In this area of the website we try to help you work out what your basis year is for taxing your profits and what happens if you change your accounting date. We also look briefly at overlap relief and how it can affect the amount you are taxed on.

We then look at self-assessment (SA) - who needs an SA return, important dates for SA, payments on account and how they work together with tax calculations and determinations.

The topics covered are:

What is self-assessment (SA)?

Do I need to complete an SA return?

What records do I need to keep?

Important dates for SA (some of these are new for 2007/08)

What if I have problems in completing my return?

How do payments on account work?

The tax calculation

The Statement of Account

What is a determination?

What is a reasonable excuse for a late tax return?

How to survive an enquiry by the Revenue

Do you have a problem paying your tax?

What is self-assessment (SA)?

• Self-assessment is not a new tax nor is it a tax at all. The idea of self-assessment is that you are responsible for completing a tax return if you need to Click here to see if you need to complete a return and for paying any tax chargeable for that tax year.

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Do I need to complete an SA return?

Self-assessment does not affect everyone and you will normally only need to complete a form if you:

• Are working for yourself - you are self employed
• Are a company director
• Are a minister of religion (any faith or denomination)
• Are a partner in a business
• are a 40% taxpayer although there are some exceptions to this
• Are a trustee or the executor of an estate

Also if you have:


• Untaxed income e.g. interest that is not taxed before it is paid to you e.g. Most National Savings products or rents. If you are an employee and the income is less than £2,500 a year a tax return may not be necessary but if you receive other untaxed interest and the tax due on it cannot be collected via your PAYE coding notice you will need a tax return.



• If you receive regular annual income from a trust or settlement or income from the estate of a deceased person and further tax is due on the income



• Taxable foreign income whether or not you are resident in the UK and including non resident landlords



• Savings and investment income of £10,000 or more before tax



• Annual income of £100,000 or more before tax



• Tax due at the end of the year that cannot be collected via your PAYE coding notice for that year



• Untaxed income of £2,500 or more but if you are a pensioner you may be able to pay your tax through your PAYE Coding Notice



• Claims for expenses of £2,500 or more



• Higher age allowance as you are 65 or over and your allowance is reduced because of the level of your income - for 2008/09 your income will be over £21,800



• Capital Gains where:
  • You have given away or sold assets worth £38,400 or over for 2008/09;
  • Or you have a capital loss but your gains before taking off taper relief and losses are more than the annual exemption for 2008/09 of £9,600;
  • Or if you have no losses to claim but your gains after taper relief are more than the annual exemption for 2008/09 of £9,600;
  • Or you need to make any other Capital Gains Tax claim or election for the year
  
  
  
• The Revenue may also want you to complete a return for other reasons or you may choose to complete the form.

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What records do I need to keep?

How long do I need to keep my records?

• If you are self employed and carrying on a business you need to keep your records for five years from 31 January following the tax year for which the tax return is made.

  So for example for the 2007/08 tax return sent to you in April 2008 the following 31 January will be 31 January 2009 - you must keep your records until 31 January 2014.

• If you are not self employed but you need to complete a self assessment tax return you will need to keep your records for at least 22 months from the end of the tax year to which they relate.

  For example - your 2007/08 tax return issued in April 2008 - records will need to be kept until at least 31 January 2010.

• There are some situations when you may need to keep your records longer:

  • If there is an enquiry into a tax return you must keep all records until the enquiry is closed. The Revenue have 12 months to tell you that they intend to start an enquiry from when they receive the return. So for example if your 2007/08 return was received by HMRC on 31 August 2008 - HMRC will have until 31 August 2009 to enquire into the form. However these are new rules that only apply for 2007/08 onwards, for 2006/07 returns the old rules apply under which the Revenue have 12 months from 31 January 2008 in which to launch an enquiry into that return.

  • If you sent back your return late so the Revenue enquiry window has been extended - you must keep all your records until the latest date for starting an enquiry has passed. The Revenue can start an enquiry up to a year after the quarter date following their receipt of your tax return - the quarter dates are 31 January, 30 April, 31 July and 31 October.

    For example if you sent in your 2007/08 return to the Revenue on 31 March 2009, they will have one year after the end of the quarter date - so that is one year after 30 April 2009 in which to tell you they are starting an enquiry. You must therefore keep your records until at least 30 April 2010.

  • Where you amend your tax return - the Revenue can start an enquiry at any time up to a year after the quarter date following their receipt of your amendment - so say you amend your 2007/08 tax return on 1 September 2009 - the Revenue have until 31 October 2010 to enquire into the amendment - the normal dates apply to the rest of the return.

What records should I keep?

Individuals

Basically you should keep anything you use to complete your tax return. These may be relatively current documents but if you have a capital gain you may need to refer to older records as well.

You can keep your records on a computer but if any tax has been deducted from the income you will also need to keep the original hard copy documents.

In more detail some specific records you need to keep (although there may be others) are :

If you are an employee

• Form P60 (end of year statement of pay and tax deducted) and your payslips for the tax year



• Form P45 (part 1A) if you have changed your job at all in the tax year



• Form P160 (part 1A) if you retire and go on to receive a work related pension



• Details of any work related income such as tips which are not included on form P60



• Form P9D or P11D in respect of any benefits in kind and expenses payments - your employer should have given you a copy of the completed form for you to keep



• Details of any work related subscriptions you pay personally



• Your coding notice for the tax year

If you are an pensioner

• Any paperwork you receive showing the amount of any state benefits you get including your state pension



• Form P60 (end of year statement of pay and tax deducted) for each work related pension



• If you receive retirement annuities from a pre July 1988 pension policy - you need to keep any paperwork sent to you by the annuity payer



• Your coding notice for the tax year

If you receive any income from UK investments such as bank. building societies or dividend income or any income from trusts

• Any bank or building society passbooks, statements and certificates



• Any statements or certificates of income in connection with other investments you hold



• UK company dividend vouchers including those where shares are received instead of cash and any tax vouchers in respect of holdings of unit trusts



• If you have a gain on a life insurance policy you need to keep all the paperwork that the insurance company sends you



• If you receive income from a UK trust you will be given a certificate of income by the trustees and you will need to keep this



• Any other information connected to your investments or savings which you think may be relevant to your tax return - it is a well to keep all this paperwork just in case it may prove useful

If you have any other income or expenses

• You should keep any paperwork regardless of whether or not you think the income should go on your tax return - this will apply to income such as casual earnings or commission etc.

If you have a capital gain or capital loss

• It is worth keeping a folder of all the purchase and sale details (contract notes, completion statements etc.) of any assets you buy which may be liable to capital gains when you sell them. This will include property (apart from your own home), shares or other assets you give away or sell. Keep any valuations of the assets as well if one was carried out.



• If you have a property and you carry out improvements - keep copies of the invoices for your expenditure with the other information for the property. This other information should include your estate agents costs, legal costs and stamp duty.



• If you receive an asset as a gift or an inheritance - it is worth keeping any paperwork that related to the gift or inheritance including letters or solicitors accounts.



• It may also be helpful to keep copies of any bank statements or cheque book stubs in connection with the purchase, sale or improvement of your assets.



