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SA: Points to watch for this year's returns

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19th Dec 2011
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When the heat is on it is very easy to get things wrong. AccountingWEB tax editor Rebecca Benneyworth provides a few top tips to carry you over Christmas and into January. 

Student loans
As time goes on, more and more clients will be repaying income contingent student loans. You have to watch out for the tick box at the foot of page 2 (Box 1) and enter the deductions from employment (if any) in box 2. If your client thinks that their loan is almost repaid, they must take it up with the student loan company – you cannot accept their instruction to omit a tick in box 1 – the return will be incorrect.

Correcting past mistakes
It is possible that in checking the 2011 return you spot an error on the previous (2010) return. You are still in time to make an amended return – the deadline is 31 January 2012. However, you will need to consider the penalty implications, as if the inaccuracy gave rise to an underpayment of tax, there may be penalties at stake. There is no penalty for a mistake made despite reasonable care, but if the mistake was careless, then correcting the inaccuracy is not sufficient – you also need to make a disclosure to reduce the penalty (hopefully to zero). An unprompted disclosure of a careless inaccuracy can qualify for a full discount, reducing the penalty from 30% of the potential lost revenue to 0%.
In order to qualify for the reduction for disclosure, your disclosure must meet the requirements of telling HMRC that there is an inaccuracy, helping HMRC to quantify the inaccuracy (usually by disclosing the amount), and allowing HMRC access to the client’s records to check that all is well. The last of these may not be necessary – HMRC may not request access, so the reduction may be given in any event.
This disclosure can easily be achieved by making a white space entry on the amended return. More information on “careful” when an agent is acting, and the relationship between the agent’s errors and the client’s penalty are in HMRC’s compliance handbook manual CH84540.
Penalties
Penalties for late filing apply irrespective of the tax due for this year. There was lots of publicity about this, but do make sure that your slower clients are aware that there is no safety net this year, and that they face a penalty if they delay replying to your questions. 
Special annual allowance charge
This ghastly piece of legislation applies for the last time in 2010/11. Make sure that you flag the issue where a client’s income is more than £130,000. Use the tax calculation gross income figure, less losses and only £20,000 of personal pension contributions as a trigger to raise the question. Don’t forget the charge will apply if the employer has made contributions directly – you may not be aware of these and really need to use the income as a trigger to ask in every case.
Of course if your client is a member of a defined benefit arrangement you will need information about the benefits available under the scheme at the start and end of the tax year to determine the deemed contributions. Don’t miss the fact that uniquely the SAA works on a fiscal year basis and not a pension input period basis.
You may also refer your client for advice about withdrawing any excess contributions that he has made to eliminate the SAA charge – this is done in the following tax year, so 2011/12 for SAA charge arising in 2010/11 – but this is investment rather than tax advice.
Paper returns
Filing a paper return at this time of the year will normally attract a £100 penalty, unless the client is an excluded case. You cannot remove the penalty by subsequently filing online, so once again, this penalty sticks!
Excluded cases are dealt with here. If you are filing on paper for an excluded case, you should file a reasonable excuse form with it, so that the penalty is stopped before it is raised (saving time). The reasonable excuse form is available here.
Class 4
If your client is bringing forward trading losses to set against profits for Class 4 purposes (because those losses were set against other income in earlier years), then the relief for Class 4 NIC cannot be claimed using the self employment short pages. If your software gives you a choice, you will need to fill in the full self employment pages, entering the additional relief in box 101 on page SEF 5.
Do add your top tips on as comments, and we can grow the article into a useful resource.

Replies (12)

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By pauljohnston
19th Dec 2011 12:25

Rebecca well done (again)

Under Correcting past mistakes will this date be determined by date 2009/10 return submitted rather than 31 Jan 2012?

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By Trevor Blackmur
19th Dec 2011 16:38

One to add

Thanks for the helpful advice as always Rebecca.

The deadline for coding out tax due of up to £2,000 via PAYE if you file online is 30th December, so it's worth double checking that you have received back all the returns you sent for signing (and that they have been filed), and if not chase them now. It's also worth prioritising work you have in and putting any client with PAYE income at the top of the pile.

Trevor Blackmur ATT
TRB Tax and Payroll Services

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By nogammonsinanundoubledgame
19th Dec 2011 20:12

Rebecca says

"It is possible that in checking the 2011 return you spot an error on the previous (2010) return. You are still in time to make an amended return – the deadline is 31 January 2012. However, you will need to consider the penalty implications, as if the inaccuracy gave rise to an underpayment of tax, there may be penalties at stake."

Read in isolation this passage might give the impression that correcting the 2010 return is optional.  That this was clearly not Rebecca's intention, and on reading further it seems that the purpose of the passage is to focus intention on the nature of disclosure in the amendment. I have a slight problem with this:

"In order to qualify for the reduction for disclosure, your disclosure must ..

... meet the requirements of telling HMRC that there is an inaccuracy, ..."

