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UK Revenue Tax Form

New law on voluntary tax returns backdated

7th Dec 2018
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HMRC isn’t happy with the existing law on voluntary tax returns, which restricts its powers to open enquiries and levy penalties, so it is changing the rules with retrospective effect.


Back in April, the case of Patel and Patel (TC06426) dealt with voluntary tax returns. These are returns sent in spontaneously by taxpayers where HMRC has not previously issued them with a notice to file under TMA 1970 s8.

The first tier tribunal (FTT) found that such returns barred HMRC from using its standard package of powers and procedures such as enquiry, amendment and penalties for errors since these all apply only to returns made “under section 8”.

The Patel case was not an isolated incident, as the judge was able to point to other FTT cases – both income tax and corporation tax – where the same decision had been reached.

Big issue

Since around 450,000 unsolicited tax returns are filed every year, this is an anomaly which HMRC could not allow to continue. As I suggested in April, use of existing “discovery” powers (TMA 1970 s 29) or the Simple Assessment procedure (TMA 1970 s 28H) can deal with many of these in a completely satisfactory manner.

Some instances, however, will be sufficiently complex that the full panoply of HMRC powers will be called for, and there may be situations where the unscrupulous might seek to hamstring HMRC’s actions by the “tactical” use of a voluntary return.

This has led to new proposed legislation in the form of clause 86 of the Finance (No. 3) Bill 2017-19 currently laid before parliament.

New legislation

For income tax self assessment, a new TMA 1970, s 12D will apply when:

  • A taxpayer submits a “purported return” – either a personal return, a trustee return, or a partnership return;
  • No notice to file has been given by HMRC to that person; and
  • HMRC decides to treat the return as if it had been made in response to a validly-issued notice.

In such cases, the legislation treats the return as having been made in response to a deemed notice to file which was issued on the day the purported return was received by HMRC. This will enable all the usual responses, including enquiry and penalties, to take place without ambiguity.

However, HMRC won’t be able to charge penalties for late filing of such a return, although it will still be able to issue penalties for “failure to notify chargeability” where applicable.

To count as a “purported return”, a document needs to have been made and delivered in an appropriate format and must purport to be acting as a tax return. We can conclude from this that it must be signed and dated, and must include the standard declaration that the contents are correct and complete to the best of the person’s knowledge and belief.

For corporation tax, there will be a new FA 1998, Sch18 para 20A, which operates in an exactly parallel manner.

Backdated to…

The legislation is retroactive. Once the Finance Bill receives royal assent, these new provisions will have effect as though they had always been in force. This means that voluntary returns which have already been submitted will be treated as having been made in response to a filing notice.

The only exception is for cases where a taxpayer had, before 29 October 2018, made an appeal or a claim for judicial review on the ground that no notice to file had been given. So, any appeals along the lines of the Patel case which are already in the pipeline will be honoured, but there will be no new opportunities to make such an appeal.

Amending returns

HMRC is undertaking a consultation on the process by which tax returns are amended. This is a fairly wide call for evidence and asks for input from taxpayers and agents on their experience of the process as it currently applies to income tax, corporation tax and VAT.

In addition, HMRC is seeking views on how the process might be changed going forward. While currently, it is possible to amend a return by post, digitally or (in some cases) by telephone, HMRC’s “digital agenda” means it would prefer it if all amendments could be made digitally.

HMRC’s preference would be for a single system which covers all taxes (initially income tax, corporation tax and VAT, but potentially to encompass other taxes as well). It would like to know if we, as taxpayers and agents, share those preferences.

Anyone wishing to make comments in response to HMRC’s 13 questions should do so by 6 February 2019, ideally by e-mail to [email protected]. Or post your comments below and we will respond on behalf of the AccountingWEB community.

Replies (10)

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By Justin Bryant
07th Dec 2018 10:17

Interesting to read HMRC's 29.10.18 press release that you would have no idea that the point was one which was first (successfully) argued by HMRC and on close reading this retrospective change appears to be wholly in HMRC's favour.

Thanks (2)
By johnjenkins
10th Dec 2018 10:31

Amazing! HOL says HMRC have got too much power and now this.

Thanks (1)
By AndrewV12
10th Dec 2018 11:05

It always amazed me how taxpayers who advised HMRC they were in business and registered with HMRC for self assessment were hit harder for filing late returns than those who never advised HMRC they were in business and sent in Tax returns years later.

Shame about the above, it had been very generous of HMRC to accept back dated returns from years ago without late filing penalties, those who forgot to advise HMRC they were running a business.

Thanks (0)
Replying to AndrewV12:
By johnjenkins
10th Dec 2018 11:10

Although HMRC have the power to fine for late business registration, it's only when they issue returns that aren't filed can they wack up the big penalties.

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By Mr J Andrews
10th Dec 2018 11:07

Interesting to see ,under the final header that HMRC is :-

......undertaking a consultation
......asking input from taxpayers and agents
.......seeking views on how the process might be changed

Clearly the school leavers responsible for the MTD initiation have since left the department.

Thanks (2)
By pauljohnston
10th Dec 2018 11:08

I can understand the most of it but retrospectively that does not get my vote.

Self-Assessment has been around for over 10 years so HMRC if there was a problem it should have been sorted by now but still dont agree with retrospective.

Thanks (3)
By dgilmour51
10th Dec 2018 13:55

"These are returns sent in spontaneously by taxpayers where HMRC has not previously issued them with a notice to file under TMA 1970 s8."

Given HMRC's consistent mantra that 'sensible and prudent taxpayers should anticipate [this and that] and advise HMRC of [this and that]' it is very hard to see any sensible way they can object to a taxpayer informing them of [this and that], regardless of the method of communication.

In any event, the whole concept of retrospection of regulation by the state is immoral, unethical, duplicitous and mendacious in the extreme - only 'the legal system' could possibly deem it otherwise.

But the wondrous thing about HMRC is that it is always interesting to see each new 'low' that they dream up.

Thanks (2)
Replying to dgilmour51:
By Michael C Feltham
10th Dec 2018 18:32

The last wondrous enactment I remember was Alistair Darling "Darling" 's removal of Extra Statutory Concessions, for VAT, his excuse (!!) being these conflicted with EU VAT Law.

However, this withdrawal of the ESC seriously affected a client's case in the Lower Tribunal I was fighting: since it applied, retro-actively. If it had not, then I would have been able to mount a core pivot of my argument concerning the taxpayer's Legitimate Expectation purely based upon the dates...

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By SteveHa
10th Dec 2018 11:20

It strikes me that Any Answers responses should stop telling questioners that they can't re-write history.

If it's good enough for HMRC.......

Thanks (2)
By Michael C Feltham
10th Dec 2018 11:36

Now, is the law change allowing HMRC's powers to be deemed Retrospective, or Retroactive? Big difference...

Once again, one law for the majority and whatever you want for Government!

In terms of both jurisprudence and society, the potential for any authority to be granted absolute powers becomes extremely dangerous!

It can be described as Fascism.

Thanks (3)