Simple assessments

Finance Bill – in a Public Bill Committee am 2:45 pm ar 7 Gorffennaf 2016.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Question proposed, That the clause stand part of the Bill.

Having considered alcoholic liquor duties, we now stagger towards clause 155, with which we will consider the following:

That schedule 23 be the Twenty-third schedule to the Bill.

Clauses 156 and 157 stand part.

Photo of Rebecca Long-Bailey Rebecca Long-Bailey Shadow Chief Secretary to the Treasury, Member, Labour Party National Executive Committee

The clauses and schedule relate to tax assessment—that exciting subject—and tax returns. Clause 155 grants HMRC the power to make an assessment of someone’s income and capital gains tax liabilities without their having to fill in a self-assessment form, from the 2016-17 financial year onwards. I understand that the provision will apply only to individuals on whom HMRC already has enough information to provide an assessment, so the number of individuals affected will be relatively small, but it will reduce the burden of self-assessment for them.

Providing a commentary on the clause, the Chartered Institute of Taxation said:

“We raised quite a lot of minor points in our submission about the wording of the draft legislation and the legislation that is in the Finance Bill 2016 has been made clearer on a number of these points.

Also, the length of time that the taxpayer has to query the simple assessment has been increased from 30 to 60 days which is a welcome extension.”

It goes on to say:

“HMRC need to ensure that it is made clear to taxpayers that it is their responsibility to check the simple assessment (this means checking that all their taxable income is accounted for and all expenses and allowances to which they are entitled are being correctly claimed) and that they have the right to query the assessment if they disagree with it.”

I am pleased that the Government have improved the legislation, but will the Minister tell me what measures are in place to ensure that taxpayers know that it is their responsibility to check the simple assessment, and that they know they have the right to query it?

The Chartered Institute of Taxation also highlighted the fact that the new power to issue a simple assessment comes into effect in the current tax year, but that until now there has been little publicity or guidance from HMRC about how it intends to use the power. Can the Government confirm whether HMRC will start using the power this year, and in what circumstances?

Clause 156, as set out in the explanatory notes, clarifies the amount of time allowed for making a self-assessment when HMRC has served a notice to file a return. The clause relates to an earlier legal case, R (oao of Higgs) v. HMRC [2015] UKUT, in which HMRC argued that a tax rebate did not have to be paid since the claim was lodged after the four-year time limit for tax returns to be completed had expired. The court found against HMRC on the grounds that the time limit does not apply to self-assessment returns, so the clause clarifies the existing legislation and negates the earlier legal decision. The Chartered Institute of Taxation has said that that seems like a sensible provision in light of that case, and we support the measure.

Finally, clause 157 enacts a minor change, allowing HMRC to withdraw a notice to file a self-assessment return where it is clear that an individual no longer has the need to. Again, we support that measure, and we will not oppose any of these clauses.

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

As we have heard, clause 155 and schedule 23 will provide a new power to allow HMRC to make an assessment of an individual’s income tax and capital gains tax liability without their first being required to complete a self-assessment return. Clause 157 will allow HMRC to withdraw a notice to file or cancel any related penalty for failure to make a return. Clause 156 will ensure that the time allowed for making a self-assessment when HMRC has served notice to file a return is clear.

I will speak first to clause 155 and schedule 23. In March 2015, HMRC published “Making tax easier: The end of the tax return”, which set out its vision to modernise the tax system by introducing digital tax accounts for individuals and businesses. That will lead to millions of HMRC customers no longer needing to fill in tax returns. At present, hundreds of thousands of people have to fill out a self-assessment tax return every year simply because they have a tax liability that cannot be collected through pay-as-you-earn. This is expensive and time-consuming for both the customer and HMRC. The measure will allow HMRC to send a tax calculation to customers along with a request for payment when HMRC already has enough information to make an accurate assessment of the tax due.

HMRC already holds a wide range of information, such as employment, pay and pension income, child benefit payments and savings income. That comes from a range of sources such as Government Departments, banks, building societies, employers, pension providers and information provided directly by taxpayers. Furthermore, HMRC already uses that information held on its systems to calculate an individual’s tax liabilities on an annual basis.

From 2016-17, this measure will allow HMRC to send customers with the simplest affairs a simple tax calculation and request for payment, meaning that they will not have to fill out a tax return. HMRC will consult on using the power to create tax bills for customers with more complicated affairs. It estimates that in time, up to 2 million individuals will benefit from the simple assessment. Individuals will have a simple customer experience, and fewer customers will incur a penalty or have to pay interest because they have not sent their return in on time.

