Chapter 13 - Administration of tax

Question 1

[Available in Tax Tables] What are the circumstances in which a penalty may be charged?

Answer 1

Careless action

Deliberate but not concealed action

Deliberate and concealed action

Question 2

What must happen in order for a penalty to be charged?

Answer 2

In order for a penalty to be charged, the inaccurate return must result in:

an understatement of the taxpayer’s tax liability;

a false or increased loss for the taxpayer; or

a false or increased repayment of tax to the taxpayer.

Question 3

What happens if a return contains more than one error?

Answer 3

If a return contains more than one error, a penalty can be charged for each error.

Over and under statements can be offset and the penalty applied to the net error.

Question 4

In what circumstances do penalities for errors also apply?

Answer 4

Penalties for errors also apply where HMRC has issued an estimate of a person’s liability where:

• a return has been issued to that person and it has not been returned; or
• the taxpayer was required to deliver a return to HMRC but has not delivered it.

The taxpayer will be charged a penalty where:

• the assessment understates the taxpayer’s liability to income tax, capital gains tax,
  corporation tax or VAT; and
• the taxpayer fails to take reasonable steps within 30 days of the date of the assessment to
  tell HMRC that there is an under-assessment.

Question 5

What does PLR stands for?

Answer 5

Potential Lost Revenue (PLR) to HMRC as a result of

the error.

Question 6

[Available in Tax Tables] What are the maximum penalites for each type of error?

Answer 6

Careless 30% of PLR

Deliberate but not concealed 70% of PLR

Deliberate and concealed 100% of PLR

Question 7

What is the maximum penalty for failure to submit a return?

Answer 7

The maximum penalty payable where tax has been under-assessed because the taxpayer has failed to send a return is 30% of Potential Lost Revenue.

Question 8

What is the difference between promted and unpromted disclosures?

Answer 8

An unprompted disclosure is one made at a time when there is no reason to believe that HMRC has discovered or is about to discover the error. Otherwise, the disclosure is a prompted disclosure.

Question 9

[NOT Available in Tax Tables] What are the minimum penalites that can be imposed after disclosure?

Answer 9

Unpromted

Careless - 0% of PLR
Deliberate but not concealed - 20% of PLR
Deliberate and concealed - 30% of PLR

Prompted

Careless - 15% of PLR
Deliberate but not concealed - 35% of PLR
Deliberate and concealed - 50% of PLR

Question 10

What elements does the HRMC consider when calculating the quality of a disclosure of errors when giving reductions for penalties?

Answer 10

To calculate the reduction HMRC will consider three elements of disclosure and to what degree the taxpayer:

• tells HMRC about the error, making full disclosure and explaining how the error was made
• helps HMRC to work out what extra tax is due
• allows access to business and other records and other relevant documents to check the
  figures

Question 11

What is meant by ‘reasonable care’?

Answer 11

Where a taxpayer has taken reasonable care in completing a return and has taken reasonable steps to disclose any errors, no penalty applies.

If taxpayers do not promptly tell HMRC when they discover an error, HMRC will treat the errors as careless inaccuracies even where the taxpayer took reasonable care.

Question 12

How are penalties issued?

Answer 12

If a person is liable to a penalty, HMRC sends them a penalty assessment.

This states what they owe and that the penalty must be paid within 30 days.

The taxpayer must pay any:

• Tax that is due
• Penalties that are due
• Interest that is due on late tax and penalties

Question 13

Under what circumstances may a penalty be suspended?

Answer 13

A penalty may be suspended by HMRC to allow the taxpayer to take action to ensure that the error/inaccuracy does not occur again (eg, where the error has arisen from failure to keep proper records).

The penalty cannot be suspended if it results from a deliberate error/inaccuracy.

Question 14

Under what circumstances may a penalty be cancelled?

Answer 14

The penalty will be cancelled if the conditions imposed by HMRC are complied with by the taxpayer within a period of up to two years.

Otherwise, if the conditions are not met, the penalty must be paid.

Question 15

Appeals can be made against what?

Answer 15

Appeals can be made against:

• The imposition of a penalty
• The amount of a penalty
• A decision not to suspend a penalty
• The conditions set by HMRC in relation to the suspension of a penalty

Question 16

Appeals are made to whom?

