Chapter 13 - Administration of tax

Question 1

Which individuals must issue a tax return?

Answer 1

Any individual who has taxable income that has not been deducted at source (e.g. employees whose tax is collected at source under PAYE)

Question 2

When does HMRC issue tax returnd and notices to file to taxpayers?

Answer 2

In April each year HMRC issues tax returns / notices to file to taxpayers likely to need to submit a return.

Question 3

If an individual is liable for taxable income not deducted at source, and has not been issued with a tax return or notice to file by HMRC, what must they do?

Answer 3

Any taxpayer who has a liability to income tax or capital gains tax must notify chargeability to HMRC before 5th October following the end of the tax year.

Question 4

What should the taxpayer do when HRMC withdraws a tax return it has previously issued?

Answer 4

If HMRC has issued a tax return but subsequently withdraws it, the individual must notify HMRC by the later of 5 October following the tax year or 30 days from the day after the notice was withdrawn if a tax return is required.

Question 5

What are the three types of returns and assessments a taxable individual may have to submit to HMRC?

Answer 5

• Full tax return (SA100)
• Short tax return
• Simple assessment

Question 6

Briefly describe each type of tax return for individuals and who can qualify for each

Answer 6

• Short assessment: HMRC can make an assessment of a taxpayer’s tax liability without the need for a return. This may be done for employees whose tax due cannot be collected through the tax code, or taxpayers receiving state pension > the personal allowance
• Short tax return: a short return which requires limited information from the taxpayer. May be sent to non-Director employees, pensioners or sole traders with turnover of < £85,000
• Full tax return: A more in depth return that requires much more input by the individual. For anyone who does not qualify for the shorter return or simple assessment

Question 7

What are the filing deadlines for each type of tax return for individuals? What is important to remeber regarding electronic and paper submission?

Answer 7

• Simple assessments have no filing deadline
• For full and short tax returns consult the tax tables - the deadline differs if submitting electronically or by paper

Question 8

Do partnerships have to submit tax returns? Why or why not?

Answer 8

Although a partnership is not itself liable to tax on the income and gains of the partners, it is important for partnership income and gains to be reported to HMRC so that these can be checked against the partners’ individual returns.

A partnership therefore submits a tax return to HMRC in the same way as individuals. The partners are then taxed on their share of the partnership profit via their own self-assessment tax return

Question 9

When can a self-assessment be made?

Answer 9

A self-assessment can be made up to four years from the end of the tax year to which it relates,
although late submission penalties will apply if the relevant return is not made by the due date.

Question 10

Should a return be submitted even if there is no income to declare?

Answer 10

If a taxpayer is sent a return by HMRC then unless it is agreed that the return is not required and will be withdrawn, it must be submitted to HMRC by the due date even if there is no income to declare.

Question 11

In case of a dispute, by when should a taxpayer contact HRMC?

Answer 11

The taxpayer must however contact HMRC within 60 days of the assessment if in dispute.

Question 12

Does a taxpayer have the right to amend his/her return?

Answer 12

The taxpayer has the right to amend a tax return for any reason within 12 months of the later of:
* 31 January following the end of the tax year
* three months after the return was issued,
regardless of whether it was submitted on paper or electronically

Question 13

What is the issue with filing tax returns for sole traders with regards to their businesses accounting period? What have HMRC allowed to overcome this?

Answer 13

Under the tax year rules, a sole trader may have to file a return before all the relevant accounts have been prepared. Their return may therefore contain provisional figures.

HMRC have confirmed that businesses will be allowed to replace provisional figures by the normal amendment time limits.

This will allow taxpayers to submit the amendment at the same time as their tax return for the following year

Question 14

Does HRMC have the right to amend a taxpayer’s return?

Answer 14

HMRC has the right to correct a taxpayer’s tax return for obvious errors such as errors of principle and arithmetic errors. Such corrections must be made within nine months of the date the return is actually filed.

Question 15

When are the payment dates for Income Tax, Capital Gains Tax and Class 2 & 4 NICs? How much is due on each date?

