Simple Assessment: Tax returns – who needs them?
Tax returns – who needs them? Thanks to simple assessment, potentially some of your clients won’t, as from 2016-17.
This new step on HMRC’s digital highway is likely to siphon large numbers of taxpayers – particularly PAYE-Self assessment (SA) taxpayers – out of self assessment altogether.
For more on the policy objectives and detail, visit HMRC’s simple assessment page.
Simple Assessment is part of the government’s policy to abolish the tax return. The Finance (No 2) Bill 2015-16 sets out the nuts and bolts. It is aimed at taxpayers with ‘straightforward’ affairs – and enables HMRC to assess income tax or CGT liability without completion of a SA tax return.
The assessment must detail what tax is due, and the information used to arrive at the figure.
Room for error?
The rationale is that HMRC already has sufficient information with regard to the affairs of taxpayers selected. However, there is always room for error, and assessments will in fact need no less scrutiny than before.
For the mechanics of what to do if there is a dispute – or ‘query’, as the Finance Bill delicately puts it – over the figures, visit Clause 155, Schedule 23 Finance Bill March 2016.
There are essentially 60 days to amend the figures, or it becomes a binding assessment.
The object is to try to resolve any dispute without the need for a formal appeal: HMRC can withdraw a simple assessment if the taxpayer thinks that it is wrong and provides evidence accordingly.
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But the infrastructure is there for the formal procedure of appeal if necessary – as are provisions for interest and late payment penalties. Legislation via statutory instrument follows.
Essentially we are moving on to the interaction with digital tax accounts. HMRC uses the data it already holds, obtained either via a third party or from the taxpayer, and uses it to pre-populate the digital tax account.
HMRC’s impact assessment suggested that simple assessment would bring about an ‘improvement in customer service’ – two million individuals with straightforward tax affairs eventually being taken off the tax return treadmill.
The new regime is intended to reduce the number of taxpayers incurring penalties or paying interest for late filing. The idea is that everything in the digital garden will then be rosy, especially for unrepresented individuals and taxpayers in lower income groups.
Low isn’t always simple
But low income doesn’t necessarily mean simple – ask the tax charities.
Many low income taxpayers have multiple sources of income, sometimes including overseas income, rent a room, different self employments, and a variety of part time or short term employments. Not all of the above will be in RTI.
The ‘however’ clause comes under the heading of debt recovery.
As far as practitioners are concerned, the simple assessment regime is particularly likely to affect clients who are both in the PAYE and SA regime – say clients whose primary sources of income are under PAYE, but who have a secondary source of income under £10,000.
In the past, if there was a P800 underpayment, the only way for HMRC to enforce debt recovery was to put the taxpayer into SA. The new scenario gives HMRC an alternative route into recovery.
A new armoury
Thus PAYE taxpayers may now face HMRC’s entire armoury of debt recovery procedures. While coding out may still be HMRC’s default choice of action in many cases, seizure of goods, direct recovery from bank accounts and court action are now available options as well.
Given the debt recovery angle, if practitioners can (correctly) convince clients that there is still a need for a professional eye to look over their simple assessment, perhaps everything in the garden will be rosy, after all.
Philip and Sarah McNeill write widely on tax and other matters for both the popular and professional press.