• If you use your own home for business or you let out part of it - you need to keep records of dates and rooms used.

If you need to claim any reliefs or deductions

• Details of payments made under Gift Aid



• Certificates of pension payments made issued by the insurance company



• Any court order in connection with maintenance payments paid by those born before 6 April 1935



• If you paid loan interest that is eligible for tax relief you will need to keep the certificate issued by the loan maker.

Businesses

What business records do I need to keep?

If you are in business as a self employed sole trader or a partnership (including property letting businesses) you need to set up a system for keeping your records.

It is very important you keep your personal records separate from those for your business.

HMRC are currently updating their guide to keeping records but the earlier leaflet set out their requirements as follows:

• record all sales and other business receipts as they come in, and retain the records



• keep back-up records, for example, invoices, bank statements and paying-in slips to show where the income came from



• record all purchases and other expenses as they arise and ensure, unless the amounts are very small, that you have, and retain, invoices for them



• keep a record of all purchases and sales of assets used in your business



• record all amounts taken out of the business bank account, or in cash, for your own or your family's personal use



• record all amounts paid into the business from personal funds, for example, the proceeds of a life assurance policy.

Which accounts books you need to keep depends mainly on the size of your business but you should at the very least have a cash book - this would include payments to and from your bank, cash receipts and payments and any amounts you take out of the business. You may also want to keep a separate record book for your day to day small cash transactions - a petty cash book.

Some specific examples of records you should keep include:

• If you use your own home for your business you need to allocate running costs between private and business use.



• A record of all your own or your family's personal drawings from the business. This is money that your family or you take from the business bank account or petty cash etc for your own purposes.



• Details of any money or assets you introduce into your business



• Copies of business bank statements and building society passbooks/statements. If you do not have a separate business and private account you will need to keep an accurate record of which expenses are business are which are private.



• Wages records where you have employees or if you have subcontractors you need to keep records to support any payments you make.



• Unless you use your car or van specifically for the business you will need to keep a record of business use to include both running costs and fuel.

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Important dates for SA (some of these are new for 2007/08)

Not all these dates will apply, as you may not need to make any payments on account. We explain payments on account and how they work here

31 January (during the tax year)

• The first payment on account for the tax year ending the following 5 April is due.
• See 31 January (after end of tax year) regarding paying the balance of tax for the previous year.

April (following end of tax year)

• The tax year ends on 5 April and shortly after this date anyone who is required to file a tax return will either receive a paper version of the tax return or, if you have previously filed online, a notice requiring you to file a tax return for the year just ended.

31 July (following end of tax year)

• The second payment on account for the tax year ending the previous 5 April is due.

05 October (following end of tax year)

• If you have not received a tax return but you have Capital Gains in excess of £9,600 for 2008/09 (£9,200 for 2007/08) or if you have some new source of taxable income where the income is not taxed before you get either entirely or in part, you will need to notify the Revenue by this date.



• Depending on your circumstances they will then send you a tax return to complete. If you do receive a return you have 2 months from the date of issue to complete and submit the form if you want the options shown in the 31 October section to apply.



• You can see how this works in the example Alex 1



• If you did not get your return to complete until after 31 October, the latest date for sending it back to the Revenue is the later of the following 31 January or 3 months after the return was issued.



• You can see how this works in the example Alex 2

31 October (following end of tax year)

• If you are sending in manually the paper version of your tax return this must be submitted by 31 October. If not received by that date an automatic penalty of £100 for late submission will be charged. The penalty however cannot be greater than the tax liability for the year in question so if you owed £50 tax for 2007/08 the penalty would be £50. If you are filing your tax return online then you still have until 31 January to submit it. If you have manually submitted a paper return after 31 October do not then submit the return online and hope to avoid the penalty charge as the Revenue will accept only the first return.



• So for example - Rashid sends in a paper 2007/08 self assessment tax return on 30 November 2008. He then gets access to the internet through his work and decides mistakenly that if he sends in his tax return online, he can cancel the paper one and extend the deadline for submission to 31 January 2009. This is not the case - HMRC will take the date you send in your return for any year as the date they receive the first return whether it be a paper one or online.



• If you want to guarantee that the Revenue will be able to process your return and advise you regarding the amount of tax payable on the following 31 January, you need to have submitted the paper version of your tax return by this date.



• Bear in mind that the Revenue will always calculate your tax for you whenever you send in your return even if submitted late. However if you send in the paper version of your tax return after 31 October they cannot guarantee to tell you in time what your payments of tax should be on the following 31 January. This could then mean that you will be also liable for the maximum penalty of £100 for submitting a late return.



• If you want to have your tax liability (where it is under £2,000) collected through your code number you need to have submitted your tax return by this date (but this is extended to 30 December if you file online). You can still request this treatment of your tax liability up to the end of November but there is no firm guarantee that the Revenue will be able to include the tax in your code.



• After the end of November they will not be able to collect the tax this way where you file manually.

Penalties for late paper return filing

• Any paper version of the return filed after 1 November will attract a £100 penalty i.e. HMRC continue to allow the extra day before the penalty is charged.



• The penalty can be appealed against on grounds of reasonable excuse. However the excuse that using a computer is too difficult because you are not computer literate is not acceptable as a 'reasonable excuse'. The HMRC view is that if you have trouble using a computer, you should get help.



• The penalty cannot be cancelled by filing online another return by 31 January – the first return satisfies legally the filing obligation



• If you are able to calculate your tax liability and all the tax owed is paid by 31 January then the penalty will be reduced to nil. However note that the penalty is reduced not cancelled so if on later enquiry tax becomes due for the year then the penalty will be amended to the greater of the tax due or £100.

30 December (following end of tax year)

• If you are filing your return online you need to submit it by this date if you want HMRC to collect tax through your tax code, if possible, where you owe less than £2000.

31 January (following end of tax year)

• All tax returns filed online must be submitted by this date. If after you have filed your tax return you be come aware that an entry is incorrect you can amend that return up to 12 months from this date. If therefore you need to amend your 2007/08 tax return you have until 31 January 2010 to make the amendment. This applies whether you filed manually a paper version of the return or online.



• An automatic penalty of £100 is charged if the Revenue have not received the return in time. The penalty cannot be greater than the tax liability for the year in question so if you owed £50 tax for 2007/08 the penalty would be £50.



• You can see how this works in the example Joanne



• As mentioned above the balance of tax due for the year ended the previous 5 April is now payable. You will need to take off any payments on account you made in January and July the previous year from the amount you are due to pay.



• Interest starts to run from this date on any unpaid tax. You can see this in more detail in the example on Julia



• We will be going into more detail about payments on account but many people will not need to pay anything on account and will simply just pay the total tax due for the previous year on 31 January following.



• You can see an example of when you do not need to make payments on account in Kofi

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What if I have problems in completing my return?

• If you get a tax return, please do not worry about filling it in. You can contact the Revenue for help. You can use a local tax office or your own tax office if you are concerned about completing the form.