Answer 15

Income tax (which has not been deducted at source) and class 4 NIC require payments on account and are paid as follows:

• First payment on account by 31 January in the tax year - half of the income tax and Class 4 NIC paid under self-assessment for the previous year (i.e. not paid at source)
• Second payment on account by 31 July following the end of the tax year - half of the income tax and Class 4 NIC paid under self-assessment for the previous year (i.e. not paid at source)

Payments for Capital gains tax, Class 2 NIC and the balanicng payments for income tax and class 4 NIC must then be paid by 31 January following the end of the tax year - full payments for CGT and Class 2 NIC and balancing payments on the rest owed for income tax adn class 4 NIC

Question 16

For the 23/24 tax year show a timeline for the payments that will be made in that year

Answer 16

The timeline below shows the payment dates for 2023/24. Note that 31 January each year involves 2 payments – the balancing payment for the prior tax year and the 1st payment on account for the current tax year

Question 17

When are payments of account not required?

Answer 17

Payments on account are not required where the amount of the tax paid under self-assessment in the previous year was less than:
* £1,000;
* 20% of the total tax liability (income tax and Class 4 NIC) - tax deducted at source greatly outweighs tax paid under self assesment

Question 18

How can unpaid and late paid tax be collected from employees?

Answer 18

Unpaid tax due can be collected from employees by adjusting their PAYE code for the following tax year (if the return is filed on paper by 31 October after the tax year, or online by 30 December following the tax year)

Unpaid tax from earlier years can also be collected by adjusting an employee’s PAYE code (maximum collection of £17,000)

Question 19

What are the penalties for the late filing of self-assessment tax returns?

Answer 19

(see tax tables)

Question 20

Regarding late payment of tax by individuals, on what may penalty on late payments be charged?

Answer 20

A penalty may be charged on late payment of:

• Balancing payments under self-assessment
• Additional tax payment arising from amendments to a self-assessment
• Tax payable under a discovery assessment

Note that penalties do not apply to payments on account.

Question 21

What are the penalties for the late payment of tax by individuals?

Answer 21

(see tax tables)

Question 22

On what is an individual taxpayer liable to pay interest?

Answer 22

A taxpayer is liable to interest on late payment of income tax, capital gains tax, national insurance and penalties.

Interest on payments on account, balancing payments and penalties runs from the due date of payment to the day the payment is made. However, HMRC interprets this to mean for the period between those two dates – ie, HMRC does not count the actual due date or the date of payment.

Question 23

On what is an individual taxpayer liable to receive interest?

Answer 23

Repayment interest is payable by HMRC on overpaid payments on account, balancing payments and penalties.

Interest runs from the original date (or due date if later) of payment to the day before the payment is made.

Question 24

What is important to remember regarding the interest received on overpaid tax by HMRC for an individuals taxable income?

Answer 24

Repayment interest is exempt from income tax.

Question 25

What is a corporation tax return?

Answer 25

A full corporation tax return (CT600) consists of an eight-page summary form and tax calculation, together with a number of supplementary forms.

Question 26

Is there an option for HRMC to calculate the tax liability for a company?

Answer 26

No. There is no option for HMRC to calculate the tax

liability of the company.

Question 27

Should companies file their tax return electronically?

Answer 27

All companies must submit their tax returns online and pay their tax liabilities electronically.

Additionally, tax computations and the accounts that form part of the Company Tax Return must be submitted in Inline eXtensible Business Reporting Language (iXBRL) format. iXBRL is an IT standard designed specifically for business financial reporting.

Question 28

Up till when can HRMC amend a company’s tax returns?

Answer 28

HMRC corrections must be made within nine months of the date the return is actually filed.

Question 29

Up till when can a company amend it’s tax returns?

Answer 29

The company has the right to amend its tax return for any reason within 12 months of the normal due submission date

Question 30

When are the payment dates for corporation tax?

Answer 30

(see tax tables)

Question 31

When are companies liable to pay interest for corporation tax?

Answer 31

Repayment interest is payable to HMRC on late paid corporation tax payments on account, balancing payments and penalties.

Interest runs from the original date (or due date if later) of payment to the day before the payment is made.

Question 32

When are companies liable to receive interest for corporation tax?

Answer 32

Repayment interest is payable to HMRC on overpaid corporation tax payments on account, balancing payments and penalties.

Interest runs runs from the later of the date the tax was originally paid and the date the tax was due to be paid

Question 33

What is important to remember regarding the interest paid on late paid tax and received for overpaid tax by HMRC for corporation tax?

