Bring tax system into 21st century, urges CIOT
John Whiting, President of the Chartered Institute of Taxation (CIOT), has called for a universal 'e-tax return' to replace the existing system which, he says, is: "ill-equipped to cope with the working world of the 21st Century."
Speaking at the annual Hardman Memorial lecture in London, Mr Whiting said: "The PAYE/NICs system is creaking as it tries to accommodate today's flexible pay schemes and social benefits such as Working Families Tax Credit. The employment taxes system is predicated on a model of male, full-time permanent employees and is ill-equipped to cope with the working world of the 21st Century where people move in and out of part-time work, full-time work and self-employment."
"The employment taxes system is predicated on a model of male, full-time permanent employees and is ill-equipped to cope with the working world of the 21st Century" - John Whiting, CIOT Director
He suggested an 'e-tax' return system would "permit employers to operate a simple flat rate deduction system and dramatically reduce the compliance burden on employers who currently act as unpaid tax collectors for the Government."
Mr Whiting said: "The employer is coping with an ever more complex system and has the burden of being the unofficial tax office as well. Meanwhile, the employee is discouraged from taking an interest in tax. The vast majority are left to believe that the tax is just right and that there is no need to challenge it. Most onus rests with the employer to get it right, and for that matter, to act as the enquiry centre for routine tax questions.
"Employers, particularly smaller ones, shoulder a disproportionate share of the burden of having to understand and comply with a myriad of complex tax rules with the overhanging threat of penalties if they make an error."
Mr Whiting suggested that one way of tackling this problem would be for employees and pensioners to receive a part-completed tax return electronically which they would then send back to the Revenue over the internet.
A working e-tax system would need to involve people being paid or advised electronically with payroll information being fed into the e-tax return, together with data about savings or shares flowing in from the individual's bank or building society.
According to the CIOT President: "This should be possible for a Government that's truly joined-up."
Mr Whiting also advocated a more 'rough and ready' approach to employers' PAYE/NIC contributions, where the employer could simply knock off a flat rate out of any payment. He said this would have the advantage of being: "a simple system that everybody could understand."
Ian Hayes, Chair of the Institute of Chartered Accountants' Tax Faculty, agreed. He said: "Employers have effectively become the unofficial and unpaid staff of the Inland Revenue. In the Tax Faculty's on-going tax simplification campaign we have highlighted the increasing burdens on employers who have to spend time and money administering and collecting employment taxes that could be invested in growing their business and taking on more staff. We have challenged all political parties to take up the issue of making real reductions in these burdens."
A spokesman for the Inland Revenue said: "We agree that the full potential of 'e' is only unlocked when its unique opportunities are exploited. Because of this we are planning to put information that the Revenue already holds into electronic tax returns before completion, for the customer to confirm or change. We hope we will be able to start doing this for some information during 2002/2003. We are equally supportive in cases where information can be provided directly by others (such as from payroll bureaux, banks, etc...) into the Revenue's own electronic tax returns or into those provided by commercial software vendors."