.”
Optimists suggest the system could lead to a reduction in fines. In the past, those PAYE taxpayers who were also required to complete a return risked a £1,600 fine if they failed to do so.
Ms Miskin said receiving a simple tax calculation clearly laying out their liability “should be easier to understand”.
“The tax is just due and there’s no risk of them having to fill in a tax return,” he said.
“Yes, it’s very important that they check the detail and ensure the figures are right, but that applies in any tax situation.”
Why are some experts concerned?
Not everyone paints such a rosy picture of the new system. Mr Shah and Mr Bull express concerns about the accuracy of HMRC’S calculations, citing recent errors as evidence.
Earlier this year Telegraph Money reported the case of pensioner John Doe, who was incorrectly sent a bill for 7p in unpaid income tax after errors with his digital tax account. That some simple assessment beneficiaries will receive erroneous bills “seems inevitable”, say the experts.
Mr Shah said: “It’s incredibly important for people to check the accuracy of the letter, and not just take it at face value and shove it away in a drawer. There are plenty of things HMRC does get right but in my experience there will be enough errors that some people will be adversely affected.
“Our tax system is so complicated
that there can be mistakes made in very basic situations.
“Even for a married couple with two children, average income and a couple of Isas, that becomes a very complicated tax situation because of the way the personal tax code has been changed in recent years.
“The chances of HMRC getting something wrong, even in quite a simple situation, is high.”
Tina Riches, a partner at Smith and Williamson and one of Britain’s leading personal taxation specialists, also voiced her reservations. “The concerns here are around whether the calculations of data by HMRC are sufficiently advanced to do this,” she said.
“It’s good they are starting with the simplest cases, but I can see problems in the future.”
The time limit for challenging the taxman’s calculations via simple assessment is 60 days and Ms Riches pointed out that this is much less time than people currently have to make their self-assessment calculations.
“People may need to get information from abroad, for instance, if they have extra income arising overseas, and this can take time,” she explained. “The other issue is with tax relief. They may be able to get all the information on payments, but what they won’t necessarily be able to get is details of reliefs, for example gift aid.”
HMRC’S spokesman said the calculations would be based on information initially provided by employers, which it already has access to.
In future this would be dramatically widened to include information provided by banks, building societies, stock brokers and other firms.
“If anyone is concerned that their information is not up to date, they have 60 days in which to notify HMRC, and discuss the matter,” he added.
The taxman has a record of data bungles