Self Assessment - We're Only Human

RICHARD CURTIS ponders the latest self-assessment tax return filing statistics.

A HACKNEYED JOKE I know, but I have this image of the Revenue employee responsible for improving the early filing of self-assessment tax returns sitting in his office and looking at the submission figures as they come in each week. He must be thinking 'Taxpayers! If it wasn't for taxpayers, I bet we could actually get those wretched returns submitted on time'.

The problem with taxpayers is that they are human and thus behave like humans and, as I am sure any fan of Star Trek will attest, we are not well known for behaving logically. If we were, we would, by now, have all submitted our 2002 tax returns. Those of us with computers would have 'filed by Internet' and be enjoying the warm glow that comes from knowing what we must pay on 31 January and 31 July 2003. Or we would have the even warmer glow that comes from knowing that a repayment is already flitting through cyberspace, bank account bound. Even those relying on the post would be confident in the knowledge that as a 'respected customer', well before 31 January, the Inland Revenue would let us know the score.

What can we learn from figures?

But let us 'get real'. The Inland Revenue has recently confirmed that 4,318,166 self-assessment tax returns had been filed by 30 September 2002, of which 145,401 were filed electronically. While the Revenue seemed keen to note that the total number of submissions was marginally higher than last year, there was actually a slight percentage fall, continuing the overall downward trend since the inception of the self-assessment system. In fact, as shown in the Table, the percentage of returns submitted by 30 September annually has never been higher than the 52 per cent achieved in the first year.

Table: Returns received by 30 September each year

At this stage, the Revenue's 'Tax Doesn't Have To Be Taxing' campaign does not appear to have been an unqualified success, although whether this was due to a late start to the campaign (Adam Hart-Davis only having been 'appointed' in July 2002) or a continuing lack of interest by the taxpaying public, remains to be seen. It is possible that the July start was designed to maximise the impact in the two-month period to 30 September, rather than having an extended (and presumably more expensive) advertising campaign that ran from April to September. Whatever, the avowed aim mentioned by Revenue marketing director, Ian Schoolar that 'getting the return in on time is an important part of this process and our new campaign encourages people to file in good time, rather than hold out until the last moment' looks like it could be wide of the mark. This does not bode well for either the Revenue or practitioners who look to be facing the usual last minute rush. My own, and admittedly anecdotal, evidence from a recent meeting, seems to be that many practices already knew that they were behind in their tax return completion programmes this year and this seems to have been borne out by these latest figures.

So why is this? It could be down to:

• the wrong advertising campaign;
• a wish to delay the completion of the return for as long as possible because this will delay a bill;
• a lack of interest; or
• procrastination.

The ad campaign

Not being a 'marketing man', it is difficult to come to a reasoned opinion on the first item. But my unreasoned view was that Hector did seem to combine a humorous potential with a serious side. However, my understanding is that he was perceived by the Revenue as being 'everything that we do not wish to appear to be' - viz, white, middle-aged and middle class. Mrs Doyle seemed, to me, to represent the humorous at the expense of the serious and this seems reflected in the 2001 figures in the Table.

With regard to the latest campaign, the Revenue says:

'We chose Adam Hart-Davis to feature in our adverts as he embodies the Inland Revenue's new core traits - to be seen as knowledgeable, objective, human, clear, reasonable and efficient. … The campaign has achieved high visibility among its target audience.

Mr Hart-Davis does come with a reputation for 'popularising' what might appear to be otherwise uninteresting subjects, and I have been (unofficially) advised that he has appeal and recognition amongst the younger members of society. Whether younger means 'young taxpayers' or simply 'young' should become apparent after the next 31 January. In the meantime, my 'straw poll' shows that the adverts do not appear to have had a great deal of impact with the editorial team of Taxation.

Fear of a bill

This reason will only apply to the represented taxpayer, but there might be something in this point as business people become nervous of a possible slump. The Lord Chancellor's department released figures (not to any great fanfare) at the beginning of August relating to insolvencies, etc. They do not make great reading.