• You will normally receive your tax return in April each year after the tax year finishes on 5 April. However there are some circumstances when you might receive your tax return at other times in the year and we have explained about this in more detail in the section on important dates for SA



• To make it easier to make sure you have all the information you need, it is a good idea to put any paperwork that comes in during the tax year for your return in a file so that it is all to hand when you come to fill in the form.



• If you are manually filing a paper version of the tax return and have missed the 31 October deadline but think you have a reasonable excuse you can still file the paper version but you should send a covering note explaining why it is late.

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How do payments on account work?

• Whilst your employer or your bank or building society will take a lot of the tax you may need to pay from you, you may find that you have not paid sufficient for a particular year.



• This extra tax will be due on 31 January in the year following the tax year concerned.



• You can see this in more detail in the example on Robert 1



• For the following tax year you will not need to make any payments on account if the amount of tax due for the previous year was less than £500 or if more than 80% of the tax you pay is covered by PAYE or tax taken off before you get it by banks, building societies or other sources such as companies when paying you dividends.



• There is to be an increase in the limit from £500 to £1000 for self assessment payments on account (POA) from 2009/10 and later years. The increased amount will start on 6 April 2009 for income tax due for 2009/10. The first payments on account affected will therefore be those due in January 2010 and July 2010.



• You can see this in more detail in the example on Robert 2



• If the tax you were due to pay was more than the above amounts you will need to make payments on account for the current tax year.



• These payments on account are based on the total of your tax bill for the previous year and you will pay half of that amount on 31 January in the tax year and half on 31 July following the tax year.



• On 31 January you also pay any balance of tax due for the previous tax year so remember you may have 2 amounts to pay.



• Have a look at the example on Robert 3



• Where the amount that you think will be due for the current tax year has fallen, you can apply to reduce your payments on account at any time before the 31 January deadline for that year's tax return.



• You can download a form SA303 to claim the reduction from the Revenue's website or you can ask your local tax office to send you one.



• You can also make the claim on the previous year's tax return giving details of the circumstances in the additional information box at the end of the form.



• Please bear in mind that if you reduce your payments on account below what they should in fact have been you will have to pay interest on the shortfall from the date each payment on account was due and in some cases the Revenue may charge a penalty if the reduction is excessive.



• You can see this in more detail in the examples on Robert 4 & 5



• If the Revenue make an amendment to your return or you notify them of an amendment that will increase the tax due, any extra tax will be payable 30 days from the date of the amendment although interest will run from the date that the tax should have been due.



• Have a look at the example on Robert 5

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The tax calculation

• When you send your self-assessment tax return to the Revenue before 31 October they will process the form and send you a tax calculation.
• The calculation sets out how they have worked out your tax and also explains what payments on account are due for that tax year and the current year. It is not a record of what tax you have paid - just what tax is in fact due.
• You should check the calculation and let the Revenue know within 30 days of issue of any amendments that are necessary.

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The Statement of Account

• Every so often under self assessment, the Revenue will send you Statements of Account (SA300) and these forms tell you how much tax is due for payment and when, or how much they need to repay to you if you have overpaid tax.



• If you sent in your tax return before 31 October and the Revenue did not send you a statement of account in time to make the payment on account due on the following 31 January, they will only charge interest from 30 days after they issued the statement.



• If your overall tax bill is less than £32 the Revenue will not normally send you a statement other than on an annual basis.



• There is a payslip attached to the bottom of the statement for your use and instructions on how to make your payment. HMRC are intending that payment by credit card will also be an option from late 2008.



• We explained in Important dates for SA that if you send in your tax return late, a penalty of £100 will be charged and this will be shown on the statement.



• Where you have a balance of tax due on 31 January for the previous tax year - if this tax is not paid by 28 February in that year, you will be liable for a surcharge of 5% of the amount still outstanding.



• This will be included on your statement of account but the Revenue will also notify you separately of the charge. The surcharge is not imposed on any payment on account also due on 31 January.



• The Revenue will also charge interest on late payment of tax and this will be included on your statement as well.



• A further 5% surcharge will be payable in respect of any tax due on 31 January still unpaid by the following 31 July.



• You can see this in more detail in the example on Julia

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What is a determination?

• If you do not send in your tax return by the deadline on 31 January, so that it is not clear how much tax you need to pay - the Revenue may issue you with a 'determination of tax'. This is an estimate of your tax bill for the year and you cannot appeal against the figure.
• Any statements of account you get will include the determination of tax as a basis for your payments on account if you need to make them
• The only way to get your tax reduced or amended to the correct figure is to send in your tax return for the year.

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What is a reasonable excuse for a late tax return?

Introduction

• The law allows people who have a reasonable excuse to be excused a penalty for submitting their tax return late.



• Click the links to see which excuses that Her Majesty's Revenue & Customs (HMRC) consider to be reasonable excuses & non-reasonable excuses.



• Remember - it is important that you have told HMRC about your problems as soon as possible.



• Hopefully your case will never need to come to an appeal hearing because you will be able to give the necessary information to HMRC, your excuse will be accepted and the penalty will be dropped.




• The following is a checklist that you can use to see if your behaviour was reasonable:

  • Did the event prevent you from sending in the tax return?
  • Was the event unexpected and outside of your control?
  • Did you send in your return as soon as possible afterwards?
  • Would the 'person next door' agree that the event prevented you sending in the return on time?



• If the answer to all these questions is yes - then appeal against the penalty. You can see how to appeal at a hearing by looking at our section on tax appeals.

Reasonable excuses

• To help you understand how the rules work - the following information gives some guidelines on some excuses that may be accepted at a hearing of your case.



• The test for being reasonable is that you behaved, as any reasonable person would have done in the circumstances.



• This means that you will have been aware of the need to give time to preparing and submitting your tax return but that circumstances intervened. A reasonable person will be the ordinary person in the street.




• The following is an indication of the types of excuse that may be given. It is not an exhaustive list. We look at:

  • Illness
  • Illness or death of a close relative
  • Problems with the post
  • Loss of records
  • Failure of an agent
  • Pressure of work

Illness

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Illness or death of a close relative

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Problems with the post

• It is possible that you posted the Return but that it did not arrive at the tax office.



• The Revenue guidance suggests that fire or flood at the post office or prolonged industrial action within the post office will be acceptable reasons. There will be other acceptable excuses.



• If you posted the Return and have no explanation as to why it did not arrive, or it arrived late, ask the post office if there were any problems in the area at the time. Sometimes the local sorting office has some difficulties that do not receive lots of publicity but which affect some postal items.



• If at all possible produce evidence that you posted the Return - recorded or special delivery slips are useful. Alternatively this may be in the form of a post-book if your business keeps one.



• It may be that you recollect it being posted at a specific time and place or maybe by a certain person.



• Perhaps you can remember being with someone when the Return was posted.



• Think carefully and try to show how and when the Return was posted. Items are occasionally lost or delayed with no apparent reason.



• The hearing will hear your evidence and that of HMRC. It will be decided if you have shown that on the balance of probabilities you prepared and posted the return.

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Loss of records

• HMRC guidance states that they will accept loss of records through fire, flood or theft as an excuse.



