Treasury collects pounds 2bn tax windfall

SELF-ASSESSMENT, the taxation system criticised for its level of dastardly and fiendish complication, raised more than 20 per cent more money in its first year than Inland Revenue experts had expected.

The Revenue yesterday revealed that self-assessment brought pounds 11bn in the 1997-98 tax year, pounds 2bn more than their experts had estimated.

The increase, which flew in the face of dire predictions in some accountancy quarters, is the equivalent of raising the basic rate of income tax by more than 1p in the pound.

Last night the Revenue insisted that people were not paying more tax, but factors such as early payment were bringing in more money more quickly. Some experts still suggested the complicated nature of the paperwork might mean people were paying too much money.

"If the extra money is a reflection of the strong state of the economy then that is one thing, but it might simply mean that people are making errors when they are filling in their forms," said Peter Bickley, technical manager with the Institute of Chartered Accountants.

Either way, the extra income represents a pleasant boost to the Treasury.

A Treasury spokesman said yesterday that the amount raised was "slightly" more than expected. The extra income will go into general public sector accounts.

Under the self-assessment system - introduced last year - 9 million mainly self-employed people and those higher earners have to fill in their own tax returns.

The forms consist of many pages and people have to give information about savings, shares and other income.

Though the Revenue offered advice for anyone confused by the forms, anyone failing to meet the 31 January deadline faced an automatic fine of pounds 100.

The Revenue confirmed yesterday that 775,000 fines had been processed, but officials said this did not mean pounds 77.5m had been raised because some people would not have to pay them.

"Under the system anyone who is fined but has paid all their tax will get a rebate of their fine," said a spokesman.

"It is not the case that people are paying more taxes - they are paying exactly the same.

"Our estimates were very difficult to make because there were a number of factors, such as likely profits an individual might make, which are very hard to calculate."

The spokesman said that next year's estimates would take into account the forecasting error that had been made.

The National Consumers' Association, which questioned the introduction of self-assessment, said yesterday that the results raised questions about the fairness of the forms.

"It is hard to believe that people are suddenly becoming more honest," a spokesman said.

"The difference between what was estimated and what was actually raised has been large and one wonders whether people are simply getting the forms wrong."

The Revenue said that anyone paying too much tax would either be offered a refund, or else have the amount taken off any future tax bill.