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Chapter one - self-assessment system: - Coggle Diagram
Chapter one - self-assessment system:
However, the individual is not subject to the self-assessment system if all the following are satisfied:
All income is considered under payee.
The individual does not have any capital gains.
The individual is not a higher rate taxpayer.
Income tax has been deducted at source.
Who needs to complete a tax return:
The most common reasons who requires submission of a tax return are:
Individual is self-employed with income exceeding £1000 which includes being a member of a partnership.
Individual receipts income above a certain level from savings, investment, or property
Income from tax savings investment off £10,000 or more before taxes
Income from property (before deducting allowable expenses) off £10,000 or more.
Income from property (after deducting allowable expenses) off £2,500 or more.
Annual trust or settlement income which taxes is still due.
Income from the estate off a deceased person which tax is still due.
Individual has received foreign income that is liable to uk tax.
Individual annual income is £100,000 or more.
Individual is employed and wants to claim for expenses or professional subscriptions off £2,500 or more
Individual owes tax and HMRC cannot collect through their tax code, or the individual prefers to pay direct.
Individual has a capital gains tax liability. Disposal of residential property must be reported and paid to HMRC within 30 days of the sale.
Individual or individuals partner earned income more than £50,000. If the individual claimed child benefit during the year on either they or their partner earned income in excess off £50,000 they managed to submit a tax return and pay the high-income child benefit charge. Effectively this tax charge is a repayment impressive or all of the child benefit claim during the year.
Due date for submissions of tax return:
Tax returns including supplementary forms must be submitted by:
31st of October following the relevant tax year if submitted in paper format.
31st of January following the relevant tax year if submitted in electronic format.
There are three exemptions to this:
If HMRC did not issue a notice to file a tax return until after 31st of July following the relevant tax year but before 31st of October, the latest filing date for paper returns is 3 months from the date of the notice. The death for electronic filing remains the 31st of January.
If the notice to file a tax return was not issued until after the 31st of October following the tax year the latest filing date is 3 months from the date of the notice.
If the taxpayer wishes HMRC tickle after tax liability through their tax code the deadline for submission is the 30th of December. Tax can only be collected through the tax code if the liability is less than £3,000 and if the taxpayer has significant income tax via payee.
Interest and penalties on overdue payment:
Interest may be charged on the lates payment off Pa and balancing payments. The interest rate is a 3.5%- per annum from 24th of May 2022 and it will be applied from the due date to the day before the actual date of payment. If a taxpayer claims to reduce their POA and there is still a final balancing payment due the interest is charged on the additional POA are calculated as each of these payments had been the lower off:
The reduced amount plus 50% of the final income tax liability
The amount that would have been payable had no claim for reduction been made.
Penalties are imposed on the overdue payment of tax and apply to balancing payments. Penalties are also imposed on:
Tax due following an amended tax return
Tax due following a discovery assessment by HMRC
Inquiries:
HMRC has the right to inquire into your tax returns submitted by an individual. The scope of the inquiry could cover any aspect of the personal return this might cover anything included in return or that should have been included.
HMRC has 12 months from the date the tax returns submitted to commands an inquiry. However if the return was filed late or on ana mended returns submitted the deadline is extended until 1/4 following the first anniversary of the actual filing date of the return or amended return. Quarter days on 31st of January, 30th of April, 31st of July and 31st of October.
The reason for the inquiry can be any of the following:
Suspicion without the taxpayer may have undeclared income or maybe claiming tax reliefs incorrectly
Information in HMRC’s possession
As part of a random selection process
HMRC does not have to state the reasons for the inquiry however written notice must be issued to the taxpayer prior to the commencement of the inquiry.
During an inquiry HMRC cannot demand company or individual to provide documents and accounts for inspection and to provide full answers to certain questions. The information requested most relate to the certain transaction or activity in questions. The individual has 30 days to provide the information to HMRC. If it is not supplied HMRC will issue formal legal notice requiring the individual to provide it. If it is still not supplied a standard penalty is imposed off £300 and additional penalties of up to £60 per day or impose until the information is supplied.
HMRC must give notice to the individual informing them that the inquiry is finished. There are three outcomes to an inquiry.
There is no further tax liability for the individual.
The individual paid too much tax – HMRC will amend the tax return done and repay the overpaid tax and interest to the individual.
The individual has not paid enough tax – HMRC when amend the tax return and ask the individual to pay the additional tax liability and interest within 30 days
Discovery assessments:
If HMRC believe a return has been submitted but the tax liability has been understated, they can make a discovery assessment that collects additional tax. The time for raising a discovery assessment is to correct a careless error is normally four years after the end of the tax year concerned. However, this is extended to six years if the taxpayer is negligent or 20 years if dishonest.
Determination:
A HMRC officer can make a determination of tax due if an individual ignores the notice to submit a tax return. The officer can determine the tax liability to the best of their ability within the information available. A determination cannot be appealed or postponed. It can only be displaced at the end of the individual submits the tax return.
Records:
Taxpayers are required to keep proper records so that they can make a correct return. Taxpayers in business or go to left property must keep records for five years from the 31st of January following the end of the tax year. In other cases, the records must be kept for 12 months from the return filing date. Forward 2022/2023 the limits are:
If individual in business or property rental - 31st of January 2029
Otherwise - 31st of January 2025
HMRC’s information powers:
HMRC has inspection powers that apply to income tax, capital gain taxes, corporation tax , payee and vat.
HMRC can use their statutory powers to request information from taxpayers and third parties via a written notice in circumstances where the taxpayer has not co-operated fully with previous requests for information.
A tax adviser or accountant can’t not be asked to provide information connected with their function. For example they do not have to provide their working papas used to prepare a tax return.
HMRC cannot request information that:
Relates to pending tax appeal.
Constitutes journalistic material.
Is legally privilege.
Is over six years – expect that the approval of a HMRC officer
Relates to someone who died over four years earlier.
HMRC’s inspection powers:
HMRC authorised officers have the power to enter the business premises of a taxpayer whose liability is being checked. They can inspect the premises, business assets and business documents that are on the premises. They cannot access parts oof the business that is sued as a private dwelling.
The officer will usually agree a time suitable for the inspection. However, the officer an carry out the inspection at any reasonable time provided the taxpayer has received seven days written notice and the inspection is care out by an authorise HMRC officer.
enalties:
There is common penalty regime in place for errors in tax return including income tax, corporation tax, Nic and vat. A penalty may be imposed if the taxpayer makes an inaccurate return and has:
Been careless and has not taken reasonable care and making the return or does not take reasonable steps to advise HMRC off an error in a submitted return.
Made a deliberate error but it does not attempt to conceal the error.
Made a deliberate error on has attempted to conceal the error.
In order for a penalty to be imposed the inaccurate return must result in:
An understanding off the taxpayer’s liability
A false or increase loss for the taxpayer.
False or increase repayment of tax to the taxpayer.
Penalties also imply where HMRC have issued an assessment estimating an individual's tax liability were:
A return has been issued to the taxpayer and has not been returned.
The taxpayers required to deliver a return but has not done so.
The taxpayer will be charged a penalty where:
The assessment understands the liability.
The taxpayer fails to take reasonable steps to notify HMRC off an under assessment within 30 days.
Appeals:
Under self-assessment taxpayer has the right to appeal HMRC decisions. Appeals are normally made against the discovery assessment or against an amendment by HMRC to an assessment. Appeals must be made within 30 days off the HMRC decision.
For an appeal it to be valid it most:
Be in writing.
Specify in detail each item in the assessment against which the appeal is made.
Specify in detail the grounds for the appeal in respect of each item.