Conditions for requiring a tax return | AccountingWEB

Conditions for requiring a tax return

Not sure if this is an appropriate forum for this, but here goes:

First, the common ground:
1) I completely agree that HMRC should be empowered to serve on a taxpayer a notice under s.8 for the delivery of an SATR, without necessarily requiring that the taxpayer first serves on HMRC a notice under s.7. However I feel that (absent a s.7 notice) they should only routinely issue such a notice if they have reason to expect a liability to result.
2) I also agree that it is reasonable for HMRC to develop some simple, global yardsticks by which to decide whether or not to issue such a notice, perhaps based on a statistical likelihood of liability based on common circumstances.
3) I expect that we are also in agreement that it serves no-one's interests to serve on taxpayers a notice to file when no liability results.  In so doing it adds to the burden of processing returns at HMRC end, and the taxpayer incurs some inconvenience, and possibly agent costs, in the process, often being in the demographic population who can least afford it.

Perhaps, therefore, I should applaud the initiative of HMRC to send out a flyer with each s.8 notice asking "should I be in self assessment?".  And yet I have reservations.  The accompanying questions are identical to those in the guidance notes advising a taxpayer whether or not to complete an SA1 to register for self assessment.

These yardsticks have no statutory footing (there's a bold statement - perhaps someone will correct me). It is perhaps arguable whether a statutory footing is necessary, but it would certainly be helpful if those notes made it clear that they have no statutory basis but are merely "advisory".  Such a note would promote the reputation of HMRC for transparency and honesty.  I have encountered many a taxpayer who takes these pronouncements from HMRC as gospel, possibly being the intent of HMRC.  However as with most bluffs, it can be successful as long as it is swallowed, but when the bluff is called it is more damaging to reputation and future credibility than a more open approach from the outset would have been.

There is an additional point of relevance in this case.  HMRC is supposed to go to some pains to ensure fair treatment of taxpayers, which is to say that taxpayers in like circumstances receive like treatment.  The current policy does not appear to further that end, as I illustrate by example.

Consider a company director.  Nothing in s.7 requires him to register for self assessment.  The SA1 notes suggest that he should do so, and having done so the same notes to accompany the s.8 flyer require that, having registered, he can no longer opt out.  However if he never files an SA1 in the first place he remains fully complient with s.7 and with the law generally and, never having opted in, neither does he he ever has to opt out.

Consider an individual entitled to personal allowances whose only income is £3000 per annum net untaxed rental income from property well covered by said personal allowances and then to spare.  Precisely the same result as for the above company director.

In fact we act for a married couple in the second example, which has caused some acrimony.  One spouse has a UTR, the other has never had cause to register.  Joint rental income totals £6K per annum, divided equally.  The one with the UTR is (I think justifiably) aggrieved at having to complete tax returns and cannot get out of it, in the knowledge that the other spouse has never, and need never, register.  It would do no good to complain at this disparate treatment, because the effect of that would not be to get the aggrieved spouse to opt out, but rather, HMRC would (perversely) instead require a tax return from the other spouse, which would restore equal treatment between the spouses but hardly the desired outcome from anyone's perspective.




Ask the taxman

pauljohnston | | Permalink

If the Taxman wants a Tax Form that is his affair.  I suggest you write to the tax office outlining the facts as above requesting that your client be taken out of the Self-Assessment regime.  With regard to the second couple I do wonder how the two of them exist on £6000 per annum  or is there other income, not mentioned and if so what is it?




Been there, done that.

Jimlad | | Permalink

"If the Taxman wants a Tax Form that is his affair".  So what you are saying that if, year in year out the taxman decides that he wants one from taxpayer A, and not from taxpayer B who is in precisely the same circumstances, you say that is OK?  Sure, I suppose that is a point of view.  Not mine, but you are entitled to hold it.  If I am out on a limb then I will back down.

As to writing to the tax office, done that.  Answer: lump it.

I don't see that it is useful to discuss the detail of my specific client's circumstances but for what it is worth, they have adequate resources on which to live consistent with their tax returns showing £6K taxable income.

Indeed, if it is so incredible that a couple might survive on £6K taxable income, perhaps all individuals on income below some arbitrary limit should be compelled to file returns, simply so as to provoke an enquiry.  But again, if so that should be either on a statutory footing or consistently applied across the board.

HMRC's political masters have made some capital out of their proposals to take millions of individuals out of the tax net by raising personal allowances.  They at least seem to think that it is possible to survive on income within the personal allowance.  Leaving aside that fact that NI contribution thresholds are not keeping pace, I think it makes something of a mockery of that publicity campaign if those individuals are still required to complete SA returns.

It may also be worth mentioning that the spouse which does complete tax returns annually, each year showing £3K rental income, tax £nil, has done so for several consecutive years without once having the tax return enquired into by HMRC.  If the picture painted is so incredible, what is the point in serving a notice to file and then ignoring the figures returned?

I object to the red flyer sent out with the letter

kookies1ot | | Permalink

Whilst it sort of sets out the yardstick, it misses out one vital thing - it does not spell out in simple terms that because HMRC have sent out a letter the taxpayer MUST complete one or they will be fined.  Yes is does indicate this on the main letter but I feel the average man in the street will read the flyer, say "Good I don't need to fill another one in"  and immediately consign it to the bin.

Is this a deliberate ploy by HMRC because all I can hear is "Kerching" when a whole ruck of taxpayers ignore the letter completely then realise next February that one should have been submitted and they now have a fine which is no longer reduced to Nil if there is no tax due.

Sorry Jimlad

pauljohnston | | Permalink

I cant think of any other way forward.  Both my attempts were sucessful.  Hopefully others will have better suggestions.

Tius is one of the items that should be in Self-Serve that was/ is comming in in April 2012!

Kathryn15's picture


Kathryn15 | | Permalink

In my opinion, the "red flyer" is misleading. It has resulted in a few of my clients querying their need to complete tax returns because they would answer "no" to all the questions. They are not too happy when I recommend that they continue to complete returns. I don't trust HMRC to collect the correct amount of tax from these individuals via PAYE and predict another spate of tax underpayments being identified in a few years time as a result.

I also agree that it will mislead individuals into believing they do not need to complete the 2012 Tax Returns.

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