Is it realistic to expect people to understand the tax system?
Posted by Christie Malry on September 7, 2010 at 10:02 am
Richard Murphy says says over at his place that people who have underpaid tax know about it:
And let me be candid – almost all those who now have tax liability will know, or should know, they have such liability. That is because the vast majority will relate to the non-processing of company car data. If a person got their notice of coding from HMRC, had a company car, and saw they were not being taxed on it. Of course it may have been another benefit. And they’d have known they got it, because their employer has to give them a copy of form P11D sent to HM Revenue & Customs. And despite seeing that their code was not being adjusted for the benefit they got they took no action to correct the situation by submitting a tax return, which they could have done. candidly, I suspect a great many hoped they’d get away without paying the tax. And now they won’t.
This makes a number of rather heroic assumptions.
It assumes that the notice of coding actually arrives. Mine didn't this year. I put that down to HMRC being generally incompetent. I have to now take it on faith that my tax code is about what I expected it to be, because HMRC certainly aren't telling me how hey calculated it.
It assumes that if the coding notice does arrive that people actually have the capacity to understand it. Not everyone is as intelligent and knowledgeable about tax as, say, Ritchie. And, I'm sorry, coding notices might as well be written in Sanskrit for the amount of information most people can get from them. They are often complete gobbledygook.
It then assumes that people do in fact know that many items are taxable benefits. Ritchie knows because he's a tax expert. I vaguely know because I had to study them for my exams. But most people, I suspect, don't really know. They trust HMRC to get it right. The rules are fiendishly complex. Cars have a different set of rules to vans. Cars now have a different set of rules depending on their carbon emissions (I think). Bikes are totally different (er, I think, anyway). Other types of benefit have similarly arcane inclusions and exclusions.
The fact is - HMRC should be required to close its prior year assessments after a reasonable period of time. From memory, they get 12 years, perhaps more if it's deliberate fraud, but that's far too long for an ordinary individual who thought that the tax year was closed. Let's give them three years to go back and ask for more money from a taxpayer, and let's make them look back indefinitely to repay overpayments.
If HMRC can't get its house in order within three years, it doesn't deserve the money.
Hmm, as Accountancy Age makes clear today, perhaps HMRC doesn't have carte blanche to look back 12 years after all. Mea culpa.