Infant's income exceeds PA. Return late Penalties

Grandparent gift of property to minor. Income exceeds PA.for first timd. SA return late. Penalties?

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Grandparent gifts rental property to minor grandchild. Parents are bare trustees. Income exceeds PA for first time in 2022/3. Infant not previously  registered for SA. Paper return filed after 31st October 2023. Are penalties due, and who is liable. Reasonable excuse?

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By Justin Bryant
27th Nov 2023 10:24

Unless someone here can explain (with legislative references and full, proper justification) why I'm wrong, strictly speaking the PA is not really relevant (and it's only HMRC's practice/discretion that governs whether an SA100 is needed or not). See:
https://www.accountingweb.co.uk/tax/hmrc-policy/savers-ride-the-tax-tide...

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Replying to Justin Bryant:
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By Tax Dragon
27th Nov 2023 11:11

Does that relate at all to the OP's question?

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Replying to Tax Dragon:
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By Justin Bryant
27th Nov 2023 11:24

If you don't know the answer, I suggest you just try resist the temptation to say anything (your above comment will be of no interest/relevance to anyone).

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Replying to Justin Bryant:
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By Tax Dragon
27th Nov 2023 12:13

Start your own thread, Justin. It's a form of trolling to keep hijacking everyone else's.

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Replying to Tax Dragon:
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By Justin Bryant
27th Nov 2023 13:11

On the contrary, I think you'll find it's a form of trolling to be impertinent about other peoples' pertinent comments.

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Replying to Justin Bryant:
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By stepurhan
27th Nov 2023 14:29

Get a new dictionary, because your current dictionary's definition of "pertinent" is sadly lacking.

They have gone over the PA on untaxed income, so they will definitely need to do a return. The PA is therefore highly relevant for this specific query. The fact that there are a huge number of alternative scenarios where it doesn't necessarily matter is the very definition of irrelevant.

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Replying to stepurhan:
By Ruddles
27th Nov 2023 15:13

Strictly speaking, the requirement is to notify HMRC that they are chargeable to tax (in the sense that they have a tax liability). I agree with Justin that it is then up to HMRC to decide whether or not to issue a notice to file a return (although GOV.UK does suggest that registration for SA would be required). But I agree with you (and TD) that the rest of Justin's post is of no relevance to the OP's question. As you say, the fact that taxable income now exceeds the PA is very relevant/pertinent.

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Replying to Ruddles:
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By Justin Bryant
27th Nov 2023 16:16

Have a proper read of my above comment and the link therein (and my comment in that link) and then please explain why it matters re s7 TMA 1970 that the income is higher than the PA compared to if it's lower than the PA.

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Replying to Justin Bryant:
By Ruddles
27th Nov 2023 16:40

Without getting into a prolonged discussion about whether PA needs to be claimed, and how, in practice it is automatically given on the filing of an SATR. It is my view, therefore, (and other opinions are available) that s7(7) operates to avoid the need to notify chargeability if all taxable income is below the PA, ie where there is no tax liability. This is 'confirmed' by HMRC at EM4551.

So, if the income is higher than PA, notification is required, if it is below PA, no notification. (Although apparently the requirement to register for SA may still arise.)

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Replying to Ruddles:
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By Justin Bryant
27th Nov 2023 16:59

That's right. S7(7) omits the words "assuming the PA is claimed". So you rely on HMRC being pragmatic and deeming this to be claimed per my comment. Even ignoring that PA claim issue, HMRC do not really explain that S7(7) exception properly here:
https://www.gov.uk/hmrc-internal-manuals/enquiry-manual/em4551

What's also interesting is that this implies the phrase "liable to tax" necessarily means AFTER reliefs and allowances are claimed and not before. See:
https://www.accountingweb.co.uk/any-answers/what-is-the-penalty-for
https://www.accountingweb.co.uk/any-answers/chargeable-to-income-tax

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Replying to Justin Bryant:
By Ruddles
27th Nov 2023 17:30

Justin Bryant wrote:
What's also interesting is that this implies the phrase "liable to tax" necessarily means AFTER reliefs and allowances are claimed and not before.

Indeed

Since 7(7) refers to a liability arising under a self-assessment made as part of a return, and since the PA automatically applies (pragmatically or otherwise) in such a self-assessment it follows that the reference to a tax liability must be a reference to such liability after the automatic application of PA.

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Replying to Ruddles:
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By Justin Bryant
27th Nov 2023 17:45

But the PA is not automatic (under the law of the land at least if HMRC decided to apply it strictly), and that does not affect my above point re "liable to tax".

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Replying to Justin Bryant:
By Ruddles
27th Nov 2023 18:03

If HMRC were to apply the law strictly they would need to make provision for making the claim, in a box or otherwise, in the SATR.