• Perhaps your records were kept on computer and the computer crashed. It is likely that this will be accepted.



• You will have to produce evidence that the computer failure happened at the relevant time - an invoice from the computer engineer who repaired the machine will help.



• In addition you will need to show that you reconstructed the records from your paperwork as soon as was practicable.



• It would of course be preferable to keep back-up discs of everything, but not everyone does this.

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Failure of an agent

• HMRC guidance states that it will not normally be acceptable to rely on this an excuse. It is their view that it is your responsibility to submit your Return on time.



• However there may be reasons why an agent failed to submit the return on time. This could include their illness, or indeed the death of a close relative or partner.



• You will have to produce evidence that it happened and that you had no notice of the event and could not submit the return on time yourself.



• Of course if you have to pay a penalty because your agent failed in their duty, it may be possible to claim the amount of the penalty from the agent.

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Pressure of work

• HMRC guidance states that this will not normally be accepted as an excuse.



• However the pressure of work may have occurred suddenly and be totally unexpected. Perhaps you were called abroad at the relevant time or your business partner died suddenly.



• Show HMRC and the hearing that the event or the pressure of work was not expected and that you had given some thought to your tax return. In addition you will have to show that as soon as possible you sorted the matter out.



• You have to show that you behaved as a reasonable person.

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How to survive an enquiry by the Revenue

What if one day you receive an envelope in the post; inside is a letter from HM Revenue & Customs telling you that they are making some enquiries into your tax return or tax credit claim.

How will you feel - you might be worried or confused or instead you might feel irritated or even angry? It might be a mixture of these.

And what do the Revenue mean by their letter? Do they think that you have actually done something wrong and if they don't know whether you have, why then, are they going to ask questions?

In this part of the website we look at:

Why are the Revenue looking at my return and what should I do first?

What should I do next?

How should I act when I am dealing with the Revenue?

Will the Revenue give me any information to help me understand how an enquiry works?

What are the stages of an enquiry?

• The opening letter

• Supplying documentation and information
• If the Revenue ask for a meeting
• What to do before during and after the meeting
• Before the meeting
• During the meeting
• After the meeting
• Closing the enquiry

Getting professional help

What to remember - a summary

Enquiries in more detail

• A stand-alone self-assessment enquiry
• A self-assessment enquiry which then leads on to a tax credits enquiry

• A stand-alone tax credits enquiry
• A tax credits enquiry which leads on to a self-assessment enquiry

Negotiating a settlement involving penalties with the Revenue

Human Rights Act 1998

Why are the Revenue looking at my return and what should I do first?

• The first thing is not to panic. Some enquiries (you might hear them called checks, examinations or investigations, but they are much the same thing) are chosen on an entirely random basis - you won't know if you have been chosen at random and you won't be told. This notification does not automatically mean that someone thinks you have done something wrong.



• The Revenue carry out random enquiries so as to test their overall systems. So it is entirely possible that you have done nothing wrong at all. It is just the luck of the draw if they have chosen you.



• Revenue queries arise because there is something they don't understand or they have some information which makes them think your tax return or claim might be wrong. Even then there is a good chance that you will be found to have acted correctly.



• Revenue employees are instructed to keep an open mind and also be aware of the possibility of errors in your favour as well as in their favour.



• If the letter asks just one or two simple questions, it is likely that this is a limited enquiry, often referred to as an aspect enquiry by the Revenue where they just want to double-check information you have provided. The Revenue may ask for documentation to support this information. In a full enquiry you may be asked more extensive questions and be asked to provide your business records if you are self-employed. The enquiry notice should specify whether the enquiry is a full or aspect.



• Don't assume that the enquiry notice will go away if you ignore it. It won't!



• If you know that you sent in your return with the deliberate intention of misleading the Revenue or you cannot really be sure whether the information you provided was right or wrong - it is likely that you now need professional tax or legal advice to help you sort things out.


The rest of this Guide is not for you.


• However, the vast majority of people who receive an enquiry notice of some sort cannot think why there is a need for the Revenue to ask any questions at all. It may just be a random enquiry, or it may need just a one-line response.



• Whatever the request, it can be an unsettling or even frightening experience. Can you be entirely sure you read and understood everything you should have? Probably not. The Revenue realise that and should approach the enquiry with understanding.

What should I do next?

• Make a folder and in it keep everything to do with the enquiry. For example:
  
  
  • you should keep all the letters you receive and copies of any that you send to the Revenue.
  
  
  
  • you should keep notes of all telephone conversations you have with the Revenue to record what you, and the enquiry officer, said, the date and time of your call and the name of the person to whom you spoke.
  
  
  
  • keep a record of any documents or other information which you give to the Revenue along with the date of sending, the address to which it was sent and the reference number.
  
  
  
  • Sending by recorded delivery will ensure that in the event of a dispute you can prove when and where the posted items were delivered. If you can, take a copy of anything you send.

How should I act when I am dealing with the Revenue?

• Hopefully the above introduction might have helped you with your immediate concerns but quite often the letters the Revenue send are not as friendly as they could be and you may feel threatened. Don't be.



• The best way to go forward with an enquiry is if you can take control of the process as soon as possible. Ask yourself if you are likely to achieve more by confrontation or acting in a spirit of co-operation.



• Remember, the Revenue have various powers to enable them to obtain information and, overall, it could cost you more, both in money and stress terms, if you are unco-operative.



• But co-operation does not mean that you have to:
  
  
  • Put up with discourtesy or undue delay from the Revenue. You are entitled to complain about this just as you would in any other situation
  
  
  
  • Allow the Revenue to abuse their powers
  
  
  
  • Automatically agree everything which the Revenue might put to you
  
  
  
  • Comply with very time-consuming or expensive requests for information without good reason or in an unreasonably short time
  
  
  
  • Volunteer information you have not been asked for (although there may be times when the Revenue have misunderstood something so completely that it will save time to clarify the facts).



• It does mean that you should:
  
  
  • Answer reasonable and relevant questions truthfully to the best of your knowledge
  
  
  
  • If you have agreed to supply information by a particular date do so, unless there is good reason for being unable to and keep the Revenue informed of the reason for any delays in providing the information
  
  
  
  • Avoid any temptation to vent your feelings of irritation, annoyance or anger, whether on paper or at meetings.

Will the Revenue give me any information to help me understand how an enquiry works?

• With the opening letter you may have received a Question and Answer leaflet if you are subject to a full enquiry and are unrepresented.



• The opening letter in a tax enquiry should specify that you have the right to apply for the enquiry to be closed at any time. This is explained in more detail in the Code of Practice below.



• You should also receive a Code of Practice booklet, Enquiries into Tax Returns by Local Offices (COP11), in all but the most straightforward enquiries. In the most straightforward enquiries you may receive a short Code of Practice instead, but you can at any time request the full Code of Practice.



• For a tax credits examination you should receive leaflet WTC/FS2 with the opening letter and leaflet WTC/FS1 for a tax credits enquiry. The difference between a tax credits enquiry and a tax credits examination is explained under the heading: A stand-alone tax credits enquiry



• Other leaflets that you may receive:
  
  

  IR 160 - Revenue enquiries under self assessment..This explains how settlements are negotiated and would normally only be issued if the inspector considers that your accounts or returns are incorrect and a penalty would be due as a result.