In the second quarter of 2002, there were:

• 4,118 company insolvencies, increases of 7.6 per cent over the previous quarter and 9.9 per cent over the same period last year; and
• 7,903 bankruptcies, an increase of 13.1 per cent compared to the previous quarter and 3.9 per cent over the same period last year.

The picture is reflected in the petition statistics for the second quarter - company winding-up petitions have increased by 22 per cent over the same period last year, while bankruptcy petitions are up by 10 per cent. So there could be an element of delay for financial reasons. Perhaps practitioners who are not already doing so could offer clients the facility of making monthly payments on account of their eventual bill to spread the cost.

A lack of interest

It may be true that a large proportion of the population does not show sufficient interest in their own financial affairs - bad news in an era when responsibilities are devolving more and more on to the individual. That this is true is reflected in the large amounts of cash held in low-yielding bank accounts and the like, despite copious amounts of readily available information on this subject.

Coincidentally, the Independent Financial Adviser Promotion has just published some information on this subject. It estimates that:

• six out of ten people will save £2,263 too little this year, with more than 50 per cent of people having less than £1,500 in savings;
• millions of homeowners continue to pay mortgages with high variable interest rates and could typically save approximately £50 per month; and
• a third of Britons make no retirement provision at all.

Is this relevant to the tax practitioner? Since the decreasing importance of the audit, the Institute of Chartered Accountants has been keen to encourage accountants to look for new roles. Perhaps practitioners should take an holistic view of their clients' financial affairs and tie in completion of the tax return with a review of their general financial situation. This could make completion of the return less an aim in itself, and rather a means to an end of benefit to the individual, not just the Revenue.

Procrastination

It was, I think, Jerome K Jerome who said 'I like work ... I can sit and look at it for hours'. It would be interesting to see what proportion of tax practitioners submit their returns by 30 September and, I hardly dare suggest, whether it would be even more interesting to see how many submit theirs before, say, 20 January. Delay up to and beyond the deadline must come at a cost to the Revenue and one wonders whether some financial reward for early filing (a 'carrot') - perhaps diminishing in size month by month as 31 January approaches - would have an effect. This could be financed in part from the Revenue's general saving from having a reduced workload at the end of the year, and partly from the income that it will receive once the new régime of enhanced use of the £60 per day penalties (the 'stick') for persistent defaulters starts to hurt.

So now what?

My personal view is that it is all to do with 'human behaviour', a subject that I am sure is worthy of further discussion and research and it would be interesting to know whether the Revenue has any other ideas up its sleeve.

The Revenue did in fact carry out an exercise last year by issuing one of five different letters to taxpayers whose self assessment tax returns included 'three-line accounts' in respect of income from self employment. The Revenue had noticed that there appeared to be a 'logjam' of self-employed taxpayers whose turnover was just below the £15,000 threshold. Sensing that taxpayer behaviour was being influenced by the threshold, the Revenue sent different letters to five tranches of such taxpayers. The letters ranged from offering 'advice and support if you need it' to 'your 2001 return has already been chosen for enquiry'. Unfortunately, we understand that the Revenue has yet to complete its enquiry into which of these five approaches yielded the best response. Next April it intends to trial a shorter return for those 'customers' with straightforward tax affairs.

It is also expected that the Revenue will be interested in the entries submitted to the Organisation for Economic Co-operation and Development for this year's Jan Francke Award. There are no prizes for guessing the subject - 'Do you know what motivates taxpayer compliance?'. My civil servant from the opening paragraph will no doubt be spending many happy hours poring over the contents of the submissions. In fact the deadline for these was even put back from 1 June to 30 September 2002, although whether this was because of a dearth of replies or because there is so much to be said on this subject is not known to me. Anyway, my civil servant should have much encouragement in his research from his leader, Sir Nick Montagu, who sits on the committee that decides the subject of the award!

I will endeavour to ensure that Taxation's Update column reports the publication of the winning entry and this may also be useful bedtime reading for practitioners who might find some interesting suggestions that they could apply to their own clients. In the meantime, there is no time for reading tonight, because I really am going to make a start on my return. Now, where did I put it?

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