But as things stand, in the real world, the claim is automatic. Therefore, the liability arising under s9, as referred to at s7(7), can only be after application of the PA. So, again in the real world, it is very relevant whether or not taxable income exceeds PA for the purposes of a FTN penalty.

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Replying to Justin Bryant:
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By Tax Dragon
27th Nov 2023 17:08

Justin Bryant wrote:

On the contrary, I think you'll find it's a form of trolling to be impertinent about other peoples' pertinent comments.

You're a funny man, Justin - I genuinely enjoy your wit (and for that reason don't think you are in need of a dictionary). I'm also sure your comments are always pertinent to you.

But (and OP can correct me if I'm wrong) the core of the question is essentially whether a FTN penalty might arise when there was a liability in 2022/23 and the deadline for notifying passed without notification having been made - and specifically whether an obligation to notify rested with (and a penalty potentially fall on) the bare trustees.

Feel free to explain how your comments are pertinent to that question, and therefore to the OP. I presume you will provide citations.

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Replying to Tax Dragon:
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By Justin Bryant
27th Nov 2023 17:12

TD, go back to sleep (it's all gone way over your head as usual).

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By Wanderer
27th Nov 2023 10:33

1. What was the date of issue of the notice to complete a return?
2. Why was a paper return filed?

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Replying to Wanderer:
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By Tax Dragon
28th Nov 2023 06:14

Wanderer wrote:

1. What was the date of issue of the notice to complete a return?
2. Why was a paper return filed?

Pertinent questions. I do hope Montrose responds.

On 2, what happens if the 'same return' is now filed electronically, on time?

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Replying to Tax Dragon:
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By Wanderer
28th Nov 2023 09:01

From memory, nothing changes.

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By More unearned luck
27th Nov 2023 11:35

How old is the infant? 'Infant' is no longer used by the law to mean someone under the age of majority; it's wider meaning is someone very young. So is it below 12 if it lives in Scotland or 10 if it lives elsewhere in the UK?

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By Montrose
28th Nov 2023 12:44

There has been no notice received requiring a return to be made. The parents of the minor [better than "infant "in the context] gandchild have become aware that a liabilty has arisen.
Given that up to now HMRC had no knowledge of the potential liability, the parents-if it is their legal responsibilty- are proposing to complete a "blank" SA100.
There seems to be a lacuna in TMA on this question.

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Replying to Montrose:
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By Wanderer
28th Nov 2023 13:18

Why not get a UTR & e-file? Just file & pay the tax by 31 January. No FTN penalties are ever charged.

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Replying to Montrose:
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By More unearned luck
28th Nov 2023 13:49

You said 'filed' in the OP, implying that the return had already been filed.

To make a voluntary return you need a UTR. Does the child have a UTR? If not notice must be given to HMRC. A process HMRC calls registering for SA. Provided that the tax is paid on or before 31/1/24 there will be no FTN penalties. But I don't see how someone below the age of criminal responsibility could be penalised in the first place. If this is a lacuna then there is a similar lacuna for dead taxpayers too where the taxpayer died before the filing deadline.

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Replying to Montrose:
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By JB101
28th Nov 2023 17:20

Thank you for using the word "lacuna". I have duly looked it up using Google and now have a lacuna in my knowledge no more!
You learn something new everyday on accountingweb!

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By richard thomas
28th Nov 2023 18:51

This has been fun, watching on the sidelines from sunny Spain (21C today, but with a bit of cloud).

Fun in a macabre sense, as the points made point up once again what an absolute mess the vocabulary of the fundamental aspects of taxation is in the law. Once you get HMRC and practitioners using different words for the legal concepts it gets murkier. But the main culprits are those policy officials in HMRC instructing Parliamentary Counsel, especially those who instructed on the major changes to TMA in 1994 onwards for self-assessment and to a lesser degree those instructing on ITA 2007.

In this case where the income exceeds the minor’s PA, were it to be claimed (and I agree it must strictly in law be claimed), section 7(7) does not apply. Unless the income is taxed at source and there is no higher rate liability, section 7 requires notification by 5 October or Schedule 41 penalties may be due.

There may be special circumstances, especially if the infant is say 6 months old.

At that age the infant may be ignorant of section 7 TMA and that may give the infant a reasonable excuse (see McGreevy v HMRC endorsed by the Upper Tribunal in Perrin). But there is a slight problem. Reliance on others, eg parents acting in accordance with their parental responsibility and as trustees, is ruled out unless the infant took reasonable care to avoid their parents’ failure (para 20(2)(b) Schedule 41 FA 2008). The parents’ failure to notify as the infant’s “agent” makes the infant culpable, unless again the infant took reasonable care to avoid the failure. Getting a witness statement from the infant may present difficulties, as may getting a coherent statement from HMRC as to why this situation is capable of happening when it is an obvious consequence of the short-sighted section 228 FA 2012.