Answer 33

Interest on late paid corporation tax is an allowable non-trading loan relationship debit
Repayment interest on overpaid corporation tax is a taxable non-trading loan relationship credit

Question 34

What are the penalties for the late filing of corporation tax returns?

Answer 34

(see tax tables)

The fixed penalties are charged in addition to one another but the tax geared penalties are either or depending on how late the return is

Question 35

What is considered persistent with regards to late filing of corporation tax returns?

Answer 35

3 times late

Question 36

When does a default surchage occur, regarding VAT?

Answer 36

A default occurs when a taxable person either files a VAT return late, or makes a VAT payment late. If the default involves a late payment, a penalty known as a default surcharge may arise.

On the first default, HMRC issues a surcharge liability notice which lasts for 12 months from the
end of the period of default. These 12 months form the surcharge period. There is no default
surcharge for the first default.
If there is another default in the surcharge period, the surcharge period is extended, to end
12 months after the end of the new period of default. In addition, if this default involves the late
payment of VAT, a surcharge is now levied.

Question 37

[Available in Tax Tables] What are the default charges with regards to VAT?

Answer 37

< See Tax Tables >

Question 38

As from when does MTDfB apply?

Answer 38

MTDfB applies to VAT from April 2019.

Question 39

[Available in Tax Tables] What are the circumstances in which a penalty may be charged?

Answer 39

Careless action

Deliberate but not concealed action

Deliberate and concealed action

Question 40

What must happen in order for a penalty to be charged?

Answer 40

In order for a penalty to be charged, the inaccurate return must result in:

an understatement of the taxpayer’s tax liability;

a false or increased loss for the taxpayer; or

a false or increased repayment of tax to the taxpayer.

Question 41

What happens if a return contains more than one error?

Answer 41

If a return contains more than one error, a penalty can be charged for each error.

Over and under statements can be offset and the penalty applied to the net error.

Question 42

In what circumstances do penalities for errors also apply?

Answer 42

Penalties for errors also apply where HMRC has issued an estimate of a person’s liability where:

• a return has been issued to that person and it has not been returned; or
• the taxpayer was required to deliver a return to HMRC but has not delivered it.

The taxpayer will be charged a penalty where:

• the assessment understates the taxpayer’s liability to income tax, capital gains tax,
  corporation tax or VAT; and
• the taxpayer fails to take reasonable steps within 30 days of the date of the assessment to
  tell HMRC that there is an under-assessment.

Question 43

What does PLR stands for?

Answer 43

Potential Lost Revenue (PLR) to HMRC as a result of

the error.

Question 44

[Available in Tax Tables] What are the maximum penalites for each type of error?

Answer 44

Careless 30% of PLR

Deliberate but not concealed 70% of PLR

Deliberate and concealed 100% of PLR

Question 45

What is the maximum penalty for failure to submit a return?

Answer 45

The maximum penalty payable where tax has been under-assessed because the taxpayer has failed to send a return is 30% of Potential Lost Revenue.

Question 46

What is the difference between promted and unpromted disclosures?

Answer 46

An unprompted disclosure is one made at a time when there is no reason to believe that HMRC has discovered or is about to discover the error. Otherwise, the disclosure is a prompted disclosure.

Question 47

[NOT Available in Tax Tables] What are the minimum penalites that can be imposed after disclosure?

Answer 47

Unpromted

Careless - 0% of PLR
Deliberate but not concealed - 20% of PLR
Deliberate and concealed - 30% of PLR

Prompted

Careless - 15% of PLR
Deliberate but not concealed - 35% of PLR
Deliberate and concealed - 50% of PLR

Question 48

What elements does the HRMC consider when calculating the quality of a disclosure of errors when giving reductions for penalties?

Answer 48

To calculate the reduction HMRC will consider three elements of disclosure and to what degree the taxpayer:

• tells HMRC about the error, making full disclosure and explaining how the error was made
• helps HMRC to work out what extra tax is due
• allows access to business and other records and other relevant documents to check the
  figures

Question 49

What is meant by ‘reasonable care’?

Answer 49

Where a taxpayer has taken reasonable care in completing a return and has taken reasonable steps to disclose any errors, no penalty applies.

If taxpayers do not promptly tell HMRC when they discover an error, HMRC will treat the errors as careless inaccuracies even where the taxpayer took reasonable care.