Answer 16

Appeals are made to an independent tribunal, which will usually be the First-tier Tribunal of the Tax Chamber.

It is also possible to opt for an internal review by an independent HMRC officer. This is potentially a quick and inexpensive way to resolve a dispute.

Question 17

Does a common penalty regime apply for failure to notify?

Answer 17

Yes. A common penalty regime applies to failures to notify chargeability.

Question 18

If deliberate action is attributed to an officer, can penalities be collected from them?

Answer 18

Yes. Penalties can also be collected (in part or in full) from an officer (eg, director) of a company if a ‘deliberate action’ is attributable to him.

Question 19

Which taxes are affected by the failure to notify common penalties?

Answer 19

The taxes affected are:

• Income tax
• National insurance contributions
• Income tax and NIC collected via PAYE
• Capital gains tax
• Corporation tax
• VAT

Question 20

[Available in Tax Tables] What are the minimum and maximum penalties for failure to notify?

Question 21

Is there a penalty when there is a ‘reasonable excuse’ for failure to notify?

Answer 21

Where the taxpayer’s failure is not classed as deliberate, there is no penalty if he or she can show they have a ‘reasonable excuse’.

Question 22

What is a ‘reasonable excuse’ for failure to notify?

Answer 22

A reasonable excuse is something that prevents a taxpayer from meeting an obligation despite the taxpayer having taken reasonable care to comply.

Question 23

What does NOT constitute ‘reasonable excuses’ for failure to notify?

Answer 23

Reasonable excuse does not include having insufficient money to pay the penalty.

These also include the following:

• My husband told me the deadline was in March
• I have always relied on my sister to complete my tax return but we have fallen out
• My laptop broke
• My spouse left me
• I could not find my login details
• The return was on my yacht which caught fire

Question 24

Can taxpayers make appeals against penalties for failure to notify?

Answer 24

Yes. Taxpayers have a right of appeal against penalty decisions to the First-tier Tribunal, which may confirm, substitute or cancel the penalty.

Question 25

Is there a common framework for record keeping?

Answer 25

There is a common framework for record keeping for income tax, capital gains tax, corporation tax, VAT and PAYE.

Question 26

What is meant by 'adequate' records?

Answer 26

'Adequate' means keeping records to be sure that the right profit, loss, tax declaration or claim is made.

Question 27

What are the time limits for keeping records for Corporation tax?

Answer 27

Six years from end of accounting period

Question 28

What are the time limits for keeping records for Income and capital gains tax?

Answer 28

- 5th anniversary of 31 January following end of tax year if the taxpayer is in business - 1st anniversary of 31 January following the end of the tax year if the taxpayer is not in business

Question 29

What are the time limits for keeping records for VAT?

Answer 29

Six years

Question 30

[Available in Tax Tables] What is the maximum penalty for failure to keep and retain records?

Answer 30

The maximum (mitigable) penalty for each failure to keep and retain records is £3,000 per tax year/accounting period.

Question 31

What is the time limit for taxpayer claims?

Answer 31

The general time limit for taxpayers making claims, which applies in the absence of any specific time limit, is four years from the end of the tax year or accounting period.

Question 32

What is a qualifying company?

Answer 32

A qualifying company has, at the end of its previous financial year: (a) turnover of more than £200 million; and/or (b) a balance sheet total of more than £2 billion. Qualifying companies must notify HMRC of the name of their senior accounting officer (SAO).

Question 33

What are the duties of the Senior Accounting Officer of a qualifying company?

Answer 33

Senior accounting officers of 'qualifying' companies must take reasonable steps to establish and maintain appropriate tax accounting arrangements. The SAO must certify annually that the company's accounting systems are adequate for the purposes of accurate tax reporting or specify the nature of any inadequacies. HMRC may impose a £5,000 penalty on the company for failure to notify the name of the SAO.

Question 34

What penalities may a Senior Accounting Officer of a qualifying company be liable for?

Answer 34

The SAO may be liable to a £5,000 penalty, in each of the following cases, for his failure to: (a) establish and maintain appropriate tax accounting arrangements (b) provide an annual certificate to HMRC, or providing a timely certificate that contains a careless or deliberate inaccuracy

Question 35

Is reporting of PAYE made in real time?