But, but, but…. What of the voluntary return we now know is about to be lodged. How does that affect the failure to notify position? You have to notify IF “the person has not received a notice under section 8 requiring a return for the year of assessment of the person’s total income and chargeable gains.” (s 7(1A) – an SA amendment). Not received by when? On the obvious construction of the legislation, by the end of the notification period, ie 5 October.

So a notice to file issued subsequent to 5 October does not save the day. In. this case a voluntary return is proposed. Pace moreunearnedluck, SAM 121140 does not mention having a UTR – if you had a UTR it is unlikely the return would be voluntary. A voluntary return is treated as required by a notice given under s 8 on the date of receipt by HMRC, so can never be late, thus preventing Schedule 55 penalties as well. But if HMRC give an actual notice to file following a section 7 notification out of time that return can be late with Schedule 55 penalties and there can be FTN penalties as well.

And to put an oar in on the PA question, it has been HMRC’s practice since forever to assume a claim so long as the taxpayer is actually alive. How else would you get a code number that included it, if you weren’t entitled to it? Draw breath in the year and you’ve got it (if you are resident).

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Replying to richard thomas:
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By Justin Bryant
29th Nov 2023 17:19

Richard, thank you for your erudite views. All I know is that HMRC's pragmatic approach to s7 is here, and that's probably all you need to know in practice: https://www.icaew.com/insights/tax-news/2023/nov-2023/self-assessment-cr...

Notably HMRC's income thresholds are before expenses (and therefore before PA), as you would except re pragmatism.

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Replying to Justin Bryant:
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By richard thomas
29th Nov 2023 18:40

I'm not sure what you mean by pragmatic here. The HMRC criteria are for "registering for self-assessment". HMRC are entitled to set what criteria they like as long as they are rational. If they want those who do not need to notify to "register" and get a notice to file they are entitled to give effect to that. A Michael Caine style fact: the requirement to register as self-employed is a Class 2 NICs matter without reference to profit or turnover, so what will happen when Class 2 goes?

And if they do not want to give notice to file to someone within the requirements of s 7, that is also no problem: they notify otherwise, and pay through coding or simple assessment.

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Replying to richard thomas:
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By Justin Bryant
30th Nov 2023 09:45

I just mean pragmatic in ignoring the above legislation that I think we both agree misfires. No more, no less.

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Replying to Justin Bryant:
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By richard thomas
30th Nov 2023 18:55

If by "the above legislation" you mean s 7 TMA I don't agree. If not that, what did you mean?

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Replying to richard thomas:
By Ruddles
30th Nov 2023 19:06

I suspect that Justin is referring to ITA 2007 s35

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Replying to richard thomas:
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By Justin Bryant
01st Dec 2023 13:37

Where in s7 (by implication or otherwise) or any other legislation are HMRC's SA100 notification obligation thresholds in the above link spelled out (re interest/rent - where there is no WHT) or where are they explained (with reference to the relevant legislation and the meaning of "liable to tax" etc.) in HMRC's manuals or in any text books etc? If they are not to be found or figured out in any legislation then one assumes HMRC's (pragmatic) statutory discretion is involved.
https://www.gov.uk/hmrc-internal-manuals/admin-law-manual/adml3400

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Replying to Justin Bryant:
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By richard thomas
02nd Dec 2023 21:18

There is a short answer and a long one.

Short answer: nowhere

Long answer: The history of (a) the legal requirement to make a return and (b) the legal requirement to notify chargeability shows that there is and never has been any entirely precise relationship between the two.

Starting in 1803 when the modern income tax began, there was no legislation requiring a person who had not received a notice to file to file one. Instead the assessor for a parish fixed a notice:

“on the Door of the Church or Chapel and Market House or Cross (if any) of the City, Town, Parish, or Place, requiring all Persons who are by this Act required to make out and deliver any List, Declaration or Statement, to make out and deliver to the respective Commissioners, or to their Clerk at their respective Offices, to be described in such Notice, all such Lists, Declaration, and Statements accordingly, within such Time as shall be limited by such Precept, and which shall not in any Case be later than twenty-one Days from the Date of such Precept”.

The persons so required were those who were chargeable under the Act: ie those who had some income to report for assessment.

In addition the assessor was entitled to send a specific notice to a person within the parish requiring them to make a return.

The first specific requirement to notify chargeability was in 1910 when, by the Finance (1909-10) Act 1910, super-tax was introduced by the Liberal government of Herbert Asquith and David Lloyd George. Section 72(3) and (4) said:

“(3) It shall be the duty of every person chargeable with the super-tax to give notice that he is chargeable to the Special Commissioners before the thirtieth day of September in the year for which the super-tax is chargeable: …

(4) If any person without reasonable excuse fails … to give any notice required by this section, he shall be liable to a penalty not exceeding fifty pounds [c £6,000 in today’s money], and after judgment has been given for that penalty to a further penalty of the like amount for every day during which the failure continues. [Yikes!]

