Chapter 1 An introduction to self-assessment Flashcards
1.2 Tax Returns
Taxpayers who are self-employed, individuals with taxable savings and dividends exceeding the allowance, individuals with untaxed income and a taxpayer with a taxable capital gain will need to submit a tax return.
1.3 Notification
An individual must notify HMRC the first time they become chargeable within six months of the end of the tax year in which they became chargeable. If they miss the deadline HMRC will charge a penalty, which is based on the behaviour of the individual and a percentage of the potential lost revenue. The penalties are set out below:
Behaviour Max penalty Min penalty with unprompted disclosure Min penalty with prompted disclosure
Deliberate and concealed 100% 30% 50%
Deliberate but not concealed 70% 20% 35%
Any other case 30% 0% less than a year
10% more than a year 10% less than a year
20% less than a year
1.4 Issue of a Tax Return
Returns are typically issued by HMRC to taxpayers on 6 April immediately following the tax year. A taxpayer must give details on all income received from all sources in the tax year. They then sign a declaration to say that to the best of his knowledge and belief the tax return is correct and complete.
1.5 Filing deadlines
A paper return should be filed no later than 31 October following the end of the tax year. However the paper return can be filed within three months of the date of issue of the return if this is later than the following 31 October. Where the taxpayer completes an online return the return should be filed no later than 31 January following the tax year. The return can be filed within 3 months of the issue of the return if this date is later.
1.7 Penalties for late returns, amendments and enquiries
Penalties for later returns - £100 initial penalty, then additional penalties of £10 a day up to 90 days. If return is 6 months late additional penalty of 5% of any tax liability or £300 if greater. An additional penalty of 5% of any liability or £300 if greater added if return is 12 months late. Then if the individual is withholding but not concealing information 70% penalty of a liability can be imposed but if they conceal and withhold that penalty can be 100%.
Amendments – HMRC have the right to amend a return within 9 months of receipt. The taxpayer also has the right to amend the return as long as it is within 12 months of due date for filling.
Enquiries – HMRC have the right to make a formal enquiry into every tax return. A revenue officer must issue a formal enquiry notice to the taxpayer within the time allowed, the normal time limit for an enquiry is 12 months after the day the return is delivered. If the return is submitted late, the enquiry period is extended to the end of the calendar quarter following the anniversary of the actual filling date (quarters are 30 April, 31 July, 31 October and 31 January). Once the enquiry has finished HMRC will issue a closure notice. The taxpayer has 30 days to appeal against any amendments included with a full or partial closure notice. HMRC may only enquire into a tax return once. An enquiry may be opened into an amendment, but the enquiry is restricted to matters covered in the amendment.
record keeping, appeals and incorrect returns
Record Keeping – taxpayers required to retain records of income and capital gains for at least 22 months after the end of the tax year to which they relate (31 January). Self-employed or individuals with property income must maintain records for at least 5 years and ten months after the end of the tax year to which they relate. Records must be kept longer if there is an enquiry into the return which has not been completed and if the return is submitted late the period is extended (records then must be kept until the final date for an enquiry has passed). The maximum penalty is £3,000 for each failure to maintain records sufficiently to support entries on the return.
Appeals – you can appeal if the legislation is open to different interpretations, the taxpayer has a different view to HMRC’s interpretation or if the taxpayer believes HMRC has made a mistake. A taxpayer can also appeal an amendment made by HMRC, a taxpayer must give written notice of the appeal and the grounds for doing so within 30 days of the amendment or assessment. If an appeal is not settled between HMRC and the taxpayer HMRC can offer a review, if a review is not offered the taxpayer can ask HMRC to review it or ask a tribunal to consider the appeal. During a review HMRC appoints an officer not previously involved. If the taxpayer does not agree with the review office, they have 30 days to go to a tribunal to consider the appeal. Almost all tax appeals go to the first-tier tribunal, who decide which category it goes under, default paper, basic, standard or complex. Appeals made against the first-tier tribunal goes to the upper tribunal which is a binding decision, unless the individual goes to the court of appeals or the supreme court.
Penalties for incorrect returns – if a return contains more than one error, a penalty is charged for each error. The penalty charged is the potential lost revenue.
Behaviour Max penalty Min penalty for unprompted disclosure Max penalty for prompted disclosure
Deliberate and concealed 100% 30% 50%
Deliberate but not concealed 70% 20% 35%
careless 30% 0% 15%
Partnership self assessment
Partnership Self-assessment – when a partnership is first formed it must be registered with HMRC by the nominated partner. In addition each individual partner must register with HMRC for self-assessment as normal. The nominated partner is responsible for completing the partnership’s tax return. The filing deadlines for a partnership tax return are the normal self-assessment filing deadlines. If penalties apply for returns each partner is responsible for them. As the partnership is return does not show a liability to tax, the tax geared penalties do not apply. The rules around amendments and enquiries are the same for partnerships as individuals. An enquiry into a partnership return automatically extends to the partners’ own returns. Records must be kept by the partnership for at least five years and ten months following the end of the tax year to which they relate.
