Just picked up a client who's allowed his tax affairs to get a teensy bit behind - his last return was for 2008.
The 2009 and 2010 returns are now out of time - according to the HMRC site, "you can no longer submit these returns".
Which is nice. What happens now ?
Do I assume that they no longer want this money ?
Replies (24)
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No don't download
According to the law you are out of time to submit the returns for those years, online or otherwise. Assuming that the notice to file was issued on time and there are no other unusual circumstances.
Has a determination been raised? If not then again, subject to anything out of the ordinary, HMRC will be out of time to issue one.
If you follow the advice above to download and send in a paper return, well you are just asking HMRC to issue a discovery assessment. I doubt your client will thank you for doing so, and it may well be negligent of you to do so.
out of date returns
even though these tax returns are out of date HMRC will still require them to be completed, although they won't process them.
If tax is due it is possible that they will raise a discovery assessment. If no tax is due, or less than £100 then penalties for these years should also be reduced.
Valid discovery
I am assuming for the moment that the client in question has undeclared taxable income for the out of time years.
It will always be open to HMRC to raise a discovery assessment if this income has not been declared to them. That is how discovery works, by allowing HMRC to open an out-of-time year when information not provided in-time is discovered. That means that the threat of HMRC coming back to the client on this will always be there and the fact that HMRC are out of time to submit a determination is irrelevant. If HMRC come to your client then that will be prompted disclosure at the least. Ignore the returns and hoping the problem goes away then you would be looking at beyond careless levels of penalties as well. Unprompted disclosure is an automatic cut to penalties.
Since they've not got round to issuing determinations, there is always the possibility that HMRC will never come after those missing years of course. Penalties on the system so tax returns issued for those years. There is information within HMRC showing a failure to declare already. If you do the in-time returns alone, that might be enough to trigger someone looking at the gap in return history. Is it really worth risking the higher penalties?
I disagree
Sorry K81 I disagree completely.
"HMRC will still require them to be completed" - they might ask, but they can not require. They are out of time. Point this out to HMRC and they will apologise for asking and confirm that they will not ask again. The law is clear on the time limits.
"If no tax is due, or less than £100 then penalties for these years should also be reduced." This is not correct. The returns are out of time, penalties will not be reduced.
07/08 and 08/09
I recently submitted outstanding 08 & 09 returns on paper, penalties in place but no determinations.
No tax was due and they refunded the penalties for both yrs.
Always worth getting up straight in my opinion, even if there's no legal requirement to do so.
don't wait
It isn't a good strategy to deliberately let returns get out of date.
Assuming hmrc do their job properly you will receive expensive penalties for non filling, and a determination assessment which is likely higher than the correct liability.
The cases I see where returns go out of time tend to be taxpayers with zero or minimal liabilities where hmrc have probably decided a determination wasn't worth bothering with.
Recently they've started to chase the odd out of date return. One phone call to point out it is out of time normally results in an apology for chasing it and an undertaking to close the record and not chase again.
What sort of return
What returns have you had this happen on? If only minimal/zero returns, then it is not in HMRC's interest to pursue the matter. Should there be an appreciable liability then, as I have already said, the discovery provisions (which are not the same as pursuing an out-of-date return) are waiting to bite. Recently they've started to chase the odd out of date return. One phone call to point out it is out of time normally results in an apology for chasing it and an undertaking to close the record and not chase again.
The Good Old Days?
Time was when clients would turn up with six years of records and say "sorry I haven't been along lately".
Pre 1997, delaying your tax return was a good (and accepted) way of getting by if you'd had a bad trading year - just pay the assessment instead. Very often the determinations were under-guesstimated, and far less than the actual tax due.
Aren't the present-day fines going to nail this tale's protagonist to the proverbial cross?
So if i'm reading this correctly
Some advisers think giving client advice of 'don't file your tax returns' is acceptable?
Going off topic completely...but hey, it's Friday
Some advisers think giving client advice of 'don't file your tax returns' is acceptable?
Indeed. I had a good ponder myself over where accountants draw the line between allowing (possibly better words could be used) negligence and borderline money laundering on the part of a client, vs acting in the best interests of the client.
Situation which first lead to this for me was a potential client who approached us a few years back. Ltd Co contractor, trading very profitably for ~18 months. They hadn't filed anything. No VAT returns (despite breaching the threshold), no payroll, no nothing. They approached us as they were devastated that their company bank account had been frozen with a few grand in it. It had been frozen as Cos Hse had struck the company off for non-submission of annual return.
