Is 1996/97 Tax due assessable in 1997/98

Is 1996/97 Tax due assessable in 1997/98

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Revenue investigated 96/97 Return, were advised that an averaging claim would be made within the time limits on the settlement document. 97/98 return stated by way of a note that client wished to average 96/97 and 97/98. Box 18.4 on the 97/98 Return not completed. Revenue now claim they can assess the tax underpaid in 96/97 as an underpayment in 97/98 under discovery rules. Can they do this?
Brian Allegri

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By michaelblake
30th Jun 2003 18:21

Right for the wrong reasons?

I am not sure that I fully understand the facts as you have explained them but the way averaging works is by way of adjustment to the self assessment for year two, leaving the first years self assessment unchanged. the point was explained in Tax Bulletin 27 as follows:

" The way in which averaging claims are put into effect has also been changed for Self Assessment. The rules were introduced by FA 1996, s 128 and FA 1996, 17 Schand are in TMA 1970, 1B Sch. The changes were necessary because the self assessment for the first year (year 1) becomes final 12 months before the time limit for making an averaging claim with year 2.

Under the new implementation rules, averaging must be claimed in the return for year 2 or by amending that return (TMA 1970, s 42(2)). When a claim is made, the assessment for year 1 will not be amended. Instead, an adjustment in terms of tax will be made to the tax payable for year 2. The amount of the adjustment is the amount by which the liability for year 1 would have changed if the assessment for year 1 had been amended.

This approach avoids the need to reopen earlier years. The tax due for each year can be ascertained with certainty on the basis of events of that year and is not contingent on later events.

The tax due for year 1 does not change and must be paid in full. If it is not paid at the proper time then interest will be charged."

There would be no need therefore for the inspector to invoke the discovery provisions. If an averaging claim was made the additional tax due for 1996/97 would collected by way of an amendment to the self assessment for 1997/98.

Does this answer the point? Apologies if I am missing something.

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