This did not apply to income tax at the “standard” rate (as it came to be known in 1927).

The Macmillan Codification Committee recommend that church door notices be abolished (as it was in practice impossible to take proceedings for failure to make a return where no specific notice had been given), and also recommended that, accordingly, there should be a specific legal requirement to notify chargeability. The Committee reported in 1936 with a draft Bill but it was not enacted. As the idea of the Committee was that of the Chancellor of the Exchequer in 1927 and that ChX was one Winston Churchill, it was perhaps not surprising that the Baldwin/Chamberlain government up to 1940 did not enact it. But in 1942, given there was nothing else going on at the time, the government introduced the failure to notify recommendation as paragraph 1(2) and (3) Schedule 10 FA 1942:

“(2) It shall be the duty of every person who is chargeable to income tax for any year of assessment to give notice to the surveyor that he is so chargeable at or before the end of that year:

Provided that no such notice ned be given as respects any year for which he has delivered a statement of his profits and gains in accordance with the provisions of the Income Tax Acts.

(3) If any person without reasonable excuse fails to give such a notice as aforesaid he shall be liable to the like penalties as are applicable under the Income Tax Acts in case of neglect or refusal to deliver a list, declaration or statement which is required by those Acts to be delivered.”

This became s 18 ITA 1952 and then section 45 FA 1960 (which introduced penalty reform in the wake of the notorious case of Hinchy). Subsections (1) and (3) said:

(1) Every person who is chargeable to income taxfor any year of assessment and who has not delivered a statement of his profits or gains or his total income for that year in accordance with the provisions of the Income Tax Acts shall, not later than one year after the end of that year of assessment, give notice that he is so chargeable.

(3) If any person fails to a notice which he is required to give under this section he shall be liable to a penalty note exceeding one hundred pounds.”

The changes then were to remove reasonable excuse as a way of avoiding penalties, to radically reduce in most cases the penalty (pre-Hinchy it was £50 plus 300% of the tax on the return) and to give a year to notify.

The next iteration was in TMA 1970, which, until FA 1994, was identical to section 45 FA 1960.

It should be noted that the introduction of PAYE in 1944 changed nothing. It followed, on one view, that an employee not required to make a return (as few were) was required to notify liability every year even though they were taxed under PAYE and if necessary assessed after the annual reconciliation. The other view is that since a basic rate taxpayer was not required to return or be assessed on income received under deduction of tax they were not “chargeable” (ie assessable).

Pragmatically HMRC never took the point if was a valid one, especially given that to get a £100 penalty they would have to take formal proceedings before the General Commissioners who would probably refuse to give any penalty in such circumstances. It was the palaver involved that also made penalties for failure to make returns a very unlikely occurrence until the FA 1989 reforms.

Turning to who was required to make a return before FA 1994, the answer was generally those who would be assessable, other than those who might be assessable only under Schedule E. In theory a person with income not taxed at source but below the personal allowance (an NNL (no net liability) case as they were called – they got green files rather than brown)) was liable to notify but my remarks about the hen’s teeth scarcity of penalties for FTN meant it was again treated pragmatically.

The pragmatic approach was embedded in the law by section 8 TMA as originally enacted and its predecessors. While the notice of chargeability rules imposed a duty on everyone chargeable, the provision for giving a notice to file was discretionary (“may be required by a notice given to him by an inspector”).

Section 90(1) FA 1991 changed section 8(1) to its modern form

“8.—(1) For the purposes of assessing a person to income tax, he may be required by a notice given to him by an inspector—

(a) to make and deliver to the inspector within the time limited by the notice a return containing such information as may be required in pursuance of the notice, and

(b) to deliver with the return such accounts and statements, relating to information contained in the return, as may be required in pursuance of the notice.”

The express purpose now was for assessment and it remained a matter of discretion. One could argue that this aligned section 8 and section 7.

Then along came self-assessment. Section 8(1) was again amended by section 170 FA 1994:

“(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, 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.

(1A) The day referred to in subsection (1) above is—

(a) the 31st January next following the year of assessment, or

(b) where the notice under this section is given after the 31st October next following the year, the last day of the period of three months beginning with the day on which the notice is given.”

Two changes here of note. The purpose is not assessing (an act of the inspector of taxes) but of finding the amounts in which a person is chargeable, which may be nil. And there is now a date by which the return must be filed – there never had been up to then.

This explains the contemporary changes to section 7 tucked away in paragraph 1 Schedule 19 (other amendments).

The primary criteria for the duty was still being “chargeable”, but this was tempered by the new exclusions in subsections (3) to (7) for those whose total income consisted of income within PAYE, income that had suffered deduction at source and who did not have any higher rate(s) liability, and those who could not become liable to tax because of allowances and reliefs. In other words the duty to notify did not apply if no tax would be (self-)assessable, or if it would be, it could nevertheless be collected through PAYE (having regard to the contemporary regulation 101A(3) of the 1993 PAYE Regulations, now regulation 186 of the PAYE Regulations).

