This document provides basic study material on the topic of tax. This document is 14 pages long including basic material on topics of:
-Personal Liability
-Self-Assessment
-National Insurance
-Filing and Penalties
This is a good document for those just starting their taxation studies.
Taxpayers who are self-employed must submit tax returns whose taxable savings income exceeds
their saving allowance or taxable dividend income exceeds the dividend allowance. Taxpayers who
have untaxed income, also have to file tax returns. Taxpayer who has taxable capital gains in the
year need to submit a tax return.
Notification
If individual becomes chargeable to income tax or capital gains tax for the first time, they have a
duty to notify HMRC within six months of the end of the tax year in which they became
chargeable. If the taxpayer misses the deadline, HMRC will charge a penalty.
o The penalty will be based on the behaviour of the person concerned and is a percentage of
the ‘potential lost revenue’. The potential lost revenue to which any penalty will apply is
the amount of income tax including Class 4 National Insurance contributions and capital
gains tax unpaid at 31st January following the tax year as result of failure to notify.
o Deliberate and concealed failure the penalty will be maximum 100% of the
potential lost revenue.
o Deliberate but not concealed failure, the maximum penalty will be 70% of the
potential lost revenue.
o Any other case maximum penalty will be 30% of the potential lost revenue.
▪ A failure is deliberate and concealed where the failure is deliberate and the
taxpayer makes arrangement to conceal the situation giving rise to the
obligation. This would include creating false evidence of non-taxable source
of income to explain undisclosed income, or destroying books and records.
▪ A failure is deliberate but not concealed where the failure is deliberate but
no arrangement are made to conceal the situation giving rise to the
obligation. A persona is aware of obligation to notify a source of income but
decided not to do so, without taking steps to conceal the income.
See page 78 for table of Maximum Penalties.
Reduction in the amount of the penalty are available for both ‘unprompted’ and ‘prompted’
disclosures.
o Disclosure is unpromoted if the taxpayer has no reason to believe HMRC have discovered
or are about to discover the failure.
o Disclosure takes place where a taxpayer tells HMRC about the failure, give HMRC
reasonable help in calculating the resulting unpaid tax and allows HMRC access to records
to check the amount of unpaid tax. The actual reduction on the penalty depends on the
quality of the elements of disclosure, including timing nature and extent.
Penalties will not be charged if the taxpayer has a reasonable excuse for the failure and the failure
is not deliberate. The ‘notification of chargeability’ provisions only apply to taxpayers who have not
already received a tax return from HMRC. If a taxpayer received a tax return, any income received
or gains made in the tax year can simply be disclosed on the tax return in the normal way.
, Filing Deadlines
Where the taxpayer completed a paper return, the return should normally be filed no later than
31st October following the end of the tax year. However, paper returns can be filed within three
months of the date of issue of the return if this is later than the following 31st October.
Where taxpayer completes an online return, the return should normally be filled no later than 31st
January following the tax year. However, the online return can be filed within three months of the
date of issue of the return or notice of this later than the following 31st January.
Where taxpayer has tax deducted at source via PAYE system, underpayments of tax less than
£3,000 can be collected via PAYE rather than a one-off payment. In order for this treatment to
apply, if the taxpayer if filling an online return, the tax return must be filled by the earlier deadline
of 30th December following the end of the tax year.
Penalties for Late Return
Initial penalty of £100 will apply if a return is late, even where there are no amounts outstanding.
Additional daily penalties of £10 per day may be levied in respect of returns which are more than
three months late. Daily penalty can be imposed for maximum 90 days.
If return is more than six months late, there will be an additional penalty of 5% of any liability to
tax which would have been shown in the return or £300 if greater. Liability to tax is the tax due for
the year, after tax deducted at source. It is not reduced by any amount paid towards that liability.
An additional penalty of 5% of any liability to tax or £ 300 if greater will also be levied if the return
is more than 12 months late. If return has not been submitted within 12 months and by failing to
make the return the taxpayer is deliberately withholding but not concealing information which
would enable HMRC to assess the tax liability, the maximum amount of the penalty increases to
70%. If withholding of information is deliberate and concealed, the maximum amount of penalty is
100% of the tax liability.
Amendments
HMRC have the right to amend the taxpayers return within nine months of he date of receipt.
HMRC usually do this to eliminate or to reverse any obvious errors or mistakes within the return.
HMRC will notify the taxpayer of any amendments made. The taxpayer has the right to amend the
return already submitted, so long as this is within 12 months of the due date for filing.
Enquiries
HMRC have the right to make a formal ‘enquiry’ into every tax return submitted to them. Enables
them to look closely at the individual entries within the return and often taxpayers will be asked to
support each entry with the relevant documentary evidence.
HMRC officer must issue a formal ‘enquiry notice’ to the taxpayer under s.9A TMA within ‘time
allowed’. The normal time limit for commencing an equity is 12 months after the day on which the
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