I have just read Julie Cameron's article "A line in the SAnd", Taxation, Vol 163 No 4197, 12 March 2009, with mixed feelings of sympathy. For the benefit of readers without access, the case concerned an individual who for years had completed a form R40, but whose form for 2007-08, which for the first time contained rental income (less than £2500 net), had been rejected (incorrectly) on the grounds that an SA tax return was required.

The justifiable sympathy concerns the unpredictable and unnecessary professional costs and client confusion of having to do an SA return having already filed a perfectly valid form R40. That said, having done all the work for completing an R40, the additional time in doing an SA return should be pretty trivial. In our system you just fill in the SA ref in the client's permanent record, tick a box to change from R40 to SA, and click print (the other underlying data being already complete). Bit of extra postage, and confusing for the client, so yes, some sympathy is justified.

But on the other hand, given the choice I personally would rather be in the SA camp any day. The possible benefits of an R40 are the availability of an in-year claim, and the extended deadline for filing should you need it. I know of very few individuals who want the hassle of in-year claims, nor do they want matters delayed beyond the normal SA filing deadline, which delay obviously also delays repayment. These, to my mind trivial, benefits of an R40 are more than outweighed by (1) the possibility of online filing, (2) deferred deadline in the event that the client has unexpectedly incurred a liability in a year (from 05 October to 31 January) and (3) accelerated processing with resulting accelerated refund. The time that it takes to prepare either form is identical.

If anything, my main gripe with the system is the difficulty of getting the client onto the SA bandwagon in the face of an increasingly resistant HMRC, not the reverse.

As a technical point I am not sure that HMRC had the power to reject the form R40 even if their internal guidelines suggest that the individual should have been included in the SA system. In the article it is suggested that the £2500 rental cut-off (internal trigger) is the only point to consider. If an individual has overpaid tax in the year he has no obligation to notify chargeability under s.7 TMA 1970, although he would be obliged to complete a SA return if served with a notice under s.8, whether overpaid or underpaid. But HMRC's power to issue a notice under s.8 does not give them the power to reject a form R40 already submitted. Had the s.8 notice been issued prior to the filing of a form R40 then they would have been right to reject the R40, per s.42(2) TMA 1970, but in this case the timing was the reverse.

Cameron makes the point that the R40 is a "non-statutory repayment claim form". I do not accept this. The statutory force is contained in para 2(3), schedule 1A, TMA 1970 pursuant to s.42 TMA 1970. If HMRC are so crass as to issue a s.8 notice after having been served with a valid R40 (and in my view it would have been valid even if the rents exceeded £2500), then the taxpayer should presumably enter on the SA return the R40 repayment, in the box for tax otherwise repaid, leaving a £nil balance under self assessment.
Clint Westwood