The change in dates is explicable as follows. If, despite the exceptions a person had a duty to notify, then the system will work seamlessly if HMRC had time to issue a notice to file such as would allow the liability to pay the tax under section 59B TMA (also new) by the 31 January in the year following the tax year (or year of assessment as it was then called).

The system would then be in perfect symmetry, save that notifying chargeability was a duty and issuing a notice to file was discretionary. HMRC could have exercised their discretion to require a notice to file only in cases where there would have been a duty to notify. But that had its dangers. Curiously enough, not every person who has the duty to notify does so, and does so before 5 October. Also the exception for PAYE cases in section 7(4) and (5) is not necessarily aligned with an ability to actually deal with all liability through PAYE. And it is to my mind quite reasonable for HMRC to consider that there are classes of person whose affairs are likely to lead to complications which cannot be dealt with through PAYE or who may have liabilities which the rigour of completing a return with its declaration of truth and penalties for inaccuracies would enable otherwise hidden tax liabilities to emerge.

I have tried to find out what the criteria were for “needing” to file a return (in HMRC-speak) but cannot get earlier than 2005 through the National Archives. Then the criteria were, other than the obvious self-employed, that you were a company director, member of Lloyd’s or Minister of Religion (ie people with complicated – in tax terms – affairs), have income from property unless you are an employee and the income is less than £2,500 – in which case you *may* be let off filing if it can be collected through PAYE, or other untaxed income not collectable through PAYE. This is all compatible with what I say above, though not precisely compatible with a perfect and seamless boundary.

In addition in 2005 employees earning £100k+, with savings income of £10,000+, have tax due at year end not collectable through PAYE, (some) who have untaxed income of £2,500 or more and those with £2,500 or more expenses needed to file a return. Some of these overlap. And all are either compatible with section 7 or follow from possible complex matters.

There was a long series of notes which added more detail, completely incompatible with gov.uk guidelines these days.

So, turning to the ICAEW link,

• self-employment income over £1,000;

• other untaxed income of £2,500 or more;

• claims for tax relief for employment expenses of more than £2,500;

• income from savings or investments over £10,000 (below this level HMRC will initially seek to collect the tax through a PAYE coding adjustment).

The first is a recognition that the source would be within section 7(7) TMA.

The second is a recognition that either coding out or simple assessment would apply

The third follows from the “complicated” point and HMRC’s need to be able to investigate such a claim – it is not linked to section 7.

The fourth is a recognition (explicitly) that coding out or (implicitly) simple assessment would apply. I accept that while coding out would come within section 7(3) or (4), simple assessment would not necessarily, but then HMRC have always had the option of a section 29 TMA assessment on anyone who was not in SA but had income which had not been taxed through PAYE (as I pointed out in Goldsmith v HMRC).

I really don’t see why any of this should result in contorted underwear.

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Replying to richard thomas:
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By Justin Bryant
03rd Dec 2023 12:54

Richard, very many thanks for you helpful, erudite explanation. That's likely to be post of the year and you must be one of no more than a dozen people in the whole country who knows anything about that interesting history. It would have been even better had you been able to explain if, how, when and why "chargeable to tax" became "liable to tax" in s7(7) (and what is the difference, if any), but if you don't know that's all cool re underwear etc. I think it's simply that "liable to tax" means chargeable tax (from rent/interest etc.) that is also physically payable (after all reliefs/allowances) and "chargeable to tax" means tax exigible on such income/gains that is not necessarily physically payable (after all reliefs/allowances) and if so that goes to my "PA must be claimed" point about s7(7) misfiring in not deeming a PA claim to be made.

One could consider chargeable gains within the annual CGT allowance (given automatically if no RBC) by contrast: https://www.legislation.gov.uk/ukpga/1992/12/section/1K.

Also, by contrast, a PPR sale is not chargeable to tax in the first place (as PPR CGT relief is automatic and needs no claim); hence no notification is needed under s7(1), so that does not misfire.

Assuming that's right, as a bonus question, does "subject to tax" mean "chargeable to tax", "liable to tax" or something else? I believe subject to tax means a particular entity is within the scope of tax generally or specifically (depending on the context) in the first place (ignoring all reliefs/allowances), like a charity's donation receipts are not subject to tax on the charity and Charles II is not subject to tax (but his subjects are so subject).

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Replying to Justin Bryant:
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By FactChecker
03rd Dec 2023 13:55

... presumably that was intended to be Charles III - but I endorse your thanks to Richard and await his views on subject/chargeable/liable.