• In Tax Credits examinations/enquiries:
  
  

  WTC/FS2 - Tax credits examinations

WTC/FS1 - Tax credits enquiry



• Take time to read these - they are generally well written, if difficult in places to understand. They will tell you, amongst other things, how the enquiry will progress.

What are the stages of an enquiry?

The opening letter

• In the opening letter, the Revenue should only be seeking documents and information on which they can judge the accuracy of your return or claim - nothing more.



• When you get the letter check in their leaflet whether the Revenue is within the time limit for making an enquiry in the first place.



• Is what they are asking for reasonable? If you think it isn't, ask why it has been requested.



• Are you able to supply the documents and information within the time limits given? Again, if you think that you have not been given enough time, contact the Revenue to ask for a longer period telling them why it is needed.



• At each stage of the enquiry you will be asked informally for any information which the Revenue are seeking - under normal circumstances they are obliged to do this before using any formal powers.



• If you are asked questions or asked to give explanations (or the Revenue have expressed a specific concern), at this stage, you should give them full detail. There may be a simple answer which could enable the enquiry to be closed.



• They would have to reject these explanations, with reasons, before they can justify asking about something they had not asked aboutpreviously.



• If you feel uncomfortable with replying in a straightforward way, then seek professional help.



• Remember that you have the right to apply for the enquiry to be closed at any time.

Supplying documentation and information

• If you do not supply the information and/or documentation within the time limit, the Revenue may issue a formal notice for their production. This formal notice will provide a fresh time limit and also warn that you may be charged a penalty if you do not supply what has been requested and within the time allowed.



• However, what the Revenue asks for must be relevant for checking that return and you must actually have or be able to obtain any documents requested (they must be in your power or possession).



• If you feel that the above is not the case or consider that you have not been given sufficient time to supply the information and/or documentation, you should contact the enquiry officer as soon as possible.



• If you are unable to reach agreement with the enquiry officer in an tax enquiry, you can appeal against the notice to the Appeal Commissioners. If you want more information about contacting the Commissioners you can download the leaflet using the link or ask the Revenue for a copy – Tax Appeals – A guide to appealing against decisions of Her Majesty's Revenue and Customs on income tax and other direct tax matters.



• If you have business premises, you can suggest that any records are reviewed there, or sometimes the enquiry officer may suggest this. However, if you prefer, you can ask that records are examined at the Revenue office or at the premises of a professional adviser, if you have one.

If the Revenue ask for a meeting

• In the past meetings with HMRC were not a matter of routine. But under new working methods coming into play from 2008 they may become more common. You do not have to attend a meeting. It is up to you whether you agree to meet or not.



• There are a number of things to consider. Aside from the matter of co-operation, which has already been mentioned, a meeting may shorten the length of the enquiry, be more cost-effective and limit continuing correspondence.



• It may well be that you want a meeting yourself, for these very reasons, and, if so, you should ask for one.



• You can take a friend or adviser along with you, for support, if you want and you can ask for any meeting to be held on your home ground.



• The Revenue enquiry officer cannot insist that it be held at any particular venue and the Revenue have no right of access to any premises under their ordinary statutory powers.



• If you are seeking a meeting it does not have to be pre-arranged but it is to your advantage to try to agree a date, time and place.

What to think about regarding any possible meeting?

1. Your time and costs of attendance.



2. The stress you might be caused.



3. As above, a meeting might actually reduce your costs of the enquiry.



4. You can ask to receive an agenda prior to holding the meeting - this should prevent too many surprises.



5. The enquiry officer may see a refusal to meet as a sign that you are not co-operating with the enquiry. If you decide against having a meeting make sure that you make it clear to the Revenue that this is not the reason for your reluctance to meet if, indeed, a meeting really is necessary.



6. A meeting in progress can be ended at any point; for example, if the enquiry officer acts unreasonably or aggressively or for any other reason.



7. You can ask for a break during the meeting if you want one. Should you have special personal needs, to assist your attendance, let the Revenue know beforehand.



8. You do not have to agree to discuss your tax affairs with the Revenue in front of your spouse or co-habitee, or your business partner(s). You each have a right to privacy.



9. If you refuse a meeting and reach no agreement in the enquiry with the Revenue, the Revenue may, anyway, have the opportunity to ask its questions in a hearing before a tribunal.

What to do before during and after the meeting

Before the meeting

1. Ask for an agenda and an idea from the Revenue as to how long it will take.



2. Prepare beforehand - read the contents of your folder and take it with you to the meeting.

During the meeting

1. At the start of the meeting you are entitled to know of any clear errors which the Revenue have found or any areas which concern them, having looked at the material which you will have already given to them.



2. Ask what these are, if any, before you agree to answer any questions. This will help you to consider whether their line of questioning is reasonable.



3. Regarding any subsequent questioning, any new areas of enquiry should only arise from initial findings and issues should not continue to be raised piecemeal.



4. If, when you ask about the areas giving the Revenue cause for concern, you are told that the Revenue are satisfied with the information or paperwork which you have provided, then the enquiry should be concluded.



5. In such a circumstance you should not have been asked for a meeting and you might then wish to lodge a complaint and consult the Revenue complaints publication - Complaints and putting things right



6. The real benefit in setting out the areas of concern prior to answering questions in a meeting is that it should limit the enquiry officer pursuing fresh lines of enquiry in cases where he is struggling to find evidence of inaccuracies.



7. When in the meeting, if you don't know the answer to a question do not be tempted to guess. Say that you will try to find out the answer and provide it later.



8. For example, you may be asked about your personal and private expenditure pattern in a particular year where the enquiry officer is trying to show that you do not have sufficient money on which to live if your accounts/tax return figures are correct.



9. Don't worry unduly about this - the enquiry officers are reminded in their instruction manuals that it is genuinely difficult for anyone to remember what was spent last month - let alone last year.



10. Never feel intimidated by the Revenue; remember, you are the only one who would, in any event, know the true figures.



11. Tell the enquiry officer if you don't understand something. Ask him to explain. Always be prepared to ask why he is asking for, or saying, something if you cannot see a connection to the enquiry.



12. You might want to take some brief notes or, if a friend/adviser accompanies you, ask them to take notes. You can then check these against the notes supplied by the enquiry officer (see below)..

After the meeting

1. Ask for a copy of the notes of any meeting. The Revenue are obliged to take notes and provide a copy if requested. The enquiry officer should not allow you to commit yourself to anything which you know is factually incorrect.



2. Read the notes quietly at home and make sure they are right. You do not have to sign them or confirm that they are correct. But normally it is in order to do so in straightforward situations.



3. Ask for any mistakes, misunderstandings or anything in the notes which could be misinterpreted to be corrected - or provide your own record.



4. There may be something with which you disagree in the notes - this is your opportunity to put that on record or provide explanatory information if your comments were taken, and noted, out of context.