Answer 35

Yes. The reporting of PAYE is made in real time (Real Time Information or RTI). Each time an employee is paid, the details of his pay and deductions must be submitted to HMRC using a Full Payment Submission.

Question 36

How must payroll information be submitted and when is it due?

Answer 36

The payroll information must be submitted using a Full Payment Submission (FPS) and is due to HMRC on or before the day the employee is paid. The reports required will be generated by the payroll software and will include details of: - The amount paid to each employee - Deductions such as income tax and national insurance contributions - Starter and leaver dates

Question 37

Which benefits can be processed through the payroll?

Answer 37

All benefits, except employer provided living accommodation and interest free/low interest loans, can be processed through the payroll.

Question 38

What are employers required to submit, with respect to PAYE?

Answer 38

Employers are not required to submit a full P11D for the benefits that are payrolled but are required to pay Class 1A national insurance and to submit a P11D(b) showing the cash equivalents of these benefits.

Question 39

When is it possible to exclude specific employees from payrolling?

Answer 39

It is possible to exclude specific employees from payrolling. For example, an employer is allowed to stop payrolling benefits for an employee if it would result in more than 50% of their pay being deducted as tax. In this case, the tax on the benefit will then be reported on a P11D and included in the employee's tax calculation after the year end. Alternatively, if the employer chooses to continue payrolling the benefits of this employee, any tax exceeding 50% of pay will be carried forward and collected in the following and subsequent months until all tax has been collected.

Question 40

What are the required PAYE forms?

Answer 40

P11D : - End of year form recording details of benefits provided to employees. - Need to send to HMRC and copy to employee by 6 July following end of tax year P60: - End of year form recording details of gross pay, tax deducted and NICs for both employer and employee - Need to supply to each employee by 31 May following end of tax year P45: - Particulars of employee leaving: records tax code, gross pay to date, tax and NICs deducted - Under RTI no parts of the form need to be submitted to HMRC. Starter and leaver details are included on the monthly FPS. Employees are provided with the form for their own records.

Question 41

Which employers are required to pay income tax/Class 1 NI contributions electronically?

Answer 41

Employers with at least 250 employees must pay income tax/Class 1 national insurance contributions electronically. They receive an extension of three days to make their payment, therefore payments are due by 22nd rather than 19th of a month. There is no change to the payment of PAYE under RTI.

Question 42

[Available in Tax Tables] What are the penalties that may be charged for both incorrect PAYE returns and for PAYE returns filed late?

Question 43

[Available in Tax Tables] Regarding PAYE, what are the penalties for late payment?

Answer 43

The percentage penalty is applied to the total amount that is late in the relevant tax month, but ignoring the first late payment in the year. Where the tax remains unpaid at 6 months, there is a further penalty of 5% of tax unpaid, with a further 5% if tax remains unpaid at 12 months, even if there is only one late payment in the year.

Question 44

When can late PAYE payment penalties be suspended?

Answer 44

Late payment penalties can be suspended where the taxpayer agrees a time to pay arrangement, unless he or she abuses the arrangement.

Question 45

When does HRMC issue tax returns and/or notices to file?

Answer 45

In April each tax year, HMRC issues tax returns and/or notices to file to taxpayers who are likely to need to file a return such as sole traders and higher/additional rate taxpayers with investment income in excess of the relevant nil rate bands.

Question 46

What should the taxpayer do if a tax return or notice to fileis not automatically issued?

Answer 46

If a tax return or notice to file is not automatically issued, the individual must notify HMRC by 5 October following the end of the tax year unless the individual is certain that no return is required.

Question 47

What should the taxpayer do when HRMC withdraws a tax return it has previously issued?

Answer 47

If HMRC has issued a tax return but subsequently withdraws it, the individual must notify HMRC by the later of 5 October following the tax year or 30 days from the day after the notice was withdrawn if a tax return is required.

Question 48

What does a full tax return consist of?

Answer 48

A full tax return (SA100) consists of a summary form, additional and supplementary pages dealing with different types of income and gains, and a tax calculation section. The individual must complete the summary form and such further pages as are relevant.

Question 49

Define self assessment.

