Representing the unrepresented
This Report published in January 2001 which gives an account of the LITRG's activities since the publication of 'The Taxman's Response' in July 1999 and its aims for the next few years.
This Report gives an account of the activities of the Low Incomes Tax Reform Group (LITRG) since the publication of ‘The Taxman’s Response’ in July 1999, and adumbrates the Group’s hopes, fears and intentions for the next few years. When the LITRG first came together to take the part of the unrepresented taxpayer, we accorded priority to three groups: pensioners, ‘ins and outs’ (those whose work patterns alternate between employment, self-employment and unemployment), and students. Our aim has been to identify those areas of the tax system where changes in law, policy or administration would eliminate an injustice, or remove a source of unnecessary confusion, worry or distress.
It is a crowning achievement for any entity dedicated to bringing about change to precipitate a reversal of government policy that operates to the disadvantage of their interest group. When in March 1999 the Chancellor brought in the 10 per cent starting rate of tax, but only for earned income, many representative bodies criticised the exclusion of savings income on the grounds that it was discriminatory to those – such as older people – who depended upon their savings.
It was partly in response to the LITRG’s campaign to highlight that injustice, and also the technical anomalies inherent in the proposal, that the Chancellor announced in November 1999 that the starting rate would retrospectively be extended to savings income. It is not often that we secure such major victories, although our work has yielded lesser changes which nevertheless have enduring effects. A small technical reform for which we have campaigned, and which will make life simpler for pensioners, came about when the Chancellor announced the age-related allowances for 2001—02 in his pre-Budget report in November 2000. Until then, the age allowances were not announced until the March Budget immediately preceding the start of the tax year to which they applied.
Accordingly, they were not reflected in the PAYE coding notices sent out at the start of the calendar year. Later notices of coding, showing the updated amounts of the allowances, corrected any over-deduction of tax, but confused low-income pensioners who could not understand why they were getting multiple coding notices, each showing a different amount. Another of our recommendations, the revival of the Taxback campaign, has shown what can be achieved by effective consultation and working together between the Revenue and taxpayers’ representatives.
The object of this campaign was to alert non-taxpayers to their right to have bank and building society interest paid gross, and to encourage those who pay tax at the starting rate of 10 per cent to reclaim a proportion of the tax deducted at 20 per cent from such interest. A large proportion of beneficiaries will have been pensioners and students. Together with Age Concern and Help the Aged, we were able to assist with the design of the campaign literature and the Taxback page on the Revenue’s website, and – with the help of our ‘pensioners’ panel’ – to recommend the recent improvements to the R85 form and procedure.
Our work on behalf of ‘ins and outs’ has focused mainly on the new working families’ and disabled person’s tax credits, the successors within the tax system to the former social security benefits, family credit and disability working allowance. Here, the self-employed who are eligible to claim the tax credits have been put at a disadvantage for two reasons.
First, the application forms and procedures for them are even more bureaucratic than for employed claimants.
Secondly, the clash between inherited social security concepts and income tax rules mean that the self-employed have to compute their income twice, once for self-assessment purposes, and again for tax credit purposes. It was a welcome step, therefore, when the Revenue announced (following a campaign by the LITRG and TaxAid) that from October 2000 self-employed tax credit claimants would be able to account for their business profits by submitting three-line statements, as they can for income tax self-assessment.
Sometimes, worthwhile improvements can be brought about without any specific change in law, policy or procedure. We believe that the Revenue leaflets and publications addressed to pensioners and tax credit claimants on which we have been asked to comment have benefited from our input. And following our intervention, the official literature on the ‘Getting Britain Giving’ measures contains prominent warnings to donors who are non-taxpayers against unwittingly exposing themselves to a tax liability by signing the Gift Aid declaration.
There remains, however, much to be done. Still, too many older people on low incomes face the nightmare of self-assessment. We were pleased when the threshold of untaxed income was raised from £500 to £2,500 in July 1999, but would prefer to see thousands more pensioners removed from the system by a combination of the Revenue keeping to their own promises and sensible programming of the Revenue’s computers in 2001.
We would like the life companies to operate PAYE on all annuity income so that poorer pensioners do not face complex procedures to claim back tax deducted at source. We are assured that both these matters are under review, and we shall continue to press for a resolution. As we approach the era of the pension credit, and more tax benefit integration, we shall press for better joined-up processes between the DSS and the Revenue. We shall also continue to urge the Revenue to appoint a ‘pensioner’s champion’ to ensure that their procedures are geared to the needs of pensioners rather than to administrative convenience.
Our work on the new tax credits has so far been to little avail in persuading Government of the need for better integration between income tax and the evolving tax credit regime, and between the new tax credits and existing social security benefits. There are signs, however, that these issues will be addressed more decisively in preparing for the integrated child credit and employment tax credit, due to be implemented in the year 2003.
In the intervening two years, we plan to contribute our research to date, and our pool of tax and benefits expertise, to the consultation process, and to help point the way to the ‘seamless’ system which is the goal of the policy makers.In this Report we also discuss our work on the consultation leading up to the stakeholder pension regime, and our findings on students, a neglected group of taxpayers who nevertheless overpay millions of pounds of tax every year which they can ill afford.
Finally, in April 2001 we intend to launch the first volunteer tax advice service in the UK, manned by tax professionals, since the formation of TaxAid in 1992. In our December 1998 Report we recommended that consideration be given to establishing a nationwide, publicly funded volunteering scheme, similar to those which operate successfully in the USA, Canada and Australia, to help older people on low incomes meet their obligations and secure their entitlements under the tax system.
The Revenue have now been persuaded of the potential benefits of such a scheme both to them and to their customers, and will support – though not fund – the two pilot schemes to be run in Dorset and Wolverhampton under the aegis of the Chartered Institute of Taxation. Funding from the Nuffield Foundation has been instrumental in enabling us to proceed with this venture.
We expect this initiative to show us much about the types of services that older people need, and to provide lessons that will be of use in the design and implementation of a wider nationwide scheme if the need for one is demonstrated. If the pilots are successful in this, it could prove a watershed in the way in which the requirements of unrepresented taxpayers are recognised within the system.
The LITRG has shown in its short existence that it is possible to work in partnership with the Inland Revenue and to achieve change for the benefit of the unrepresented taxpayer. The group is optimistic that 2001 will see further co-operation from the government and its agencies and more of the group’s recommendations put into practice.