5. If you later, in hindsight, think that you gave inaccurate information at the meeting you should correct it now.

Closing the enquiry

• Once either you have provided the specific information the Revenue require or following a meeting you are aware of the adjustments that will be made to your tax assessment(s), the enquiry is finished and a formal written closure notice will be sent to you setting out the conclusions. You have a right of appeal against these conclusions.



• Bear in mind that if at any time during an enquiry, you consider the enquiry officer is prolonging it unreasonably, in most cases you can ask an independent tribunal to direct that it be closed.



• They must make the Revenue close the enquiry unless they are satisfied that the enquiry officer has reasonable grounds for continuing.



• There is no restriction on the number of occasions on which this can be done during the enquiry although the tribunal might not be prepared to accept repeated applications made without good reason.



• Whilst the Revenue, as part of their enquiry, should check that you have claimed all the reliefs and allowances to which you are entitled, you should ask them to confirm that they have done so.



• Enquiry officers in the Revenue now have a duty to educate, inform and advise (it is called enabling) - you are entitled to expect this service to enable you to avoid a future non-random enquiry and, possibly, future tribunal processes.



• If you were subject to a self assessment enquiry and your records were found to be lacking you should be told what was wrong with your accounting system and how it should improve. You should also be told what records to keep and how often they should be completed.



• The Revenue may propose to add penalties to any settlement of the enquiry. These have to be justified and they are not automatic. The Revenue cannot charge a penalty if it is established that you were not culpable (that is, you were not to blame for any additional tax becoming due).



• The Revenue publish leaflets on the subject of penalties and they can be found here for self-assessment and here for tax credits.



• The law also provides for the Revenue to exercise their discretion to discount a penalty in cases where a penalty may be due. Factors such as co-operation, voluntary disclosure and where the errors or omissions were not serious can be taken into account and reduce a maximum penalty.



• If you are concerned that you are not being treated fairly on a penalty then take advice from a professional adviser. See the next section for more information on this.

Getting professional help

• Here are some broad ideas of where you might get some professional help with an enquiry.



• If there are suggestions of fraud in a self-assessment or tax credits enquiry then professional help from specialist advisers familiar with the Revenue's approach to potential prosecution is essential.




• The most likely sources of help will come from advisers belonging to the following bodies:

  Chartered Institute of Taxation
  Institute of Chartered Accountants in England & Wales
  Institute of Chartered Accountants in Scotland
  Association of Chartered Certified Accountants



• A request to those bodies for the names of specialists in enquiries living near you would be a good start.




• If there is a more straightforward enquiry the organisations that might be able to assist the low income taxpayer/claimant would include:

  TaxAid
  TaxHelp for Older People
  Citizens Advice

What to remember - a summary

So the things to remember are:

• Don't panic



• Organise yourself and take control



• Know your rights



• Decide whether you need professional help



• Deal with the Revenue's request for documents or information



• Consider any request for a meeting



• Be honest and, in general, answer only what you are asked



• Do not without question accept the Revenue's proposals for closing an enquiry, particularly if penalties are involved or if both a self-assessment and a tax credits enquiry have been involved. (See below for more detailed information).

Enquiries in more detail

For someone on a low income there can be a number of different enquiry situations:

1. A stand-alone self-assessment enquiry, most likely to be about your income or profits



2. A self-assessment enquiry on income or profits, which then leads on to a tax credits enquiry



3. A stand-alone tax credits enquiry



4. A tax credits enquiry, probably on income, which leads on to a self-assessment enquiry

A stand-alone self-assessment enquiry

Generally

• Non-business (i.e. private) bank accounts, building society and credit card details should not be requested from you as a matter of course where they do not relate to a specific entry on your tax return.



• However, if the records on which your return was based include these items they may be requested in the opening letter of the enquiry.



• They may also be asked for if the money available to you on which to live appears, to the Revenue enquiry officer, insufficient or if it has been established that you have not kept a proper (complete and effective) record keeping system.



• If the Revenue make such a request they are obliged to explain why they believe it is appropriate. Do not be intimidated into producing any information or paperwork without this explanation.

Your business

• The approach of the Revenue may differ if they believe you have understated profits or made excessive business claims as opposed to feeling that your general lifestyle is not consistent with your declared income.



• During the enquiry if you are in business it is likely that profit margins, wastage and competition will be discussed. These discussions are clearly taking place some time after the event.



• It is wise to keep old price lists etc. with your records along with a note of the competition suffered at the time. It will help you considerably during the enquiry when your verbal explanations may be disputed by the enquiry officer.



• Make sure that you tell the Revenue of any commercial hazard, specific to you, of which they might be unaware and which may affect the business results such as strikes, employee thefts (with details of the action taken, reports to the police etc), fires, floods etc (with details of insurance claims), loss of contracts.


It is much better to make notes about these when they occur and make sure you keep any relevant evidence, than to try to recall them several years later.


• You may wish to clear the enquiry by agreeing adjustments on broad lines but it is not wise to accept unsubstantiated figures put forward by the Revenue simply for the sake of reaching agreement.



• You need not face paying the Revenue's costs if you pursue an appeal route or an application to the Commissioners for closure of the enquiry, except in very limited circumstances.



• If the enquiry officer, in putting figures to you, has used one method to re-calculate your profits, do you think the result ties in with your recollection of the broad pattern of money available for you to spend privately, and which comes from the business?



• Also, is the proposed revised figure of turnover realistic in itself? If not, say so - it is possible the enquiry officer may be considering totally unrealistic figures.



• Remember that from the Revenue point of view in the quest for additional tax, whether what is being proposed is actually realistic can frequently be overlooked.



• Don't forget that the enquiry officer will probably be starting at a higher and less realistic figure of profit revision on the assumption that you are more likely to agree to a reduced figure in discussion.



• Interest will be payable on any additional tax due, and penalties may be charged depending on the reasons for the adjustment/s.



• The level of penalties will also depend on whether you voluntarily disclosed the irregularities to the Revenue or admitted to them once you received the opening letter or became aware of them, and how much you co-operated with the enquiry.



• If the enquiry officer considers there to be significant omissions from your tax return for which you are to blame, you might be asked to seek professional assistance.



• If the enquiry officer considers that penalties are due, you should also be given a Human Rights leaflet on public funding or legal aid (see Human Rights Act 1998).



• If there are penalties involved you should be provided with leaflet IR160.



• If significant profit omissions are established the above advice should be given to you in a letter. Should you decide to seek help do not, then, continue to deal with the Revenue yourself. Let your professional adviser plan the way forward together with you.



• If you decide to continue to deal with things yourself - read all the available leaflets before continuing (these can be found at Will the Revenue give me any information to help me understand how an enquiry works? and Negotiating a settlement involving penalties with the Revenue ). Above all, you should expect to be treated no differently by the Revenue.



• You may want to ask the Revenue to make out a case, perhaps in writing, to justify extending the enquiry into earlier years. This often gives you an opportunity to see the way the investigating officer is thinking and the likely direction of the enquiry.



• If you, at some time during the enquiry, accept that additional tax is due you might wish to make a payment on account of these liabilities before reaching the settlement stage.