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Replying to Justin Bryant:
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By richard thomas
03rd Dec 2023 15:16

I will have a go at answering your questions, but not today. And where is the "subject to tax" wording you want my view of? If in a DTA the answer may be different from what it would be if it is in UK law.

And of course no one should assume that what I have said where I draw inferences from the legislation is necessarily correct.

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Replying to Justin Bryant:
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By richard thomas
07th Dec 2023 17:40

After a few days cogitation I have decided to rise to Justin’s bait. Section 7 as it currently stands (ie post FA 1994), when read with sections 8, 9 and 59B TMA, Chapter 3 Part 2 ITA 2007 and ITTOIA passim, demonstrates the difficulty of trying to make logical sense of the fundamental building blocks of taxation as they are expressed in TMA in particular.

I have been researching this issue for some time and it dates back to at least 1803. That date is important as it was at the turn of the nineteenth century that UK (actually then GB) tax law started a move from the taxation of things to the taxation of persons, a process still not really complete. There are some important older tax cases and an important Committee Report that stress how confusing the vocabulary and in particular the lack of consistency was, and still is (even though many things, especially the assessment process have changed drastically, often more than once).

For example In General Commissioners for the Division of Kensington v Aramayo (1916) 6 TC 613, Lord Wrenbury, in the House of Lords Judicial Committee, said:

“My Lords, this case affords a striking illustration of the involved and almost unintelligible expression of the law contained in the Statutes relating to income tax. It is difficult to reconcile one section with another. The same word is used here in one sense and there in another. There is no sequence or orderly arrangement of matter. Your Lordships will, I hope, agree with me in thinking that a taxing statute, particularly one upon which taxation to so large an amount is now collected, ought to be expressed in plain language, free from the defects to which I have pointed, and that the matter demands, as soon as opportunity offers, the early attention of the Legislature.

My Lords, I do not think it necessary to travel through what I have called the administrative clauses in detail. … In these Acts it is not possible to rest any conclusion upon a particular word. The same word is in one section used in one sense and in another in a different sense. This preliminary ascertainment of amount is … generally spoken of by the verb "assess," and its result by the noun "assessment." But it is equally true that the final act of imposing liability on the taxpayer is spoken of sometimes by these same words, but sometimes also by the word "charge." In popular language also the taxpayer is said to be "assessed," when the meaning is that he has been rendered liable to pay. On the other hand the word "charge" is sometimes used to express the preliminary act done by the subordinate officer, the assessor, and also … to express the final act … in fixing liability on the taxpayer.

As I have said, no reliance can be placed upon an assumption of accuracy in the use of language in these Acts.”

These remarks were cited in the 1936 Report of the Income Tax Codification Committee (Chairman Lord Macmillan) at paragraph 31, where the Committee added:

“The word “assessment” is, in point of fact, employed in the existing legislation in no less than eight different senses.”

The Committee had particular problems with the complicated procedure for the assessment of tax involving as it did many different persons and much to-ing and fro-ing between them. They proposed a consistent usage of words such as “assess” and “charge”.

The Committee’s definition of “charge” however was limited to the administrative act following the making and allowing of the assessment by the relevant bodies of Commissioners (cl. 280 of draft Bill). But they used it in another way. Clause 1(1) provides that “The provisions of this Act apply to income tax charged for any year; and (a) the income tax charged at a standard rate … shall be charged in respect of the income of the various Classes mentioned in this Act …”.

The explanation for the two different uses of charge appears to be this. The first charges the tax in respect of the various types of income: the second refers to the process of imposing that charge on the persons who possess the types of income that are charged to tax.

The use of charge as a verb in relation to income types is still current, eg in s 5 ITTOIA 2005 “Income tax is charged on the profits of a trade, profession or vocation” and in s 1(1) TCGA 1992 “Capital gains tax is charged for a tax year on chargeable gains …”.

The use of charge as a verb in relation to the assessing procedures is also still current, eg in TMA

• s 28C(4) “Where … proceedings have been commenced for the recovery of any tax charged by a determination under this section”;

• s 29(1) “the officer … may… make an assessment in the amount … which ought in his … to be charged”;

• s 30A “All income tax which falls to be charged by an assessment …”;

• s 50(6) & (7) “If … the tribunal decides … that ... the appellant is [over]/[under]charged by a self-assessment”

• s 50(8) “… an assessment (other than a self-assessment) which (a) assesses an amount which is chargeable to tax, and (b) charges tax on the amount assessed,” and

• s 55(2) “the tax charged—(a) by the amendment or assessment, or (b) where the appeal is against a conclusion stated by a closure notice, as a result of that conclusion, shall be due and payable as if there had been no appeal.”

The dual usage in this way, charging income to tax and charging a person to tax (and which for CGT is embodied in the same sentence, as s 1(1) TCGA continues “… accruing in the year to a person on the disposal of assets), also reflects the first two parts of the well known “Whitney trichotomy” as Hoffmann J called it in Jones (HM Inspector of Taxes) v O’Brien) “of liability, assessment and collection”.