Question 50

How are penalties issued?

Answer 50

If a person is liable to a penalty, HMRC sends them a penalty assessment.

This states what they owe and that the penalty must be paid within 30 days.

The taxpayer must pay any:

• Tax that is due
• Penalties that are due
• Interest that is due on late tax and penalties

Question 51

Under what circumstances may a penalty be suspended?

Answer 51

A penalty may be suspended by HMRC to allow the taxpayer to take action to ensure that the error/inaccuracy does not occur again (eg, where the error has arisen from failure to keep proper records).

The penalty cannot be suspended if it results from a deliberate error/inaccuracy.

Question 52

Under what circumstances may a penalty be cancelled?

Answer 52

The penalty will be cancelled if the conditions imposed by HMRC are complied with by the taxpayer within a period of up to two years.

Otherwise, if the conditions are not met, the penalty must be paid.

Question 53

Appeals can be made against what?

Answer 53

Appeals can be made against:

• The imposition of a penalty
• The amount of a penalty
• A decision not to suspend a penalty
• The conditions set by HMRC in relation to the suspension of a penalty

Question 54

Appeals are made to whom?

Answer 54

Appeals are made to an independent tribunal, which will usually be the First-tier Tribunal of the Tax Chamber.

It is also possible to opt for an internal review by an independent HMRC officer. This is potentially a quick and inexpensive way to resolve a dispute.

Question 55

Does a common penalty regime apply for failure to notify?

Answer 55

Yes. A common penalty regime applies to failures to notify chargeability.

Question 56

If deliberate action is attributed to an officer, can penalities be collected from them?

Answer 56

Yes. Penalties can also be collected (in part or in full) from an officer (eg, director) of a company if a ‘deliberate action’ is attributable to him.

Question 57

Which taxes are affected by the failure to notify common penalties?

Answer 57

The taxes affected are:

• Income tax
• National insurance contributions
• Income tax and NIC collected via PAYE
• Capital gains tax
• Corporation tax
• VAT

Question 58

[Available in Tax Tables] What are the minimum and maximum penalties for failure to notify?

Question 59

Is there a penalty when there is a ‘reasonable excuse’ for failure to notify?

Answer 59

Where the taxpayer’s failure is not classed as deliberate, there is no penalty if he or she can show they have a ‘reasonable excuse’.

Question 60

What is a ‘reasonable excuse’ for failure to notify?

Answer 60

A reasonable excuse is something that prevents a taxpayer from meeting an obligation despite the taxpayer having taken reasonable care to comply.

Question 61

What does NOT constitute ‘reasonable excuses’ for failure to notify?

Answer 61

Reasonable excuse does not include having insufficient money to pay the penalty.

These also include the following:

• My husband told me the deadline was in March
• I have always relied on my sister to complete my tax return but we have fallen out
• My laptop broke
• My spouse left me
• I could not find my login details
• The return was on my yacht which caught fire

Question 62

Can taxpayers make appeals against penalties for failure to notify?

Answer 62

Yes. Taxpayers have a right of appeal against penalty decisions to the First-tier Tribunal, which may confirm, substitute or cancel the penalty.

Question 63

Is there a common framework for record keeping?

Answer 63

There is a common framework for record keeping for income tax, capital gains tax, corporation tax, VAT and PAYE.

Question 64

What is meant by ‘adequate’ records?

Answer 64

‘Adequate’ means keeping records to be sure that the right profit, loss, tax declaration or claim is made.

Question 65

What are the time limits for keeping records for Corporation tax?

Answer 65

Six years from end of accounting period

Question 66

What are the time limits for keeping records for Income and capital gains tax?

Answer 66

• 5th anniversary of 31 January following end of tax year if the taxpayer is in business
• 1st anniversary of 31 January following the end of the tax year if the taxpayer is not in business

Question 67

What are the time limits for keeping records for VAT?

Answer 67

Six years

Question 68

[Available in Tax Tables] What is the maximum penalty for failure to keep and retain records?

Answer 68

The maximum (mitigable) penalty for each failure to keep and retain records is £3,000 per tax year/accounting period.

Question 69

What is the time limit for taxpayer claims?

Answer 69

The general time limit for taxpayers making claims, which applies in the absence of any specific time limit, is four years from the end of the tax year or accounting period.