Answer 49

Completion of the tax calculation section is optional. If the taxpayer does complete the tax calculation, this is called a self-assessment. Where tax returns are completed and submitted online, a calculation of the liability is carried out automatically. Alternatively, the taxpayer may ask HMRC to calculate the tax liability. This is still treated as a self-assessment by the taxpayer, not an official assessment by HMRC. As a result, the self- assessment may be amended by the taxpayer

Question 50

What is the due date for submission of an electronic return online?

Answer 50

The due date for submission of an electronic return online is the later of 31 January following the end of the tax year or three months after the return was issued.

Question 51

What is the due date for submission of a paper return?

Answer 51

The due date for submission of a paper return is the later of 31 October following the end of the tax year or three months after the return was issued.

Question 52

When can a self-assessment be made?

Answer 52

A self-assessment can be made up to four years from the end of the tax year to which it relates, although late submission penalties will apply if the relevant return is not made by the due date.

Question 53

Should a return be submitted even if there is no income to declare?

Answer 53

If a taxpayer is sent a return by HMRC then unless it is agreed that the return is not required and will be withdrawn, it must be submitted to HMRC by the due date even if there is no income to declare.

Question 54

Who may be issued with short tax returns?

Answer 54

HMRC may send taxpayers a 'short', paper-only tax return if they are employees (not directors), pensioners, or sole traders with a turnover of less than £85,000 (the VAT registration limit).

Question 55

When should the short tax return be submitted?

Answer 55

The short tax return should be submitted by 31 October following the end of the tax year if possible, to enable HMRC to compute the tax liability. The latest submission date is 31 October or three months after the issue of the tax return. The short tax return is not available online.

Question 56

Under what circumstances can HRMC make an assessment (known as a simple assessment) of an individual's income tax or capital gains tax liability without the individual completing a tax return?

Answer 56

HMRC has the power to make an assessment (known as a simple assessment) of an individual's income tax or capital gains tax liability without the individual completing a tax return. Such a simple assessment will be possible where HMRC has sufficient information regarding the individual's income or gains. The information may be received from the individual or a third party.

Question 57

In case of a dispute, by when should a taxpayer contact HRMC?

Answer 57

The taxpayer must however contact HMRC within 60 days of the assessment if in dispute.

Question 58

Who are eligible to simple assessment rules?

Answer 58

- Taxpayers who are subject to PAYE, but where the tax due cannot be collected through the tax code (eg, exceeds £3,000); and - Taxpayers in receipt of a State Pension where that pension exceeds the personal allowance.

Question 59

When should a partnership file a return?

Answer 59

The partnership tax return (SA800) must be submitted by the later of 31 January following the end of the tax year or three months after the return was issued where an electronic return is submitted online. If a paper return is submitted, the filing date is the later of 31 October following the end of the tax year or three months after the return was issued.

Question 60

Does HRMC have the right to amend a taxpayer's return?

Answer 60

HMRC has the right to correct a taxpayer's tax return for obvious errors such as errors of principle and arithmetic errors. Such corrections must be made within nine months of the date the return is actually filed.

Question 61

Does a taxpayer have the right to amend his/her return?

Answer 61

The taxpayer has the right to amend a tax return for any reason within 12 months of the normal due submission date (not the actual submission date). For amendment purposes, the due submission date is the later of 31 January following the end of the tax year or three months after the return was issued, regardless of whether it was submitted on paper or electronically.

Question 62

What are the payment dates for Income Tax and NICs?

Answer 62

Income tax (which has not been deducted at source) and Class 4 NICs are paid as follows: - First payment on account by 31 January in the tax year - Second payment on account by 31 July following the end of the tax year - Balancing payment by 31 January following the end of the tax year Class 2 NIC is also paid within the self-assessment system on 31 January following the end of the tax year.

Question 63

What are payments of account?

Answer 63

Each payment on account is half of the income tax and Class 4 NICs paid under self assessment for the previous year.

Question 64

When are payments of account not required?

Answer 64

For the tax year 2019/20 payments on account are not required where the amount paid under self-assessment in the previous year was less than: - £1,000; or - 20% of the total liability.

Question 65

What are balancing payments and when are they due?

