Chapter 11: Introduction to Self-Assessment Flashcards
tax returns and penalties for missing deadlines
Taxpayers who are self-employed must submit tax returns, as may individuals whose taxable savings exceeds their savings allowance or taxable dividend income exceeds the dividend allowance. Taxpayers who have other untaxed income (property income) have to file returns and taxpayers with chargeable capital gains also have to submit a return.
If an individual becomes chargeable to income tax or capital gains tax for the first time, they must notify HMRC within 6 months of the end of the tax year they became chargeable, if they miss the deadline penalties apply. The penalty is based on the percentage of the potential lost revenue.
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% Less than 12 months 0%
More than 12 months 10% Less than 12 months 10%
More than 12 months 20%
issue of a tax return, filing deadlines, calculation of tax and short tax returns
Issue of a tax return – normally issued on 6 April immediately following the tax year. If they filed an online return for the previous year, they will be sent a notice to fill a tax return. HMRC can add supplementary pages to the return depending on the particular source of income, for example property income. Any other claims need to be made using the additional information pages of the tax return.
Filing deadlines – the deadline for a paper return is no later than the 31 October following the end of the tax year. The paper return can be filled 3 months after the issue of the return is this is later. For an online return the deadline is the 31 January following the tax year, or 3 months from the issue if this is later.
Calculation of tax – when filling online HMRC’s software will calculate the tax liability automatically. For a paper return the taxpayer can self-assess the liability or when a return is submitted by 31 October (or 2 months from the issue if later) HMRC can calculate the tax liability.
Short tax returns – if you had simple tax affairs you can receive a 4-page return instead of the longer return. You cannot get a short return if you are in a partnership, receive income from a trust and have income from abroad in excess of foreign dividends of £300.
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 and appeals
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
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%
