Self-Assessment Service

Self-assessment service

The self assessment return

Certain individuals are required to complete a return for every tax year. This covers income and gains, reliefs and allowances and, in some cases, a calculation of the tax payable.

The key details to grasp concerning the return are the filing dates.

The taxpayer has the choice of filing a paper return or filing electronically online. The date by which a return must be filed depends on the method used. All completed and signed paper returns must normally be filed by:

31 October following the end of the tax year.

All on line (electronic) returns must be filed by:

31 January following the end of the tax year.

31 January following the end of the tax year is known as the 'filing date' regardless of when the return is filed on paper or electronically. When a return is not issued until after 31 October following the end of the tax year, it must be filed within three months of the date of issue.

The return consists of a six page summary form with supplementary pages which vary according to an individual's income and gains position.

The taxpayer is permitted to correct or 'repair' their self assessment return within 12 months of the filing date. HMRC can correct 'obvious errors' in the period of nine months from the actual filing date.

Penalties for late filing

Failure to submit a return by 31 January following a tax year will result in a flat
rate penalty.

Short delay (ie between 31 January and 31 July) - £100
Delay of more than six months (ie 31 July - up to 12 months late) - a further £100
Delay of more than 12 months – Tax geared penalty

In certain cases, HMRC may apply to the General or Special Commissioners (independent Tribunals) for a penalty of up to £60 per day. This will be used where HMRC are of the opinion that fixed penalties alone will not result in the submission of the return.

However, the penalties cannot exceed any tax liability due (ie if the tax liability is only £90, the fixed penalty will be so restricted).

Penalties for incorrect tax returns

If the taxpayer files an incorrect tax return, a penalty equal to a percentage of the tax under declared may be charged. The penalty may be waived for inadvertent errors, as long as the taxpayer notifies HMRC of the error as soon as possible.

The percentage depends on the reason for the error.

Taxpayer behaviour

Penalty as % of revenue lost

Mistake No penalty

Failure to take reasonable care 30%

Deliberate understatement 70%

Deliberate understatement with concealment 100%

The instalment system

The return of tax information, and the penalties relating thereto, should not be confused with the fact that certain individuals will also need to make payments of tax.

In the UK tax system, many individuals pay the bulk of their tax by 'deduction at source: For example, the most common forms of savings income (bank interest and building society interest) have 20% income tax deducted.

Dividend income has a 10% tax credit. Both forms of tax credit cover the taxpayer's tax liability unless he is a higher rate taxpayer. Also, employees suffer tax at source through the PAYE system.

However, some individuals are subject to an instalment system based upon profitability.

The instalment system operates as follows:

31 January in the tax year: first payment on account

31 July following the tax year: second payment on account

31 January following the tax year: final payment

The payments on account are estimated, in that they are based on the previous
year's tax payable (ie total income tax liability less tax deducted at source).

No requirement for payments on account:

Capital gains tax

Interest and penalties on payments of tax

Failure to make payments, whether payments on account (POA) or final payments, by the due date will attract interest. This applies to CGT as well as income tax. Interest is not intended to be a penalty but merely a commercial charge for late payment. There is also a penalty system known as surcharges.

Interest is charged from the day the tax is due until the day before it is paid. The calculation of interest on tax paid late is not within the syllabus.

Surcharge

The income tax payable for the previous tax year is less than £500, or

More than 80% of the income tax liability for the previous year was met through tax deducted at source.

It is this second exclusion which means that most employed people, even where they are higher rate taxpayers, will not have to make payments on account.

Payments on account are not required in the following circumstances:

In addition to interest, the taxpayer may incur a surcharge on unpaid tax. This only applies to the final payment of income tax and CGT.

The payments on account system does not apply to capital gains tax (CGT) because, for most individuals, assessable capital gains do not routinely occur annually.

CGT is therefore paid in one instalment on 31 January following the tax year regardless of whether there was a CGT liability for the previous year.

The surcharge system operates as follows:

The CGT liability is not taken into account when determining the payments on account for income tax.

More than 28 days late 5% of tax overdue

More than six months late further 5% of tax overdue

A surcharge may be mitigated where the taxpayer can provide a reasonable excuse. Insufficiency of funds or lack of knowledge on self assessment are not reasonable excuses.

HM Revenue and Customs enquiries

HMRC have the statutory power to enquire into an individual's tax return.

They have to issue a written notice to initiate an enquiry and they cannot issue a notice more than 12 months after the date the return was submitted by the taxpayer to HMRC.

Therefore, if a 2009/10 paper tax return is submitted on the normal filing date of 31 October 2010, any enquiry notice must be issued by 31 October 2011. If a return is filed early, the enquiry timeframe is correspondingly earlier.

Accordingly, a taxpayer can assume his return is accepted as final once the anniversary of the date on which it was filed has passed.

HMRC may choose a return for enquiry if they suspect that it is incomplete or inaccurate in some respect or it may be selected at random. Their own internal instructions forbid an officer from giving any reason for the enquiry.

Enquiry procedure

Once the enquiry notice is given HMRC can request relevant documents and written particulars. This means HMRC is entitled to full answers to any specific questions.

At the end of the enquiry a completion notice is issued stating the outcome of the enquiry.

If HMRC issue an amended assessment on completion, the taxpayer has 30 days from completion to appeal to the General or Special Commissioners against HMRC's amendment.

Discovery assessments

Although HMRC usually only have 12 months from the date a return is filed to open an enquiry, they can replace a self assessment at a later date by making a discovery ssessment.

A discovery assessment can be made where tax has been lost (i.e. under self assessed) even though there has been no fraud or negligence on the part of the taxpayer or his agent.

This usually means that there was insufficient information in the tax return or contentious items in the tax return had not been brought to HMRC's attention for them to choose to open an enquiry within the time limit.

HMRC has five years from the 'filing date'to make a discovery assessment. Where tax is lost through fraud or negligence the time limit is extended to 20 years from the filing date.

The taxpayer can appeal to the Commissioners against a discovery assessment.

We will be happy to assist you with the self-assessment and even complete it for you. Please contact us with your query at enquiry@nvkgroup.co.uk or on the number (44) (0) 207 11 72 771.