MPs Urge HMRC To Improve Self Assessment System

by Robert Lee, Tax-News.com, London

08 February 2006

MPs have urged HM Revenue And Customs to consider staggering self assessment tax deadlines for different groups of taxpayers to avoid the usual last-minute rush and consequent errors by both the overloaded department and rushed taxpayers which, a new report says, cost the Treasury almost GBP3 billion a year.

Despite HMRC taking steps to make the self assessment system clearer and more simple through an ongoing advertising campaign and by taking 1 million taxpayers out of the system altogether, a report by the Public Accounts Select Committee has noted that taxpayers are increasingly missing the January 31 filing deadline. The committee says that 60% of those that file late each year have no tax to pay or are due a repayment.

Moreover, around 30% of completed tax returns contain errors leading to a revenue loss of GBP2.8 billion, the report noted. While the Department has provided guidance and advice on its website, the committee found that its call centre staff often lack the knowledge to deal with enquiries, with many callers unable to get through at peak times.

Errors by the department in processing nearly 500,000 returns has led to GBP65 million of undercharges and GBP30 million of overcharges of taxpayers, while more than one-quarter of Pay As You Earn tax codes were inaccurately calculated.

HMRC also wrongfully imposed automatic penalties for late filing on 30,000 taxpayers, but has no systems in place to detect these errors or identify those who wrongly received a late-filing penalty. Furthermore, the report showed that the department does not know how much compensation it has paid to those affected by its errors and cannot provide any estimate of this figure.

Operating the Income Tax Self Assessment filing process costs GBP220 million a year. Some 8,000 staff years are needed to process self assessment tax returns and a further 1,800 staff years to chase returns and for debt management.

The committee has urged HMRC to encourage greater numbers of self assessment taxpayers to file their returns electronically, noting that e-file take up rates were much lower in the UK than in the United States and Australia. While praising HMRC for improving its e-file capacity following server problems in the run up to the 2005 deadline, it warned that there capacity may still be insufficient at peak times.

"Taxpayers are increasingly filing tax returns later each year which causes a major peak in workload at the Department and higher risks of official error," the report observed.

"Getting returns in earlier could spread the workload and give the Department more time to set tax codes for the following tax year," it added.

An ongoing review of e-filing by Lord Carter is considering the options for increasing e-filing and changing filing dates.

Recommended