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A proposal for bespoke tax statements misses the point
KEY POINTS
- Personal tax statements are not as complementary to government proposals as they might appear.
- Aim is to provide breakdown of how tax paid by an individual is spent by government.
- Problems of reflecting full tax burden, dealing with queries, knowing the total tax paid.
- Government seems keener on an online solution.
Last November, I chaired the discussion launching the government’s consultation paper on Modernising the Administration of the Personal Tax System.
This looked at ways of giving taxpayers access to information about their personal tax affairs that would make it easier for them to interact with HMRC.
One of the proposals was to provide taxpayers who were not in self assessment with an online statement of their tax liabilities, which they would need to approve or amend if it was incorrect. The launch got a little publicity, but not very much.
Earlier this year, Ben Gummer MP’s proposal for a ‘personal tax statement’ was covered by The Sun not only with a double-page spread, but also with the much-coveted ‘News in briefs’ on page 3, where his policy was subjected to succinct but incisive commentary from a female commentator who had, inexplicably, forgotten to put on most of her clothes before being photographed.
His proposal was that each taxpayer should receive a statement of the tax they had paid in the past year, the amount they would pay in the coming year if there were no changes in policy, and the way that tax had been spent by government.
It might seem that the two proposals are complementary. While there is clearly some overlap, I think they are actually entirely different in conception.
This, and some of the problems with the idea of personal tax statements, became clear at a recent round table discussion, held by the non-partisan think-tank Reform under the Chatham House rule, meaning that what was said can be reported, but not who said it.
The attendees were, however, drawn from government, the professions, business and other interested groups.
Different purpose
The main emphasis of the government’s proposals is on showing people how the tax they have paid is calculated, and getting them to agree it or correct it.
It can be seen as a sort of ‘self-assessment-lite’ for those who are currently dealt with under the PAYE system, with reconciliations, P800s etc.
The real emphasis of personal tax statements is on spending. The assumption behind the initial proposals appears to have been that it was straightforward to identify the amount of tax paid, at least for ‘simple’ PAYE taxpayers; the aim was to provide a personal statement, in pounds and pence, showing where the money had then been spent, to a level of about 30 separate items, sent to each taxpayer (for example with their notice of coding).
This can only be done by taking the amount of tax paid and splitting it between the different lines of expenditure in the same proportions as national government expenditure is split.
Taxpayers would then see, for example, that the NHS is not ‘free’, it is just not charged at the point of delivery, and a better national conversation could be had about the balance of tax and spending.
What to include
The first half of the discussion concentrated on ways that this comparatively simple statement could be made more personal and comprehensive.
One of the biggest problems with it is that it can only include an indicative estimate of the amount that was paid in indirect taxes, and that this might put tactical pressure on governments to reduce direct and increase indirect taxes.
It might be possible to provide an online calculator which would allow taxpayers to put in their own consumption habits and get a more accurate estimate of their indirect tax payments (but in that case why not just use an online calculator in the first place, see How your tax is spent?)
Would both primary and secondary NI contributions be included? What about the tax paid by a basic rate taxpayer which had then been repaid to charities under gift aid, or credited to the taxpayer’s pension fund, without needing to be reflected in their individual tax liability?
In general it was felt that, while these were areas for possible future improvement, ‘the perfect should not be the enemy of the good’.
The benefits of the statement were seen as increased transparency and engagement between taxpayers and government.
There is a great deal of ignorance about tax, and anything which increases public understanding of what and how tax is raised and where it is then spent should be welcomed.
Problems, problems
However, the discussion soon moved to the problems of such a proposal. The idea of reducing costs by sending the forms out with other communications also increased the risks of statements being sent to the wrong taxpayer.
Although the cost of a mailing to all taxpayers was estimated at £7m, it was unclear whether this included the costs of producing the statements in the first place, and it definitely did not include the costs of answering the questions which would be generated by them.
One of the countries, Denmark, referenced in the government’s consultation document requires taxpayers who question figures for income on their statements to raise them directly with the provider of the information rather than the revenue authorities; although employers already do answer many such questions, it would be a further cost on them if they had to answer more.
However, the biggest problem was that at present HMRC are simply not in a position to give a total figure of tax paid by individuals who are not within self assessment.
They may be able eventually to reconcile all their employment income through the NPS computer, and with real-time information should be able to do so faster in future, but the tax system is geared towards not requiring basic rate taxpayers to have to report savings income, pension payments, etc.
Taxation has commented before on the personal tax statements, not particularly favourably. Similar promises of greater engagement were made when councils were required to send details of the way they spent the council tax along with the annual bill.
I would bet that at least 90% of the people reading this article, who by definition are interested in tax, have scarcely ever read that document and could not give even the broadest breakdown of how their council tax is spent.
No interest?
No doubt there will be interest expressed by the government in the proposals, but I doubt that it will want to impose a further major burden on HMRC to send such statements out.
They will be far more interested in providing an online service, with an emphasis on requiring taxpayers to confirm that their income has been correctly stated and taxed, not in showing them how that tax was spent.
In any such proposal, those acting for taxpayers and employers need to be alert to government quietly outsourcing the burden of dealing with queries by making the provider of the information (employer, bank, etc.) responsible for dealing with them rather than HMRC.
However, once the figure for tax is known, it is a minor matter to provide a calculation of how it is spent, provided this is done online rather than on old-fashioned dead trees.
Indeed, it is so straightforward that Taxation has already done it. You can access our spreadsheet, and even put it onto your own website or send it to your clients.
Naturally, we accept no responsibility for any errors in it, since we are providing it for free, but you may find it an interesting exercise to show your clients (or your partners) where their money is spent
Don’t, however, expect a printed version of it to be coming through your clients’ doors any time soon, or even any time not so soon.
When the whole thrust of the government’s approach is to move interaction online, why would it adopt a paper-based solution?
