Tax and duties

Filing of Income Tax Self Assessment Returns

“The changes being made by HM Revenue and Customs to simplify income tax self assessment returns should ease the burden for many taxpayers in completing their returns and reduce costs for the Department. It is essential that these changes go hand in hand with more accurate processing of people’s tax affairs by the Department. No less important is that those who persistently fail to submit their tax returns be brought to book. Today’s report is designed to help achieve this as well as improvements in the efficiency of the Department’s operations. “

Report cover showing a man working at his laptop

"The changes being made by HM Revenue and Customs to simplify income tax self assessment returns should ease the burden for many taxpayers in completing their returns and reduce costs for the Department. It is essential that these changes go hand in hand with more accurate processing of people’s tax affairs by the Department. No less important is that those who persistently fail to submit their tax returns be brought to book. Today’s report is designed to help achieve this as well as improvements in the efficiency of the Department’s operations. "

Head of the National Audit Office Sir John Bourn, 22 June 2005


The Department has stemmed the fall in the percentage of people filing their tax returns by the deadline, so that just over 90 per cent file their returns by the end of January each year, according to the National Audit Office.

However, an estimated £1.1 billion of income tax was outstanding from 1.1 million overdue tax returns at July 2004. The Department prioritises pursuit of taxpayers whom it considers highest risk. Over 260,000 taxpayers had more than one return outstanding and over 12,000 taxpayers had six or more years’ returns outstanding. A significant proportion of outstanding returns were from taxpayers whom the Department could not trace, who were living abroad or who were insolvent.

The Department has a target to increase the percentage of returns filed on time to 93 per cent by January 2008. To achieve that target, the Department is focusing its efforts on groups with the lowest performance of filing returns on time. These include young males, those new to filing returns, those with no further tax to pay, those in the Construction Industry Scheme and taxpayers in parts of London. It is also simplifying the tax forms and guidance.

The Department has arranged for around one million taxpayers with very simple financial affairs not to have to file Self Assessment returns. Today’s report points out that, since these taxpayers have a better record of filing on time, this will make the new target harder to achieve. The Department has also moved around a further 1.5 million taxpayers on to a short tax return to make it quicker and easier for people with simple tax affairs to complete. These measures should reduce compliance costs for taxpayers and the Department, but there is also scope to improve communications with taxpayers to help them submit prompt and accurate returns.

There has been increased use of financial penalties to penalize late filers and encourage them to file their returns. A wider HM Revenue and Customs review of sanctions currently underway provides an opportunity to improve the effectiveness of the penalty regime. The penalties for not filing by the deadline are limited by law to £100 or the amount of tax owed, if less; and many people who file late do not incur a penalty because they have no outstanding tax to pay. In some countries, penalties for late filing are a percentage of the tax owed or are ranged according to the taxpayer’s net income. There are also significant numbers of people with two or more returns outstanding who have not yet had daily penalties imposed. According to estimates by the Department, 32 per cent of tax returns filed by taxpayers contain errors and around £2.8 billion of tax a year is at risk from inaccurate returns, ranging from simple mistakes through to fraudulent under- or non-declaration of income. It carries out checks during processing to identify and correct errors made by taxpayers on filed returns and may conduct more detailed enquiries on some returns.

The Department is taking steps to improve its accuracy in processing tax returns, and determining people’s tax codes. In 2003-04, it made errors in processing six per cent of returns resulting in £70 million undercharges and £50 million overcharges of tax. Improving on its accuracy rate of 71 per cent in calculating people’s tax codes will be essential to the success of the initiatives underway to reduce the reporting obligations of those with simpler tax affairs. The report also highlights the importance of accurately logging returns received to reduce the number of penalties incorrectly imposed on taxpayers who have filed returns by the deadline; and of ensuring that, for those affected, the penalty is cancelled.

Operating Self Assessment costs HM Revenue and Customs £220 million a year or £22 per return issued. Processing can be made more efficient by further increases in the use of online filing and by rationalising the numerous centres inputting the data from returns. Exploring the possibility of introducing differential filing dates for paper and electronic returns could bring a number of benefits including smoothing the peak flows of work associated with paper returns. Taxpayers currently have 10 months to file their returns. By contrast, some tax authorities overseas may give taxpayers only three to four months to file returns.


Publication details:

ISBN: 0102933235 [Buy from TSO]

HC: 74 2005-2006

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