“Chargeable” is also a word featuring in the administrative provisions of the Taxes Acts.

Section 7(1) TMA (2023 version) notoriously says:

“Every person who … is chargeable to income tax or capital gains tax for any [tax] year shall … give notice to an officer of [Revenue and Customs] … that he is so chargeable.”

Section 8(1) TMA goes on to require a return (if requested by notice given) of “the amounts in which a person is chargeable to income tax” and defines that phrase in ss (1A) to mean the “amounts which take into account any relief or allowance a claim for which is included in the return;”

Thus types of income and chargeable gains are chargeable to tax in the sense that a person who is in receipt of them may be fixed with a liability to pay tax determined by taking them into account in a calculation according to the law, which calculation allows the deduction of certain amounts.

Because of the deductions it is not therefore inevitable that, because a type of income is charged to income tax and a person has that type of income, they will have to pay tax: thus they are *chargeable* because the liability to pay the tax is contingent. But if the calculation (the assessment, determination or whatever) shows there is tax to be paid, the assessment etc fixes the person with that liability: they are charged to tax by the assessment in the second sense.

From this it might appear clear that where a person was in the past (before 1996) required by s 7 TMA to notify that they were chargeable to tax, they only needed to do so if it was clear that they would have been capable of being charged to tax by an assessment. This is consistent with the scope of s 29(1) TMA which originally was the section governing all assessments, not just “discovery” assessments (its job now):

“(a) if the inspector is satisfied that any return under the Taxes Acts affords correct and complete information concerning profits in respect of which tax is chargeable, he shall make an assessment accordingly,

Since a “nil” assessment cannot charge any tax, and was never issued, only a positive amount of tax is “chargeable”. If a return was made which disclosed no tax to be assessed the Inland Revenue file would be likely to be marked “NNL” (= no net liability) and would have its cover colour changed (from brown to green) to indicate that no assessment would be required and likely no notice to file a return issued. The case might become a repayment case where a claim could be made on an R40.

A number of things cloud that apparent clarity:

Section 7 as it was substituted by FA 1994 gives, in subsections (6), (6A) and (7), exceptions from the obligation, backed up by sanctions for failure, of notifying in three circumstances. These are part of the wider grounds for exception set out in subsection (3). A person who has no chargeable gains and is not liable to HICBC or certain other charges (mainly pensions matters) is excepted from notifying chargeability if a person’s total income (the sum of all items of income which are charged to tax, mainly by ITTOIA) consists only of:

• Those sources of income where collection is effected through deductions by an employer under PAYE (and now simple assessment) (subsection (4)) – this includes not only earnings and pensions but items like state pension and other income coded out.

• Income from tax is deducted (not stated but must exclude PAYE), treated as deducted or as having been paid and where person is not for that year “liable to tax” at a rate other than nil rates, BR or DOR (subsection (6)).

• Dividends in cases where the person is “not liable to tax” at the DOR, DUR or DAR (ie only where the nil rate applies) (subsection (6A)).

• Cases where a person’s income “is income on which he could not become liable to tax under a self-assessment made under section 9 of this Act in respect of that year” (subsection 7).

Given the terms of subsections (6) to (7) all three of which use “liable to tax”, rather than “chargeable to tax” as used in subsection (1)(a), and given that in all cases it is the person who is to be “liable” or “chargeable”, not the income, the terms ought to have different meanings. It seems quite clear that they in fact do, as, assuming subsection (7) is actually needed, then a person is “chargeable to tax” if they have any income from taxable sources, irrespective of whether they could be assessed and charged to tax on it, and a person is liable if in fact they do have a liability to pay tax.

An obvious, but possibly misleading, point to make is that the use of “liable” here, dating from 1994, is what prompted the drafters of ITA 2007 to say in section 23 that the outcome of going through the Steps is a person’s liability to tax, ie what they must include in their self-assessment and what they must, with certain other adjustments, pay on the due date.
It is slightly misleading because subsections (6) and (6A) refer to being liable at a particular rate of tax – and that is Step 4 in section 23. In other words, tax reductions deducted at Stage 6 do not affect the rate of tax charged even though they may reduce the tax bill to nil or to a lower effective rate.

But subsection (7) is not confined to cases where a particular rate applies, so that it requires that the amount of the liability to tax, the “result” after Step 7, is nil. Accordingly tax reductions are relevant in this subsection.

Caveat: I’ve no idea what subsection (5) means.

Continuing confusion corner: Despite the wording of section 7(1) (see above) the sidenote still reads: “Notice of liability to income tax”.

I haven't tackled "subject to tax" as I associate that with DTAs, not domestic law: where is it found in domestic law?

