I have a client who has been employed since 2009. He has never filled in a SA return not has he needed to do so. During year ended 5 April 2013 he was provided with a company car and a P11d was filed by his employer. HMRC then sought to recover the additional tax on the benefit from him. We wrote to HMRC pointing out that the car was not available for private use and provided the necessary documentation to demonstrate that fact. HMRC ignored our communication and proceeded to issue SA returns to our client for the years ended 5 April 2011 and 2012 on the basis that "you underpaid tax on your employment under the PAYE system". Our client did not have a company car in either of those tax years.
Are HMRC entitled to issue SA returns because someone hasn't settled a PAYE liability?
To add insult to injury HMRC have now fined our client £200 for not filing the returns (we had written to them prior to the return submission date questioning the necessity of completing the returns) and refuse to listen to our appeal against them because - no returns have been submitted.
Any ideas gratefully accepted.
Replies (9)
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Not Unusual
It is not unusual in my experience for a higher rate taxpayer in receipt of benefits to be required to complete a Tax Return.
What is the situation here? Is your client higher rate?
I am confused
If "the car was not available for private use", why did the employer enter the benefit on a form P11D? You cannot blame HMRC for pursuing the tax on a benefit reported to them by the employer.
As Stratty says, it is fairly standard procedure for HMRC to issue tax returns to higher rate employees who receive benefits. The client would have had 3 months from the date of issue of the returns to submit them. Why wasn't this done in time? How difficult would it have been to prepare tax returns for a client under PAYE? Also, I would have thought that the penalties should amount to £300, being £100 for each late return since 2010/11.
The obvious answer to your question is Yes - HMRC can issue whatever tax returns they wish. The obvious solution is to file the 3 years of returns before the penalties increase. If you believe that the company car was not available for private use, complete the 2013 return on that basis.
Once you have done that, you can claim that HMRC had no reason to believe that the client had received benefits in the earlier years and that as no balance of tax was payable for those years (presumably), the penalties should be cancelled.
Did he have an underpayment in those years though?
This "Are HMRC entitled to issue SA returns because someone hasn't settled a PAYE liability?" is the possibly telling comment in your post the implication being that there was an apparent liability but the client has ignored that based on P800's
PresumablyHMRC did not do the EOY recs on time for those years, then got around to it and the P800T's showed underpayments, but nothing was done about those (or A19 claims were made) and they are now trying to progress the issue to get to a position where there is a SA that is appealable to Tribunal, so they need to issue returns.
They've issued returns that have not been completed and the penalties follow. You wrote questioning the need for returns but again you say "Are HMRC entitled to issue SA returns because someone hasn't settled a PAYE liability?" which suggests that there might be a need
EDIT: beaten by Euan the speed typist again :D
Limited acceptance
We are accepting that HMRC have the right to ask for a tax return from anyone. As the law quoted says, this is for the purposes of determining the tax liability for that year. The fact that, under the circumstances you describe, the entire liability will have been met under PAYE is irrelevant. The required criteria only apply for a taxpayer to determine when they should be submitting one, even if not asked. We seem to be simply accepting that HMRC can do what they want these days or do we challenge them?
But no-one is accepting that HMRC can insist on a benefit being put on said returns. If you are certain that no benefit has arisen, then submitting returns omitting that benefit would have been quick and easy. You wouldn't even have been conceding any ground to HMRC in doing so. Just restating on an official document what has already been said by letter.
Asking why a non-existent benefit has been reported on a P11D is a valid question though.
Higher Rate
http://www.hmrc.gov.uk/sa/complete-tax-return.htm
See top paragraph.
If as you state it is just a question of P60 + P11D it would have made more sense just to file the returns.
OK, let's. The HMRC website is not the rules, it's guidance
And you are looking at their guidance on notifying a need to make a return (TMA s7). That might get him out of a penalty for not telling HMRC he needed to make a return, but not the need to make one if required to do so by HMRC under the legislation.
Look to the legislation for making a return when required in TMA s8
8 Personal return
(1) For the purpose of establishing the amounts in which a person is chargeable to income tax and capital gains tax for a year of assessment, and the amount payable by him by way of income tax for that year, he may be required by a notice given to him by an officer of the Board—
(a) to make and deliver to the officer, on or before the day mentioned in subsection (1A) below, a return containing such information as may reasonably be required in pursuance of the notice, and
(b) to deliver with the return such accounts, statements and documents, relating to information contained in the return, as may reasonably be so required.
Nothing in s8 says that you do not need to make a return if you are only PAYE
I'm no tax expert
Actually I'm the tax duffer but even I know that if HMRC ask for a return, you need to comply. It doesn't matter if the UTR was picked at random from a lake by a wild swan, once they've asked you have to respond.
Look to your PI cover
You clearly should have advised you client to submit the SA return by the filing date.