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?

The Sunday Telegraph - Money & Business - - Front page - By Sam Mead­ows

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

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