• The Revenue have no right to demand this, it would be voluntary and without legal obligation, and they would have to repay it to you if so requested - on a change of mind, for example.



• Such a payment would have the effect of limiting the amount of interest you would face on settlement. It might also demonstrate co-operation with the enquiry on your part - relevant when it comes to the amount of any penalty being sought. If you decide to make a payment on account, you should keep a copy of the cheque. It may be preferable to agree with the enquiry officer that the cheque is sent to him/her rather than your Accounts Office. This will reduce the risk of the cheque being mislaid in the system or being wrongly allocated against later tax liabilities.



• If the enquiry results in no amendment to the figure of profit you will not be able to recover your costs from the Revenue unless they have failed to conduct the enquiry in accordance with the Code of Practice (see Will the Revenue give me any information to help me understand how an enquiry works?) or have made a mistake. Some costs of professional help may be tax deductible.



• In other circumstances it is unlikely that you would have grounds for complaint.



• One final point - at each stage of the enquiry the Revenue will need your agreement or they will need to refer the point/s at issue to the Commissioners (or, from April 2009, the First-tier Tribunal) who are an independent body for a hearing before them. The enquiry officer will do this by issuing a closure notice to the enquiry setting out the additional tax which they consider will be due. You would then need to appeal against this closure notice. Remember that you, too, can ask for the enquiry to be closed at any time.



• At any hearing the Commissioners, alone, have the power to take the action which they consider to be correct.

A self-assessment enquiry which then leads on to a tax credits enquiry

• If the self-assessment enquiry was because you understated your employment or self-employment income, then it is likely that this will trigger a tax credits enquiry.



• Once the enquiry officer establishes omissions or understatements, he must tell you that any understatements to the self-assessment may affect your or your partner's tax credits. The enquiry officer should then immediately liaise with the tax credits consultant, who will decide whether to open a tax credits enquiry. At this stage, the case may be jointly worked with the tax credits consultant.



• It is important that you do not agree to a self-assessment settlement without considering the implications of a subsequent tax credits enquiry.



• You should ask that matters of settlement be left until conclusion of both enquiries so that you know the total implication of your agreement.



• The self-assessment enquiry officer may wish to allocate any under-declared income to particular tax years for his purposes. This might not be in your interests in the subsequent tax credits enquiry as tax credits have the £25,000 tolerance level (£2,500 in 2005/06 and earlier) which can leave the tax credits award unchanged.

A stand-alone tax credits enquiry

• All claims and notifications of Changes of Circumstances are checked.



• Such checks carried out in year are known as examinations. This is an official term used to distinguish them from enquiries which can only be made after the year-end, when the claim has been finalised.



• When you claim tax credits, the Revenue must decide whether to make you an award, and if so how much to award you.



• Sometimes they will write to you to ask for information or evidence which they consider they may need for making their decision. This may be before you receive any money (called a pre-award examination) or after you have started to receive payments (then called a post-award examination).



• The Revenue must have cause to open an examination.



• That may be a discrepancy between what you show on your claim form and your income details held elsewhere on their systems, or it may be a wider check into your personal circumstances upon which your claim is based.



• What the Revenue may not do is launch a random examination



• Pre-award and post-award opening (initial) letters are not formal enquiry notices or information notices. They are requests that you supply information to the Revenue to enable them to make a decision on the correctness of your claim.



• If you are part of a couple and have made a joint claim you will both receive a copy of the initial (opening) letter.



• Only if you do not provide the information might a formal information notice be issued.



• If, exceptionally, you receive an unannounced visit, from an enquiry officer, at your home you do not have to talk there and then and it is open to you to agree an alternative time and date, and place, for a meeting.



• When the examination reaches the closure stage you will receive a letter telling you that the examination is completed and the outcome.



• Even if you have discussed this by telephone, or in a meeting, a written closure letter is still needed.



• In a joint claim both will receive a copy of the closure letter. This closure letter will tell you the amount of the revised award.



• You have the right of appeal against this decision and for this appeal to be heard before the Appeals Tribunal. See leaflet WTC7 - Tax credit penalties - What happens at the end of a check




• In general terms, an enquiry is worked in the same way as an examination. However, there are some differences:

  • There are no restrictions to the number of times that a claims officer can examine a claim during the year, provided fresh information and new risks come to light. However, the Revenue can only make one enquiry into your (or your and your partner's) entitlement to tax credits for that year.
  • Your claim may have been selected as one of a small number of random enquiries.
  • A formal notice of enquiry is issued at the start of an enquiry.
  • At any time during an enquiry you can apply to an independent tribunal to have it closed.

A tax credits enquiry which leads on to a self-assessment enquiry

• If the tax credits enquiry was because of incorrect income figures it is possible that this will lead on to a self-assessment enquiry.



• It is important that you do not agree to a tax credits settlement without considering the implications of a subsequent self-assessment enquiry.



• You should ask that matters of settlement be left until conclusion of both enquiries so that you know the total implication of your agreement.

Negotiating a settlement involving penalties with the Revenue

• There are specific Revenue leaflets which you should read before you start speaking to the Revenue on any form of settlement in which a penalty is included. These are:

  • IR160 Enquiries under Self Assessment: How settlements are negotiated
  
  
  
  • WTC7 - Tax credits penalties - What happens at the end of a check



• There are also four shorter Factsheets:
  
  
  • WTC/FS1 Tax credits enquiry
  
  
  
  • WTC/FS2 Tax credits examinations
  
  
  
  • WTC/FS3 Tax credits formal request for information
  
  
  
  • WTC/FS4 Tax credits meetings



• Whilst the approach to settlements of self assessment enquiries and those of tax credits enquiries is broadly similar there are differences from settlements of tax credits examinations.



• The above leaflets explain the differences and these notes will not duplicate information contained in the leaflets.



• If you have reached a stage at which a settlement, including penalties, is being sought by the Revenue, you should already have been made aware that the additional tax payable will have interest added to it - quite aside from the matter of penalties.



• This type of settlement, to cover the additional tax, interest and penalty is called a contract settlement.



• If you reach agreement with the Revenue on the terms of this contract, for their part, the Revenue will take no further proceedings against you relating to the items included within that contract.




• Generally, for self assessment enquiries, the related penalties are called tax geared, which means that they may be up to 100% of the tax payable. However, the following maximum reductions can apply:

  1. 20% for disclosure and the extent of its completeness (the earliest admission of irregularities with full detail will attract a percentage closest to the 20% figure).
  
  
  

  2. 30% where disclosure is entirely voluntary, and not prompted by any Revenue action or fear of discovery.

     Never lie about disclosure.

     At the end of the enquiry you may be asked to, and should, sign a Certificate of Full Disclosure which is your confirmation that you have told the Revenue of all your income, bank accounts and information relating to your tax liability.

     This certificate is important for you to understand; you risk future prosecution if you dishonestly sign an incorrect or incomplete certificate. Only sign if you are certain of the truth of it.

  
  
  3. 40% to recognise co-operation generally, including how quickly information was made available.
  
  
  
  4. a further 40%, but how much of that reduction is awarded will depend upon the size and gravity of what has happened.
  
