Simplifying simple assessment
A ball of string being unwound

 

Summary 

Simple assessment was first introduced as a method of tax collection 10 years ago with the goal of removing taxpayers with straightforward affairs from self-assessment. In a reversal of the self-assessment system, HMRC uses information it already holds to generate a tax demand and send it to the taxpayer for approval. 

Initially a route for HMRC to collect tax from a limited population of taxpayers, as a result of the freezing of tax allowances, there are now over 1.3 million issued each year. Despite this, the system is clunky, out of step with existing legislation for self-assessment, and generates around 500,000 calls to HMRC a year. 

We would like to see HMRC invest in ensuring that taxpayers can clearly see what information has been used to calculate their tax, with digital routes to check and amend it if necessary. 

Detail 

Simple assessment was first used in the 2016/17 tax year. Initially affecting a few hundred thousand taxpayers, the number of these assessments has grown dramatically, with 1.32 million issued for 2023/24. 

Instead of supplying information to HMRC via a tax return, under simple assessment HMRC uses information it receives from third parties including employers, pension providers, and banks and building societies to produce a computation for the taxpayer. The taxpayer is given 60 days to review and object to this computation. 

Initially two main groups were withdrawn from self-assessment: state pensioners with a state pension over the personal allowance and PAYE customers where it was not possible to collect the underpayment by restricting their PAYE code. 

Following a rise in interest rates, significantly more simple assessments have been issued to keep savers out of self-assessment. HMRC’s practice is not to accept savers into self-assessment unless their interest exceeds £10,000 in the tax year. This leaves many savers with interest in excess of their personal savings allowance (£1,000 for a basic rate taxpayer) but under HMRC’s limit in limbo. They have tax to pay, but no idea when they will receive a simple assessment. There is also a significant risk that their savings income figure will be wrong – as HMRC can only match 1 in 5 bank accounts to an individual taxpayer. 

There are a number of problems with the simple assessment system:

  • An individual does not know they will receive a simple assessment until it arrives. Simple assessments used to be issued between June and October following the end of the tax year. But following the increase in volume in 2023/24, a simple assessment can be issued up to 12 months after the end of the tax year to which it relates.
  • An individual is not required to register for self-assessment if they have been notified of a simple assessment (unless the simple assessment is incomplete). There is a practical challenge here. A taxpayer should notify HMRC that they need to register for self-assessment within six months of the end of the tax year. But, with HMRC taking up to 12 months from the end of tax year to issue a simple assessment, when the self-assessment deadline of 5 October arrives, an individual may not yet have received the simple assessment HMRC is expecting to issue.
  • For those with tax to pay on savings interest, the demand does not show a breakdown of the interest figures on an account by account basis, nor is the use of estimated figures clearly disclosed. This makes it very hard for taxpayers to check the figures, and they must ring or write to HMRC to obtain a detailed breakdown.
  • It is possible for an individual to receive two simple assessments for the same year. This can happen for example if HMRC was not expecting them to have taxable interest for the year and had issued the assessment before this data was received from banks/building societies. If it turns out that the individual does have tax to pay on interest, a second computation is needed. However, HMRC’s systems do not allow for anything paid on the first computation to be deducted from the second. Taxpayers have to work out the balance of any tax due themselves.
  • If an individual receives a simple assessment, assumes it is correct (because it comes from HMRC) and income is missing it is not clear what the potential penalties might be if this is not corrected. The point is not covered in HMRC guidance on simple assessment.
  • It is challenging for agents to assist individuals in correcting a simple assessment as there are no straightforward digital routes to report any amendments – meaning a phone call or letter is needed. There is also no straightforward authorisation route to deal with a PAYE-only taxpayer who needs to correct a simple assessment. 

Solution 

Taxpayers need to be able to see from their personal tax accounts if they can expect a simple assessment based on previous year’s information. 

Simple assessments should be issued in a more timely manner so that taxpayers are not surprised with a demand so long after the tax year to which it relates. 

More consideration needs to be given to the interaction of simple assessment with the 5 October deadline to register for self-assessment. 

Taxpayers should have a simple, online route to login to view, correct and update simple assessments and be provided with helpful prompts to add in data such as gift aid which is not currently prepopulated. 

Savers in receipt of a simple assessment need to be able to see a line-by-line breakdown of their interest from individual bank accounts.