Erm, to me it is axiomatic that if you are repairing a return, by definition the earlier return was inaccurate,

"...helping HMRC to quantify the inaccuracy (usually by disclosing the amount), ..."

Erm, the repaired return less the original return is by definition an expression of the quantity of the inaccuracy

"... and allowing HMRC access to the client’s records to check that all is well."

No argument there.

With kind regards

Clint Westwood

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Rebecca Benneyworth profile image
By Rebecca Benneyworth
19th Dec 2011 21:32

a couple of replies
Thanks for your comments. And good point about coding out!

As far as amending 2010 is concerned - yes deadline is 31 Jan, irrespective of submission date of 2010 return.

Clint - yes of course I meant that amending was not optional - thanks for clarifying. My comments about disclosure are based on experience with VAT and penalties. It may well be that eventually HMRC's approach is found to be incorrect - I have mixed feelings but am probably 70% in favour of HMRC's view, which is that correcting an error (particularly on a VAT return) is not the same as making a disclosure which is statutorily defined in FA 2007 Sch 24. I would probably accept the same argument in relation to amended SA returns - particularly in the light of Langham v Veltema. I do accept that others may hold a different view but wanted to prompt the thought process. Essentially HMRC would like to know that there have been careless errors as it may affect the taxpayer's risk score and if the inaccuracy was "careful" you will make no disclosure - so the ability to discriminate is important. None the less, it may be your view that HMRC will not "see" white space disclosure on an amended electronic return - but that's not our problem!

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By nogammonsinanundoubledgame
20th Dec 2011 19:37

Some comment on "provisional" returns may be in order

Nothing much has changed in the legal position regarding provisional returns since the introduction of self assessment some 15 years ago, but it may be useful to consider the impact of the new penalty regime on such returns.  To recap:  If you have adequate grounds you can file a provisional return, but HMRC guidelines require that you specify (1) which figures are provisional, (2) why they are provisional and (3) by when you expect to repair.  As HMRC have some powers to reject a provisional return these guidelines while not statutory are best observed.

While the legal background (apart from the penalty regime) remains largely unchanged we do at least now have some years' experience of how this works in practice.  It is not uncommon in my experience that with the best will in the world, lack of co-operation from the client results in a failure to comply with item (3) above, and indeed often an entire year goes by, beyond the repair window, without ever repairing the provisional figures.  What I find somewhat surprising is that in the vast majority of such cases (in my experience) no enquiry notice is served by HMRC.  It is in my view a design flaw in the legislation that HMRC's enquiry window expires on or before the expiry of the repair window, but so be it.

A point that has been stressed to me by lecturers in the circuit is that entering a provisional return provides no protection from the penalty regime as regards whether it is "careless".

It is I think another flaw in the legislation that the penalty regime appears to discourage the filing of a provisional return in favour of filing the return deliberately late but in final figures. That said, the late filing penalties are ratcheting up this year if filing very late, so that may make it less appealing.

With kind regards

Clint Westwood

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By halesir
20th Dec 2011 17:03

coding underpayments

It's worth noting that the £3000 limit has been brought forward to underpayments for 2010/11. When it was introduced it was only applicable to 2011/12 and subsequent years' underpayments. Even more incentive to sort these cases.

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By Andrew1946
25th Jan 2012 14:59

Self Assessment-Property Losses

 I would be most grateful if anyone could  tell me if Losses on Rental Property ( not holiday  a let) from a previous year (2009/10) can be carried forward to 2010/11, and if so where, or which boxes have to be completed on the SA Return

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By pauljohnston
25th Jan 2012 15:16

Losses on property income

Land and Property page 2 box 37

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Replying to pbaxter:
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By Andrew1946
26th Jan 2012 01:07

Land & Property - Rental Income - Losses carry forward

Paul ,

Many thanks, however having read page 14 of the Property notes and your comment,  I am still unsure of to the amount to be entered in Box 37 or Box 41. A further loss was incurred from Property for 2010/11, and the only other Income in this year was from self employment (part year) and  employment where  PAYE  was applied, but no tax payable, due to earnings being under the tax threshold. Again any help or further explanation would be greatly appreciated

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By pauljohnston
26th Jan 2012 15:33

juat complete the loss b/f 

juat complete the loss b/f  in 37 add/deduct this years profit/loss complete 41.  You can only offset it against other income in certain circumstances.  If all other income is under the Persnal Allowances that is it.

If you want more help please let me know what you are thinking and I will try and help.Post the figures if necc in your response

 

Paul

 

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By Andrew1946
26th Jan 2012 16:40

Land & property lossb/f

Paul

 Many thanks having read your response again it all makes sense, B/f loss entered in Box 37, current years loss entered in box 39, c/fwd loss automatically summed in box 41 - Just wanted some re- assurance - pity the HMRC helpdesk could'nt be of help in time for the SA deadline    - no technision available " busy period", despite numerous phone calls throughout the day over several days!   

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By pauljohnston
27th Jan 2012 15:12

andrew

Glad to be of help.  That is just what this forum is for.  There are many accountants on it - I have been helped directly and indirectly.

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