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Replying to richard thomas:
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By Justin Bryant
17th Dec 2023 20:25

Thank you very much Richard and I think I agree with all that (you have to consider the context basically). As for "subject to tax", you are probably right re DTAs.

Incidentally, this is not all academic as some might think. For example, HMRC wrongly only accept that IHT relief in s70(3)(b) IHTA 1984 applies if income tax is actually payable, but it doesn't say that that's required. HMRC therefore mischievously try to exploit this kind of ambiguity to the taxpayer's disadvantage.

https://www.legislation.gov.uk/ukpga/1984/51/section/70

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Replying to richard thomas:
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By More unearned luck
30th Nov 2023 15:52

I accept that I was wrong to say that a UTR needed to file a paper return. But what is needed is a tax return form. In defiance of HMRC's charter promise to make things easy, HMRC has not made the SA100 for 2023 available to download. You are required to phone HMRC* and phoning an under-resourced HMRC isn't easy, It needs patience, tenacity and resilience and a client willing to pay for the agent's time on hold. This assumes that the call-centre officer is willing to, or is authorised to, issue a form to someone not in the SA club. I've not tried to do this - I'm lucky I've got tax software that can produce facsimile forms, perhaps the OP has too.

*https://www.gov.uk/self-assessment-tax-return-forms.

Did you mean s 222 rather than s 228?

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Replying to More unearned luck:
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By richard thomas
30th Nov 2023 18:24

Yes I did mean s 222.

I tried the paper return service out of curiosity and got through on the number given pretty quickly, had a pleasant chat - no questions asked about why - and it arrived within 3 days.

I've just googled it and downloaded a pdf from the gov.uk website!

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Replying to richard thomas:
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By More unearned luck
30th Nov 2023 18:52

Perhaps I should revise my opinion of HMRC's efficiency.

But you have a UTR, (don't you?), and an NI number. The OP's client doesn't have either.

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Replying to More unearned luck:
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By richard thomas
30th Nov 2023 19:17

Yes I do (both) but I wasn't asked for them, only my name and address.

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By Montrose
03rd Dec 2023 10:44

Having read Richard's scholarly piece could anyone identify a statutory obligation for any person - other than the minor him or herself - to file a return for them?

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Replying to Montrose:
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By richard thomas
03rd Dec 2023 11:12

Section 72(2) TMA 1970, repealed in 2012 as unnecessary, because the legal concept of parental responsibility would apply anyway to make the parent responsible.

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Replying to Montrose:
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By taxdigital
03rd Dec 2023 12:10

Montrose wrote:

Having read Richard's scholarly piece could anyone identify a statutory obligation for any person - other than the minor him or herself - to file a return for them?

At my desk for some reason and stumbled upon this. Whilst I haven't read the contents of this thread to answer your question:

In the case of a bare trust, the assets belong the beneficiaries and the trustees have no discretion. Following this principle the income is taxed on the beneficiaries subject to all allowances available to them. But there is an exception: if the parent is the settlor, the beneficiary is a minor unmarried child and the income exceeds £100, the income will be taxed on the settlor (s.629 ITTOIA).

Hope this helps.

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By Montrose
03rd Dec 2023 11:21

Which parent ? Unmarried couple or divorced couple with shared custody???

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Replying to Montrose:
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By richard thomas
03rd Dec 2023 11:34

Not my area of expertise.

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Replying to Montrose:
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By Tax Dragon
03rd Dec 2023 12:58

Are both parents refusing to file? Yet presumably at least one of them has engaged with you for the purpose of filing.

And it seems to me that if you file a complete return as per that engagement then there won't be penalties. Or were you proposing a different course of action?

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By Montrose
07th Dec 2023 18:29

I had been approached by a young solicitor niece in respect of her own family situation.
I had no idea that the query would generate such a plethora of responses. Thank you all-but I am none the wiser!!

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By taxdigital
07th Dec 2023 18:47

Not too sure what's so complicated about this.

Montrose wrote:

Grandparent gifts rental property to minor grandchild. Parents are bare trustees.

I've already answered this part. It's the child's income. As the child is a minor, parental responsibilities mean it's the parent's responsibility to take care of the child's tax affairs.

Montrose wrote:

Infant not previously  registered for SA.

This can be done by first getting a temporary NI number and then HMRC would issue a UTR on that basis.

Montrose wrote:

Are penalties due, and who is liable. Reasonable excuse?

. If HMRC haven't issued a notice to file a return a penalty cannot apply. If there is a penalty obviously it's the child (parent with responsibilities) who is liable. Now coming to failure to notify, I don't think this applies: by sending a form in you have already notified HMRC.
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Replying to taxdigital:
By Ruddles
07th Dec 2023 19:06

And the time limit for notifying, per s7, is what?

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Replying to Ruddles:
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By taxdigital
07th Dec 2023 19:13

Ruddles wrote:

And the time limit for notifying, per s7, is what?


Has that changed?
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