Ch 13 - Administration of tax Flashcards
What are the different penalties for errors?
If taxpayer took reasonable care in completing and took reasonable steps to disclose errors, no penalties
If using an agent (acc) to complete the return, taxpayer remains responsible for it being correct
Penalties are raised by assessment sent by HMRC, and are due within 30 days
When do penalties become due?
30 days after HMRC assessment
if an agent (acc) prepares an individuals tax return, whose responsibility is it to get it right/.
Still the individuals
When are penalties suspended?
Suspended for up to 2 years to allow tax payers to put things right i.e. improve their acc records
can tax payers appeal against tax penalties?
Yes
When are penalties charged?
When the inaccuracies on the TR lead to
- Understated tax
- Excessive/false loss claim
- Excessive/false tax repayment
- Incorrect claims and reliefs
Or charged if taxpayer fails to advise HMRC of an incorrect ass w/in 30 days of the issue of the assessment
What are penalties based on?
The Potential Lost Revenue (PLR)
Basically is the unpaid tax as a result of the error, can be up to 100% of the PLR
Max and min penalties are given in table ‘Penalties for Incorrect Returns
What do penalties vary according to?
- Careless e.g. failing to check the return is consistent with underlying records
- Deliberate ut not concealed e.g. paying wages without operating PAYE/NIC, omitting large amounts of income from TR
- Deliberate and concealed e.g. creating false inv, destroying records
Give examples of carelessness that leads to penalties?
Failing to check the return is consistent with underlying records
Give examples of deliberate but not concealed that leads to penalties?
Paying wages without operating PAYE/NIC, omitting large amounts of income from TR
Give examples of deliberate AND concealed that leads to penalties?
Creating false inv
Destroying records
How can penalties be reduced?
Reduced where disclosure is made by the tax payer, with a greater reduction for unprompted disclosure
i.e. made at a time when there is no reason to suppose HMRC have discovered or are about to discover the error
Still get penalty if reasonable care was taken, but reduced to nil if rectified within 12 months through unprompted disclosure
Non-deliberate failure can be reduced to nil if taxpayer has a reasonable excuse
How can penalties be collected for failure to notify? (Fully or partially)
Collected from an officer of a company (e.g. director) if ‘deliberate action’ is attributable to him/her
What is a reasonable excuse?
A issue that prevents the taxpayer from meeting an obligation despite having taken reasonable care to comply
Give some examples of reasonable excuses?
- Death of a close relative of tax payer shortly before the due date
- Tax payer being required to have an unexpected stay in hospital
- Tax payer having a serious life-threatening illness
- Delays relating to disability of taxpayer
- Computer or software failure while preparing online return
- Service issues with HMRC’s online services
- Fire, flood, theft or postal delays
Lack of funds to pay is not reasonable excuse
Is lack of funds a reasonable excuse?
NO
What does the amount of the penalty based on?
The PLR, which depends on the relevant tax
- Income tax / CGT, the PLR is the tax outstanding at 31 Jan following the tax yr
- Corp tax the PLR is the amount of tax unpaid 12 months after the end of acc period
- For VAT, the PLR is the amount of VAT for which the person is liable for the period from the date on which they should have been registered, up to the date when they notified HMRC of their liability to be registered, or HMRC otherwise became aware of their liability to register
Where can you find max and min penalties for tax for failing to Notify?
In Penalties for Failure to Notify table
TYU3: Stewart has never had to submit a TR
During July 18 he inherited a large sum of money which he invests in offshore high interest deposits.
Deposits produce income of £2.5k in TY 18/19 and he didn’t realise he should inform HMRC.
He finally informs them in June2020 when he receives a letter from HMRC asking about the inheritance.
Tax of £1k should’ve been paid on 18/19 income
Explain min and max penalty that could be charged on the failure to notify liability for this income?
Stewart should have notified HMRC of his new source of income by 5 Oct 2019
Actions weren’t deliberate so the max penalty is 30% of PLR: 30% x £1,000 = £300
He made a prompted disclosure within 12 months, so the minimum penalty is 10% of PLR: 10% x £1,000 = £100
What taxes does the rules for keeping info apply to?
Apply to all taxes examined
But employers must keep specific records for PAYE
How long must information be kept for corporation tax?
6 years from the end of the acc period
How long must information be kept for income tax and CGT for business records?
5 years from 31 Jan following the tax year
How long must information be kept for income tax and CGT for personal records?
1 year from 31 Jan following year
How long must information be kept for VAT?
6 years
What is the general time limit for tax payers to make claims and what taxes does it apply to?
4 years from the end of the tax year or acc period
Applies to all taxes
What is the general time limit for tax payers to make claims and what taxes does it apply to?
4 years from the end of the tax year or acc period
Applies to all taxes
What is the maximum penalty for failing to keep records?
£3k max per tax year or acc period
Can be reduced by HMRC
What is a SAO?
