Save content
Have you found this content useful? Use the button above to save it to your profile.
AIA

A question of self assessment by Simon Sweetman

by
18th Jan 2009
Save content
Have you found this content useful? Use the button above to save it to your profile.


The self assessment season is in full swing. But what happens when an unrepresented taxpayer makes a major error on his return that is not picked up for several years? Simon Sweetman gives us an example of the self assessment system at its worst.

HMRC – I think we all know this – uses a system of self assessment. Why was this introduced ? Because it saves money (and forget any guff about empowerment or whatever, it saves money).

So a taxpayer completes his or her tax return and sends it in. Is it complete and correct ? The taxpayer doesn’t necessarily know, and doesn’t get told unless it simply fails to add up or there is a tick in one box that refers to another which is not completed. No human hand has touched it at this point, no judgement has been exercised, and it is the computer that decides what happens next.

In most cases the computer detects nothing, because there is only a narrow range of things that it can detect, and it is looking for risk criteria for enquiry.

I have come across a case recently of a man – we’ll call him George, though that’s not his real name - who retired in 2005 and completed his final tax return accordingly. In the process he misread his P45 (it was slightly more complicated than usual, because he had in theory had two employers during the year, though that was an internal transfer rather than real) and entered £16,000 rather than £7,000 as the amount of PAYE deducted. Clearly it was a mistake, and HMRC would argue that it was negligent (casting some light on when they might ever agree that a mistake was not negligent).

There was a correction made to his return at the time, apparently as a result of a computer check, but it was a very small change. At the same time he was repaid some £9,000. He was surprised, but assumed that since HMRC had sent him a statement it must be right, and that it must be something to do with having retired. So he did nothing more except spend the money.

Following retirement George found he did not have much of a pension, and he and his wife live in rented accommodation, so it was a nasty shock when three years later – in mid-2008 - HMRC suddenly sent him a bill for £9,000 plus interest. Why did they pick it up then ? Probably because they were finally running the 2004/5 end of year check on their PAYE records.

They argue of course – and sadly, given the inability of judges to put any limit on their discovery powers, they are legally correct – that George was negligent in preparing his return and bingo ! they can make a discovery.

At the moment it is not clear whether HMRC will continue to push – as George has no assets they are certainly not going to get the money. But this raises again the whole question of whether it is reasonable to expect taxpayers to be able to make returns when the law is so complicated, and what proportion of taxpayers make mistakes in the preparation of their returns.

As Oliver Wendell Holmes said, tax is the price we pay for civilisation, but there must be responsibilities on both sides. I would suggest that it is a dereliction of duty on the part of HMRC (even though it’s not mostly their fault, it’s the government who thought self assessment was a really good idea) to start checking returns so long after the event. This is not a civilised standard of behaviour.

Tags:

Replies (7)

Please login or register to join the discussion.

avatar
By mikewhit
25th Jan 2009 15:26

NHS Constitution ...
In the week that saw the unveiling of the "NHS Constitution" it might be time to consider one for HMRC ?

On the subject of "George", had it not occurred to HMRC that they were themselves negligent, in issuing the £9k cheque without having run their own checks ?

Or can that term only apply to "customers" ?

Thanks (0)
avatar
By AnonymousUser
25th Jan 2009 11:17

HMRC should check
What has happened here is that this person has had and spent 9k in error and does not now have to pay it back as he has no means.

It would be nice to think HMRC had rather more checks on how they gave out taxpayer's money. The repay now check later system must be open to organised abuse.

I have every sympathy for the people in this situation and feel HMRC fails in any possible duty of care to them and to the wider public in the system being the way it is.

Thanks (0)
avatar
By Andy3T
20th Jan 2009 11:24

optimism and trust
Optimistic that the warning would be effective - most certainly! A warning might however make a few people think twice. In practice I expect that most would either not read it, or would mis-interpret it.

A warning would however at least be a start - something that we could point to in the inevitable call to the client to say 'no they haven't said you are right'.

Ideally HMRC would call the agent prior to authorising a significant repayment, or check it properly before issuing it - but then perhaps my optimism is turning into pipe dreams.

Thanks (0)
avatar
By User deleted
19th Jan 2009 19:46

Trust the Taxman
I would go as far as to say that almost all taxpayers - represented or not - always believe the Taxman to be correct. How many times have you had a client pay a different sum of tax from what you advised as being due (or worse - none at all) because the Taxman's bill had a different amount on it , or showed nothing due. Even now, in 2009, we still have to explain that self assessment means exactly that.

But then, was it any better the 'old' way - trying to explain estimated assessments and the need to get accounts/tax returns in in order to get those estimates changed to actual? Maybe not....

And as to the case in hand - you could argue that letting him off with it would not be fair to those taxpayers who - not trusting themselves to fully understand and get their taxes correct, pay an adviser to deal with it so as to avoid making such a 'costly mistake. And what of those who do go to great pains to sit down and double check everything so as not to make a mistake. No, I think it is right that the taxpayer needs to pay the money back in someway but maybe interest and penalties should be waived due to the 'innocent' nature of the deed - although did he really, truly not suspect - just a little - that something might be amiss?? hmm...

Thanks (0)
avatar
By paddymillard
19th Jan 2009 14:05

Don't trust repayments
I suspect Andrew is being rather optimistic in thinking that attaching his suggested wealth warning on unexpected repayments would suffice. One client TaxHelp for Older People is representing at the moment phoned her tax office twice to check that the repayment was correct and jusitified. Twice she was assured that it was so. Then they demanded it back - "paid in error" - and are fighting tooth and nail to get it. We have been battling this one for 6 months now and have no intention of letting them get away with it.

Regrettably we see many cases of this kind.

Paddy Millard

Thanks (0)
avatar
By Andy3T
19th Jan 2009 13:28

Comment needed
I often hear clients say 'they must have checked it before sending me the money' - perhaps because few taxpayers idly send out cheques for thousands of pounds without being very sure that the money is due. As such HMRC's routine comment that under self assessment the taxpayer should have verified that the repayment was correct before banking it, is at best wishful thinking - most taxpayers expect HMRC to be far more able than them to correctly calculate their liability!

At the very least HMRC should add a health warning to the repayment to warn taxpayers that it has not been verified by HMRC - something along the lines of:

"This repayment has been automatically generated based on the returns submitted to HMRC. Please contact us if you are unsure that the amount is correct as interest and penalties may be charged if the amount is subsequently found to have been repaid in error."

Thanks (0)
avatar
By KeithBriffett
19th Jan 2009 12:10

Self assessment difficulties
As one of the many thousands clogging the HMRC self assessment system myself yesterday, I was quite concerned to read the tale of woe posted by Simon Sweetman. As he says the biggest problem is the length of time it took for them to find the error. Makes me wonder what I'm going to get hit with in some future year when I have totally forgotten about my tax return I did for 2007/8

Thanks (0)