Reality is (precise data inevitably not available) this client had turned over >£100k, withdrawn it all bar the few £k lost when the account was frozen. No tax paid. They didn't listen to any of my recommendations (as inevitably it lead to lots of hassle for them, and paying over lots of cash to HMRC). Instead they set up a new company. I didn't hear from them again, but it wouldn't surprise me too much if they simply repeated the same thing. After all, complying with none of their obligations didn't work out too badly for them.
It did make me wonder, when people seemingly get away with stuff like that, how I can say to a client with a straight face that the best thing for them to do is file everything properly and pay all their taxes on time.
just advise correctly
"Some advisers think giving client advice of 'don't file your tax returns' is acceptable?"
I don't think anyone is saying this.
If the year is out of time, you must advise your client of this, to tell them anything otherwise would be negligent. This isn't "advising" our client not to file their return, this is telling them that they have missed the time window that the law allows to file it and they are now too late. HMRC can no longer request a return and the client no longer must submit one. To advise them otherwise is simply incorrect.
Sometimes we may not like the law, but nevertheless we must advise our clients of the law just as a criminal solicitor would advise of the law when defending a criminal case.
Where a not insignificant liability exists, and the client had knowledge and intention to not pay it, then this is likely to fall under money laundering regs. If the client does not allow you to make a voluntary disclosure then you would have to decide whether you are able to continue to act for the client.
Why wouldn't you say
"Some advisers think giving client advice of 'don't file your tax returns' is acceptable?"
I don't think anyone is saying this.
If the year is out of time, you must advise your client of this, to tell them anything otherwise would be negligent. This isn't "advising" our client not to file their return, this is telling them that they have missed the time window that the law allows to file it and they are now too late. HMRC can no longer request a return and the client no longer must submit one. To advise them otherwise is simply incorrect.
You are out of time to submit a Self-Assessment Tax Return but you must advise HMRC that you had income in that year in which tax was due?
Surely there is more to it than just the submission of Tax Returns!
Returns chased
"What returns have you had this happen on? If only minimal/zero returns, then it is not in HMRC's interest to pursue the matter. Should there be an appreciable liability then, as I have already said, the discovery provisions (which are not the same as pursuing an out-of-date return) are waiting to bite."
Recently chased ones have all been zero / minimal liabilities. No point client paying our fees to prepare a return which the law no longer requires to be filed.
In other cases where we have made a full disclosure of undeclared historic liabilities I have never had a discovery assessment raised, although I acknowledge that HMRC have the power in some situations to do so.
Where no return is filed HMRC should be issuing Determinations rather than falling back on Discovery.
complex
"You are out of time to submit a Self-Assessment Tax Return but you must advise HMRC that you had income in that year in which tax was due?"
This is a complex area of course and there are countless different scenarios and sometimes it may be prudent to seek legal advice.
But when you say "you must advise HMRC" - I am interested which legislation are you referring to that requires this when you have already notified HMRC of the source of income by registering for self assessment, received a tax return, and time limits have been missed by both client and HMRC for submission and determination?
@lionofludesch
No not negligent to file the tax return if the client has been properly advised of the law and makes a decision that they would like to file the return.
But may be negligent to advise the client that they "have" to file the tax return, when actually the law says they are out of time to do so.
With respect
I think you are talking a lot of rubbish Simon.
Are you not bound by professional body ethics?
rubbish?
I am sorry that you do not agree. The law is however very clear on the time limits.
Feel like addressing discovery?
The discovery provisions are equally clear, as are the higher penalties for prompted disclosure. I have raised these several times but you have chosen not to address them. Do you not feel that it would be negligent to point out how much worse things will be if HMRC discover the undeclared years instead of the client coming clean?I am sorry that you do not agree. The law is however very clear on the time limits.
At the same time, a client who doesn't come clean is evading a legitimate tax liability for the unreported years. Any reason you think making a money-laundering report would not be appropriate? Because I can't help thinking telling client they don't have to submit returns, then having to file a report saying they haven't declared income is not really doing them a favour.
advice
I don't disagree that a client needs correct advice on disclosure and discovery. This is somewhat different to completing an out of date return by downloading the form without a second thought and without advising the client that in submitting this they are making a voluntary disclosure.