A senior accounting officer (SAO)
What is a designated senior accounting officer’s responsibility?
Personally responsible for certifying each year that the company’s acc systems can produce accurate tax information
What is the definition of a large company?
Has turnover in excess of £200m and/or gross assets of £2bn
What penalties can occur re/ SAO’s and what would it be charged for?
£5,000 max for penalty for failure to provide an accurate annual certification or failure to establish an adequate accounting system
What taxes do the common penalty regime for late filing of tax returns apply to?
- Income tax: personal tax return, partnership tax return
- CGT- personal tax return
What is the amount fo penalty for late filing of returns?
What does the penalty depend on?
Can be found in table ‘Income tax and CGT: penalties for late filing of a SA return
Depends on the length of the delay of submitting
What does the penalty for late filings of return depend on
Length of delay in submitting the return
TYU4: Mark submitted his tax return for 2018/19 on 10 September 2020 which showed a tax liability of £4,000
Mark paid this amount on the same date
Explain the penalties that may apply in relation to the late filing of the return
As the return was not filed by the due date of 31 Jan 2020, the penalty of £100 will be charged
As the return was more than 3 months late, daily penalties of £10 per day could be enforced for a max of 90 days (£10 x 90 days = £900)
As the return was more than 6 months late, a penalty of 5% of the liability to tax will eb charged £4,000 * 5% = £200
Since this is less than £300, the minimum penalty will still apply
When must RTI be given?
Must be submitted on or before the day the employee is paid, using a Full Payment Submission (FPS)
What can employers opt do process using RTI?
Can opt to process benefits such as car, van, fuel, medical insurance and subs through their payroll
i.e. report value of benefit and
What can employers opt do process using RTI?
Can opt to process benefits such as car, van, fuel, medical insurance and subs through their payroll
i.e. report value of benefit and treat the cash equivalent of the benefit like a salary, so the relevant tax is deducted under PAYE
What are the forms used by HMRC to convey information?
P45 - 4 part form used when employee leaves.
P60
P11D
What is a P45?
4 part form used when an employee leaves
Contains summary of taxable pay, tax and NIC deducted, e’era NI contributions for the employee, up to the date of leaving
Does the P45 need to be submitted to HMRC/
No, under RTI no info on the P45 needs to be submitted to HMRC
What can penalties be given for relating to PAYE?
- Incorrect PAYE returns (penalties for errors apply to incorrect FPS submissions under RTI)
- Late filing of PAYE returns
What are the penalties for late FPS payments?
Found in table ‘PAYE: penalties for late returns/submissions’
Depends on how many employees the PAYE scheme has
What does the penalties for late FPS returns/submissions depend on?
Depends on how many employees the PAYE scheme has
What is the penalty for PAYE/NIC late payments?
Given on PAYE/NIC due during the tax year (in-year PAYE)
Found in PAYE: penalties for late payments
Usually depends on number of defaults in any 12 month period (usually tax yr)
What does the penalty for late PAYE/NIC payments depend on?
Usually depends on number of defaults in any 12 month period (usually tax yr)
How can late payment penalties be suspended?
If taxpayer agrees a time to pay arrangement, unless this arrangement is then abused
TYU5: Lisbeth is an employer with a regular monthly liability of £10,000.
She pays that amount 9 days late on 6 occassions in the year.
Calc the total payable penalty for Lisbeth for the tax year
As there are 6 defaults in the year, the first is ignored, then the following 3 are charged at 1 % and the next 2 at 2%
Therefore the total penalty =
( 3 x 1% x £10,000) + (2 x 2% x £10,000) = £700
When is there no need for an individual to complete a tax return?
If all tax is paid under PAYE
What can employees with other income e.g. inv income of £3k or less choose to do?
Pay the additional tax via PAYe
When can individuals opt to pay additional other income e.g. investment income via PAYE?
When the other income is £3k or less
When are returns issued to individuals and how?
Done automatically to those who are likely to need them
When are short tax returns available?
For employees (who aren’t directors), pensioners and traders with a turnover up to the VAT registration limit
What must be done if an indiv doesn’t receive a tax return?
They must notify HMRC by 5 Oct following the end of the tax year (unless they have no need to complete a return)
Otherwise failure to notify can lead to a penalty
How are tax liabilities calculated when submitting electronically?
It is calculated automatically
How are tax liabilities calculated when submitting on paper?
Taxpayer must calc the tax, or request HMRC to calc the tax
What is the due date for submission of PAYE returns?
Depends on whether it is electronic or paper, and whether HMRC or taxpayer will cal the tax
What must partnerships submit by the same deadline?
Submit partnership income and gains by the same dates
Are short tax returns available electronically?
No
When can simple assessments be issued?
Simple assessments can be issued if HMRC have enough info without the tax payer submitting a return
Part of the movement towards digital accounts