HMRC intends the process for customers to be online and as simple as possible, and as such has aligned simple assessment with the payment dates and interest provisions that already exist for self-assessment. The current processes for hardship will continue. There will also be assistance for customers who have difficulty going online, including a paper process for customers who are unable to access digital accounts. As is the case now, customers should check that the information in their simple assessment tax calculation is correct. Customers will be able to challenge figures, and there will be a right of appeal if disputes cannot be resolved informally.

Furthermore, customers will still be able to fill out a self-assessment return if they wish or if they have to declare changes to their circumstances. Simple assessments will be used to collect the tax that is due based only on information already known about income and circumstances.

In order for the Government to facilitate the change that I have just discussed, and to enable as many people as possible to benefit from that simplification, clause 157 makes amendments to the Taxes Management Act 1970 and consequential amendments to one of its schedules to allow HMRC to withdraw a notice to file or to cancel related penalties. Under the income tax self-assessment system, anyone sent a notice to file a self-assessment tax return by HMRC is required to complete and return the assessment. HMRC does not want to unnecessarily oblige customers to complete a tax return if they do not need to be within self-assessment.

The Finance Act 2013 introduced a new power for HMRC to withdraw a notice to file a self-assessment tax return on a request from a taxpayer. If HMRC agrees to withdraw the notice, that Act enables it to cancel any late filing penalties. An individual can currently ask that a notice to file be withdrawn, but there is no such power for HMRC. Clause 157 will allow HMRC to withdraw a notice to file, and where a notice to file is withdrawn, HMRC may cancel any penalty for failure to make a return. The change will have effect in relation to the 2014-15 tax year. In subsequent years, it will facilitate the delivery of simple assessment and release customers from the administrative burden of completing needless tax returns.

Although the Government have set out their ambition to abolish the tax return, it is appropriate to clarify the time limits within the existing system of self-assessment. In 2015, a legal challenge found that HMRC’s existing interpretation of the time limits for self-assessment—four years from the end of the tax year to which the self-assessment relates—was incorrect. It was found that the law as it stood did not provide any time limit for self-assessment. Clause 156 clarifies that the time limit for making self-assessment is four years from the end of the relevant tax year. That is the same time limit as for assessments by HMRC. The clause clarifies section 34 of the Taxes Management Act 1970 on assessments not including self-assessment, and proposed new section 34A clarifies that individuals have four years from the end of the relevant tax year to submit a tax return when notified by HMRC to do so. That will not apply when other statutory time limits apply. The change will have effect on and after 5 April 2017, and there are transitional arrangements for previous years.

The repayment of overpayments reported through self-assessments received more than four years after the end of the relevant tax year is estimated to cost the Exchequer approximately £30 million, and the Office for Budget Responsibility has included that in its forecast. The measure is likely to affect fewer than 40,000 individuals and households. Where taxpayers have submitted self-assessment returns late or not at all due to significant life events, HMRC’s needs enhanced support team can provide tailored support. HMRC can also apply discretion in exceptional circumstances.

The hon. Member for Salford and Eccles asked when HMRC will use this power. It will be used from April 2017 for the 2016-17 tax year. She also asked about the timing of guidance and how we will ensure that taxpayers know about the responsibility to correct. HMRC expects to talk to taxpayers later this year about that, and guidance will be issued following consultation in which HMRC will outline fully the responsibilities of both the taxpayer and HMRC.

If HMRC’s information or data are incorrect, there will be safeguards. Customers will be given the opportunity to dispute and correct the information held by HMRC that has been used in a simple assessment. After listening to customers and representative groups, HMRC has extended the amount of time that customers have to dispute their simple assessment. Taxpayers will now have 60 days to informally dispute the simple assessment. If the taxpayer remains unhappy once the dispute has been resolved, they will have a further 30 days to formally appeal. That will allow customers up to 90 days to dispute and appeal a simple assessment. The clauses clarify and simplify self-assessment for taxpayers, and I hope that they will stand part of the Bill.

Question put and agreed to.

Clause 155 accordingly ordered to stand part of the Bill.

Schedule 23 agreed to.

Clauses 156 and 157 ordered to stand part of the Bill.

Clause 158