IR29 29 November 1994 SELF ASSESSMENT: EMPLOYERS AND EMPLOYEES - OUTCOME OF CONSULTATIONS The Chancellor proposes in his Budget to bring forward measures to ensure that employers give their employees information they will need to complete their tax returns after 6 April 1997. This follows public consultations on proposals in a recent Inland Revenue consultative document. Responses to the document showed broad agreement that these changes were necessary to enable employees to self-assess. These measures will be given effect by changes to the Pay As You Earn (PAYE) Regulations and by legislation in the next Finance Bill and will first apply in respect of the tax year 1996/97. Draft legislation is being published today for public consultation. The Chancellor's intention in publishing these drafts is to give as long a period as possible for consultation before the legislation is considered by Parliament. DETAILS 1. The Inland Revenue published a consultative document entitled "Self Assessment: what it will mean for employers and employees" on 9 May 1994. The period for public consultation ended on 8 July. 2. The document contained a number of detailed proposals. A key consideration in designing these proposals was the need to keep burdens on employers to the minimum necessary to enable employees who receive tax returns to self-assess. 3. The main proposals were employers should provide to the Inland Revenue and to their employees by 6 July, details of expenses payments and benefits in kind provided in the previous tax year unless a dispensation has been given by their Inspector of Taxes. This would be a change from the current rules under which the employer is required to provide the details to the Inland Revenue only and has to do so by 6 June; these details should include a calculation by the employer of a cash equivalent for any benefit in kind provided to the employee; the current penalty regime for failure to make returns to the Inland Revenue should be extended to apply where employers fail to provide the required information to employees; a time limit - 19 May following the end of the tax year - should be set for the provision by the employer of details of pay and tax deducted to employees. 4. In response to representations, the new time limit for employers to provide pay and tax details to employees will be set at 31 May following the end of the tax year, rather than 19 May as proposed. Responses 5. About 1300 copies of the document were issued. Just under 70 written replies were received. Other comments on the proposals - taken at public meetings of employers and agents organised by Inland Revenue local offices - reflected the same broad pattern of views as the written replies. 6. The written responses were split approximately evenly among three broad groups consisting of representative bodies and associations, employers, and accountants, individuals and others. 7. The comments received covered various aspects of self assessment. This Press Release reports views on the proposals put forward in the consultative document. Providing details of expenses payments and benefits in kind 8. About 85 per cent of responses agreed to the first main proposal - about providing details to both employees and the Inland Revenue by 6 July - with the three groups responding as follows: representative bodies and associations 75 per cent employers 90 per cent accountants, individuals and others 90 per cent Calculating cash equivalents of benefits in kind 9. About 75 per cent responses agreed to the second main proposal - about calculating cash equivalents - with the three groups responding as follows: representative bodies and associations 65 per cent employers 85 per cent accountants, individuals and others 80 per cent Penalty regime 10.About 55 per cent responses agreed to the third main proposal - about penalties for failing to meet the proposed new obligations - with the three groups responding as follows: representative bodies and associations 45 per cent employers 35 per cent accountants, individuals and others 80 per cent Time limit for pay and tax details 11. About 40 per centresponses agreed to the proposed time limit of 19 May. The three groups responded as follows: representative bodies and associations 35 per cent employers 40 per cent accountants, individuals and others 55 per cent Other proposals 12. The consultative document also contained other proposals including two covering benefits provided by third parties and beneficial loans. Benefits in kind provided by third parties 13. The document proposed that, in general, where a benefit in kind is provided by a third party, the third party should be responsible for providing the employee with the necessary information. But that responsibility would rest with the employer if the employer had arranged or facilitated the provision of the benefit by the third party. 14. Overall about 80 per cent responses agreed to this proposal - with the three groups responding as follows: representative bodies and associations 65 per cent employers 85 per cent accountants, individuals and others 90 per cent Beneficial loans 15. The document also proposed changes to the rules for calculating the cash equivalent of a beneficial loan. Consultations on this proposal are continuing and decisions will be announced early next year. Draft legislation 16. Drafts are being published today of the legislation, other than on beneficial loans, which would give effect to these measures in PAYE Regulations and in the next Finance Bill. The legislation would first have effect in respect of the tax year 1996/97. 17. Comments are invited on the draft Finance Bill clause by 10 January 1995 and on the draft PAYE Regulations by 28 February 1995. 18. The drafts, accompanied by explanatory notes, are available (post free) from: Martin Durkin Personal Tax Division Inland Revenue Somerset House LONDON WC2R 1LB NOTES FOR EDITORS 1. Responses to the consultative document "Self Assessment: what it will mean for employers and employees" were due by 8 July 1994. But copies of the document are still available, price Pounds 4 each (post free), from the Inland Revenue Library, Mid-Basement, Somerset House, London WC2R 1LB. Personal applications should be made by calling at The Public Enquiry Room, West Wing, Somerset House. Remittances should be in cash or by a cheque, giro cheque or postal order in favour of the "Inland Revenue" and must accompany applications. Postage stamps cannot be accepted in payment. 2. This was the third consultative document and was part of a major programme of consultations about proposals to reform the system of personal taxation for about 9 million people who receive tax returns. The first consultative document entitled "A Simpler System for Taxing the Self- Employed" was published by the Inland Revenue on 14 August 1991. The second consultative document entitled "A Simpler System for Assessing Personal Tax" was published by the Inland Revenue on 5 November 1992. 3. The main elements of the legislation introducing the self assessment system and the simplification of the basis of assessment for the self-employed is in Finance Act 1994.