Critics are claiming that millions of people across the UK are filling out tax returns that are just not necessary. It is claimed that a large portion of those filling out tax returns are required to do so despite not owing HMRC any money at all.
At present, an annual tax return is required of roughly a third of taxpayers across the UK. Nearly a quarter of them (24%) owe very little – less than £50 for the entire year – and two thirds of these (16% of the total number who must fill out a tax return) owe nothing to HMRC at all.
Some of those who must complete a tax return are sole traders or owners of businesses which have not turned a taxable profit – in which case a tax return is necessary to show HMRC that profits have not reached taxable levels. However, many others are required to complete a tax return for entirely different reasons. For example, company directors and employees earning over £100,000 per annum must complete a yearly tax return even if they have no additional, undeclared income whatsoever. Furthermore, recent changes to the administration of child benefit mean that one parent or guardian often finds themselves with the need to submit a self-assessment tax return even if they do not owe HMRC money.
Others, however, may register for self-assessment voluntarily even if no money is owed to HMRC. For those in some unusual and specific financial circumstances, tax returns can serve as useful records to assist with things like applications for loans.
HMRC has defended itself from these criticisms, however. A spokesperson said that the organisation “[doesn't] want anyone to fill in a tax return unless it’s absolutely necessary.” For this reason, he claimed, HMRC automatically takes 400,000 people out of the self-assessment process each year.
The spokesperson also insisted that HMRC goes to great lengths to ensure that the self-assessment process is as easy as possible for those who do have to complete an annual tax return. In particular, he pointed to the organisations’ “bringing in short tax returns and online self-assessment, and we are taking this much further by introducing the new digital tax accounts.”
Indeed it is hoped that new online tax accounts, which will be regularly updated with information about people’s income, could almost completely eliminate the problem of people filing unnecessary tax returns. Fully rolling out this new process, however, is likely to take some years.