Answer 65

A balancing payment or repayment is due by 31 January following the end of the tax year. The balancing payment comprises any unpaid income tax and Class 4 NICs, together with capital gains tax payable for the year, and any Class 2 NIC liability for the year.

Question 66

How is tax due collected via PAYE?

Answer 66

If the tax payment due for the year is less than £3,000 and the taxpayer is an employee or receives a pension, it is possible for the tax due to be collected by adjusting his or her PAYE code for the following tax year. For the tax due to be collected via PAYE the return must be filed on paper by 31 October following the tax year end or online by 30 December following the tax year end. The taxpayer may instead choose to pay the tax due on the 31 January following the tax year end if he or she prefers. If the tax return shows an underpayment, HMRC will assume that the same circumstances will apply in the following year leading to another underpayment. The taxpayer can choose to have this estimated tax collected via the PAYE code for the following tax year.

Question 67

How are debts collected under PAYE?

Answer 67

Where the taxpayer is an employee or receives a pension and has outstanding debts owed to HMRC from earlier years, the debts may be collected via the PAYE code. The maximum amount of underpaid tax (and some other debts such as some tax credits) that can be collected in this way depends on the taxpayer's level of PAYE income, with an overall maximum amount of £17,000 recoverable in this way in a tax year. 6

Question 68

[Available in Tax Tables] Is there a common penalty for late filing of tax returns for income tax and capital gains tax?

Answer 68

There is a common penalty regime for the late filing of tax returns, which has been implemented for income tax and capital gains tax. < See Tax Tables >

Question 69

[Available in Tax Tables] What are the penalties for late payment of income tax or capital gains tax?

Answer 69

< See Tax Tables >

Question 70

Regarding income tax and capital gains tax, on what may penalty on late payment be charged?

Answer 70

A penalty may be charged on late payment of: - Balancing payments under self-assessment - Additional tax payment arising from amendments to a self-assessment - Tax payable under a discovery assessment Note that penalties do not apply to payments on account.

Question 71

On what is a taxpayer liable to pay interest?

Answer 71

A taxpayer is liable to interest on late payment of income tax, capital gains tax, national insurance and penalties. Interest on payments on account, balancing payments and penalties runs from the due date of payment to the day the payment is made. However, HMRC interprets this to mean for the period between those two dates – ie, HMRC does not count the actual due date or the date of payment.

Question 72

What does a full corporate tax return consist of?

Answer 72

A full corporation tax return (CT600) consists of an eight-page summary form and tax calculation, together with a number of supplementary forms.

Question 73

Is there an option for HRMC to calculate the tax liability for a company?

Answer 73

No. There is no option for HMRC to calculate the tax | liability of the company.

Question 74

Should companies file their tax return electronically?

Answer 74

All companies must submit their tax returns online and pay their tax liabilities electronically. Additionally, tax computations and the accounts that form part of the Company Tax Return must be submitted in Inline eXtensible Business Reporting Language (iXBRL) format. iXBRL is an IT standard designed specifically for business financial reporting.

Question 75

Up till when can HRMC amend a company's tax returns?

Answer 75

HMRC corrections must be made within nine months of the date the return is actually filed.

Question 76

Up till when can a company amend it's tax returns?

Answer 76

The company has the right to amend its tax return for any reason within 12 months of the normal due submission date

Question 77

[Available in Tax Tables] What are the penalties for late filing of corporation tax returns?

Answer 77

< See Tax Tables >

Question 78

When does a default surchage occur, regarding VAT?

Answer 78

A default occurs when a taxable person either files a VAT return late, or makes a VAT payment late. If the default involves a late payment, a penalty known as a default surcharge may arise. On the first default, HMRC issues a surcharge liability notice which lasts for 12 months from the end of the period of default. These 12 months form the surcharge period. There is no default surcharge for the first default. If there is another default in the surcharge period, the surcharge period is extended, to end 12 months after the end of the new period of default. In addition, if this default involves the late payment of VAT, a surcharge is now levied.

Question 79

[Available in Tax Tables] What are the default charges with regards to VAT?

Answer 79

< See Tax Tables >

Question 80

As from when does MTDfB apply?

Answer 80

MTDfB applies to VAT from April 2019.