Question 70

What is a qualifying company?

Answer 70

A qualifying company has, at the end of its previous financial year:

(a) turnover of more than £200 million; and/or
(b) a balance sheet total of more than £2 billion.

Qualifying companies must notify HMRC of the name of their senior accounting officer (SAO).

Question 71

What are the duties of the Senior Accounting Officer of a qualifying company?

Answer 71

Senior accounting officers of ‘qualifying’ companies must take reasonable steps to establish and maintain appropriate tax accounting arrangements.

The SAO must certify annually that the company’s accounting systems are adequate for the purposes of accurate tax reporting or specify the nature of any inadequacies.

HMRC may impose a £5,000 penalty on the company for failure to notify the name of the SAO.

Question 72

What penalities may a Senior Accounting Officer of a qualifying company be liable for?

Answer 72

The SAO may be liable to a £5,000 penalty, in each of the following cases, for his failure to:

(a) establish and maintain appropriate tax accounting arrangements
(b) provide an annual certificate to HMRC, or providing a timely certificate that contains a careless or deliberate inaccuracy

Question 73

Is reporting of PAYE made in real time?

Answer 73

Yes.

The reporting of PAYE is made in real time (Real Time Information or RTI). Each time an employee is paid, the details of his pay and deductions must be submitted to HMRC using a Full Payment Submission.

Question 74

How must payroll information be submitted and when is it due?

Answer 74

The payroll information must be submitted using a Full Payment Submission (FPS) and is due to HMRC on or before the day the employee is paid.

The reports required will be generated by the
payroll software and will include details of:

• The amount paid to each employee
• Deductions such as income tax and national insurance contributions
• Starter and leaver dates

Question 75

Which benefits can be processed through the payroll?

Answer 75

All benefits, except employer provided living accommodation and interest free/low interest loans, can be processed through the payroll.

Question 76

What are employers required to submit, with respect to PAYE?

Answer 76

Employers are not required to submit a full P11D for the benefits that are payrolled but are required to pay Class 1A national insurance and to submit a P11D(b) showing the cash equivalents of these benefits.

Question 77

When is it possible to exclude specific employees from payrolling?

Answer 77

It is possible to exclude specific employees from payrolling.

For example, an employer is allowed to stop payrolling benefits for an employee if it would result in more than 50% of their pay being deducted as tax.

In this case, the tax on the benefit will then be reported on a P11D and included in the employee’s tax calculation after the year end.

Alternatively, if the employer chooses to continue payrolling the benefits of this employee, any tax exceeding 50% of pay will be carried forward and collected in the following and subsequent months until all tax has been collected.

Question 78

What are the required PAYE forms?

Answer 78

P11D :
- End of year form recording details of benefits provided to employees.
- Need to send to HMRC and copy to employee
by 6 July following end of tax year

P60:
- End of year form recording details of gross pay, tax deducted and NICs for both employer and employee
- Need to supply to each employee by 31 May
following end of tax year

P45:
- Particulars of employee leaving: records tax code, gross pay to date, tax and NICs deducted
- Under RTI no parts of the form need to be submitted to HMRC. Starter and leaver details are included on the
monthly FPS. Employees are provided with the form for their own records.

Question 79

Which employers are required to pay income tax/Class 1 NI contributions electronically?

Answer 79

Employers with at least 250 employees must pay income tax/Class 1 national insurance contributions electronically.

They receive an extension of three days to make their payment, therefore payments are due by 22nd rather than 19th of a month. There is no change to the
payment of PAYE under RTI.

Question 80

[Available in Tax Tables] What are the penalties that may be charged for both incorrect PAYE returns and for PAYE returns filed late?

Question 81

[Available in Tax Tables] Regarding PAYE, what are the penalties for late payment?

Answer 81

The percentage penalty is applied to the total amount that is late in the relevant tax month, but ignoring the first late payment in the year.

Where the tax remains unpaid at 6 months, there is a
further penalty of 5% of tax unpaid, with a further 5% if tax remains unpaid at 12 months, even if there is only one late payment in the year.

Question 82

When can late PAYE payment penalties be suspended?

Answer 82

Late payment penalties can be suspended where the taxpayer agrees a time to pay arrangement, unless he or she abuses the arrangement.