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Can HMRC re- open 2014 and 2015 Tax Returns

Do HMRC have the power to re-open 2014 and 2015 tax returns

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I have a young client who submitted tax returns for 2014 and 2015 (when he was just 19) after a contractor he did a small amount of work for told him he had to register for self assessment. He submitted the returns in response to penalty notices but frankly he didn't know what he was doing. I think basically he panicked.

The result is that he appears to have reported far too much income on his tax returns and is being assessed for both tax on this incorrect income and penalties which he simply can't pay.

I'm sure I've read that HMRC do have powers in certain circumstance where the situation is unfair and inequitable to give special relief and set aside penalties and make adjustments.

We decided to try and help this young client. He managed to get his bank statements back to 2013 and HMRC provided details of employment income and CIS income back to 2013. They show he had very little income in 2014 or 2015 (less than 2,000 in each year - he was still living at home) but his tax year overviews (I assume based on his incorrect tax returns) show tax due of 1,573 and 1,894 respectively indicative of a much higher levels of income than he actually earned.

There is such a wild discrepancy here that I feel HMRC should have some discretion to correct things even though we are outside the 4 years allowed. I'm just wondering if anyone knows if HMRC do have any flexibility.

Ignoring the failings of our young client it seems just wrong that HMRC can be insisting on over £3,000 of tax for 2 years where he earned under £4,000 in total.


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Hallerud at Easter
28th Jan 2020 09:31

Is it tax or penalties showing as due would be my first question?

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By soundadvice
28th Jan 2020 14:02

He owes 1500 in tax and 2,200 in penalties and interest for 2014
& 1900 in tax and 1,600 in penalties and interest for 2015.
HMRC agreed to accept the amendments for 2016 to 2018 but not 2014 & 2015.
Just trying to help a young lad with a situation I just think is pretty unfair; the tax appears to be wrong (from the figures HMRC kindly provided on request for his PAYE income and CIS income for the 5 years from 2014 - so HMRC actually had the source information for his income but obviously the client appears to have made a mess of the returns because he really didn't know what he was doing).
Its because the discrepancy between what HMRC are chasing him for and the actual amount he earned is so big that I feel they should have the power to accept very late amendments in the interests of fairness.

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By RetiredTax
28th Jan 2020 14:34

Is there (still) a "concept/scheme" previously known as "Equitable Liability" whereby HMRC would agree to accept a lower amount than is legally due (e.g. perhaps arising from formal determinations etc. based upon estimates)? There were a number of hoops to jump through (not least providing actual figures of liability) before any acceptance by HMRC was given, and I am not sure if it has any legal basis & therefore no Appeal process (much/all of this was the position when I last dealt with such a case many years ago)
Have a look at the HMRC guidance at SACM12230 et.seq. & search "Equitable Liability" in their Manuals ~ it may be of assistance. However, from what you say HMRC are presently "only" asking for the tax arising based on the details provided initially by this client!
I hope this helps.

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By richard thomas
28th Jan 2020 16:55

I'm finding it difficult, based on the few facts here, to understand your reference to "4 years" and "amendments". If you submitted amendments to the returns then the time limit is governed by s 9ZA TMA and is 12 months after the filing date (or 15 months after the date of notice to file if that was after 31 October next after the end of the tax year). So the time limit for 2014-15 (I assume that is what you mean by 2015) would have been 31/1/17 or possibly later. Four years does not come into it.

Where four years does apply is in a claim for overpaid tax, replacing 'error or mistake relief'. The limit there is 4 years (para 3 Sch 1AB TMA) but I'd be very surprised if you can use it to correct an error of your own making in your self-assessment, especially given the ability to make an amendment.

But "RetiredTax" is correct in remembering "equitable liability" but it has not applied since 2011 (as SACM 12210 explains). The replacement is in the special rules in para 3A Sch 1AB TMA which obviously is statutory rather than a matter of practice as EL was, but the main condition for it to apply is that a determination under s 28C was issued in the absence of a return. There is no time limit for a claim.

You need, as "RetiredTax" says, to look at SACM 12230 ff.

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