  
  


• From April 2009, there will be different levels of tax-geared penalty (a) for incorrect returns, (b) for failure to notify HMRC that you are chargeable to tax. The new percentage reductions will be related to the behaviour of the taxpayer. The penalties imposed after April 2009 can be for failures in the previous tax year – e.g. if in 2009 or 2010 you file an inaccurate return for the tax year 2008/09, your penalty will be assessed under the new rules.



• If you submit an inaccurate return because you have not taken reasonable care to get it right, you can be charged up to 30% of the tax that would have been paid, but that can be reduced to 15% if you tell HMRC about your mistake after they have started to investigate you (a prompted disclosure), or to nothing if you tell them voluntarily and without any pressure from them (unprompted disclosure). Similar principles are applied where tax is lost because of deliberate inaccuracy, but the penalties are higher, and the reductions are less generous. There is even less mitigation where the taxpayer's conduct is not only deliberate, but steps are taken to conceal it.



• For an inaccurate return, you should never be charged a penalty after April 2009 if your mistake was innocent – i.e. you took reasonable care to get it right, but were just genuinely mistaken.



• For failure to tell HMRC that you are chargeable to tax, including where you have a new source of income and fail to notify them, the penalties follow a similar pattern. For non-deliberate failure, the percentage of tax lost that may be charged as a penalty is, again, 30%; but to secure a reduction to nil, you have to tell HMRC about it within 12 months, otherwise you will still face at least a 10% penalty.



• For deliberate failure to notify, again the penalties are much higher and the scope for mitigation considerably less.



• A penalty for failure to notify can be reduced because of special circumstances, or vacated entirely if you can show reasonable excuse for the failure. There is no concept of innocent mistake as there is in the thinking behind the penalties for inaccurate returns.



• As will be seen, the scope for negotiation is much narrower with the behaviour-driven penalties, and the categories of mitigation leave little room for exercise of an inspector's discretion.



• In a tax credit enquiry settlement the amount of penalty would be higher if you had previously made an incorrect claim, given incorrect information or failed to provide information.



• You can discuss your payment timetable for any settlement. Sometimes a separate meeting is held to cover this point and provide a final opportunity for you to state your reasons as to why you think the figure of penalty should be reduced.



• Again, you do not have to attend this meeting. You may have made already stated your reasons why you think the penalties should be reduced in an earlier meeting (when profit amendments were agreed, for example) or you could make them, at this stage, in a letter.



• After you have made the points you wish, the Revenue, after considering these, will give you a figure of the amount which they think it appropriate that you should pay to settle the enquiry.



• This figure should clearly be within your means to pay, and the Revenue should consider what you have shown on a signed statement of assets and liabilities (basically what you own and what you owe) which you will have been asked to complete when negotiating profit adjustments in self assessment enquiries. It is important that you take time to read the notes on the statement of assets and ensure that it is correct and complete.



• It is sometimes possible to negotiate the payment of outstanding liabilities by instalments, particularly where it can be demonstrated that necessary funds are not available and cannot be borrowed from elsewhere.



• Again, you should not be asked to enter into any arrangement which is beyond what you are able to pay taking into account your present, and any known future, income and expenditure, expenditure including, of course, that for living.



• However, an instalment offer will be calculated by the Revenue in a slightly higher amount payable to compensate for additional costs and added risk in allowing the extra time for payment.



• For self assessment enquiries concluded with a contract offer, no notice of completion is required.



• It follows, therefore, that if there is no contract settlement it is important that a completion notice is issued - this then ensures that there can normally be no further enquiry for the period which the enquiry covered.

Human Rights Act 1998

Rights for those charged with 'criminal' offences

• The Human Rights Act 1998 incorporated the European Convention on Human Rights (the Convention) into domestic UK law.



• Under Article 6 of the Convention, everyone charged with a criminal offence has the right to a fair trial by an independent and impartial tribunal.



• You have the right to be presumed innocent until proved guilty; and various minimum rights including the right to free legal assistance where he has not sufficient means to pay for his own representation, and where the interests of justice demand it.



• A criminal offence under European human rights law is wider than under domestic UK law.



• It can include penalties which, because of their size or because the underlying offence involves an element of dishonesty, are criminal in nature, whether or not they are deemed to be so under any particular legal system of a contracting state.



• In the UK, the courts have held this to include certain civil penalties charged under the tax and VAT codes.



• Therefore, if you are charged a penalty appropriate for dishonesty or recklessness rather than simply innocent error or delay, you may be entitled to legal aid, or public funding, and the other fundamental rights under Article 6 associated with criminal charges.



• In such cases the Revenue should give you a leaflet about public funding, or legal aid.

Privacy

• Under Article 8 your right to privacy must not be interfered with beyond the law and any interference must be in proportion to the nature of the enquiry which the Revenue is conducting on your affairs.



• Revenue enquiry officers are told of this and of the need to have regard to the cost of what they are asking you to provide during the enquiry.

Enquiries into tax returns

The Revenue have some useful information to explain how a tax enquiry works and should cover any queries you might have.

You might also want to have a look at the TaxAid website on page 4 of their 'Questions about tax' section. You can find this here.

You can also have a look at an article which was on the LITRG website as this gives some useful pointers regarding enquiries. You can read the article by clicking here.

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Do you have a problem paying your tax?

• The important thing to do is not to ignore the problem. The link below is to the TaxAid website. Their site has some very useful information to help you if you are having trouble paying your tax. Click here to see the link.

Alex 1 - notified IR of need to complete SA return - date for submission Alex notified the Revenue that he would need to complete a 2007/08 tax return on 17 September 2008. They issued a return on 1 October 2008. Alex will need to have sent the form to them by 30 November 2008 if he wants the Revenue to send him a tax calculation in time for him to make his payment in January 2009 or if he wants any underpayment included in his coding notice.

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Alex 2 - deadline for submission of return not issued in April The latest date for Alex to send in his tax return if he does not want to be charged a late submission penalty will be the later of 31 October if manually sending a paper version of the tax return or 31 January if filing online or 3 months after the return was issued.

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Joanne - late submission penalty Joanne was late in sending in her 2007/08 tax return. Her tax liability for 2007/08 was £75. The penalty that Joanne pays cannot be more than £75.

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Kofi - no payments on account - balancing payment Kofi had a tax liability for 2007/08 of £350. As this is less than £500 Kofi did not need to make any payments on account for 2008/09. When he sent in his 2008/09 tax return Kofi had a tax liability of £400 for the year. He will pay this amount in one instalment on 31 January 2010.

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Robert 1 - working out payment amounts and dates Robert aged 48 completes a self-assessment return each year because he has a income from letting some land which is not taxed before he receives it. On 12 July 2009 he sends in his 2008/09 return. Robert's tax liability for 2008/09 is as follows: Tax due £ 2,800 Paid: First instalment - 31 January 2009 £1,000 (based on half of previous year's tax) Second instalment - 31 July 2009 £1,000 (based on half of previous year's tax) Balancing payment - 31 January 2010 £ 800

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Robert 2 - need to make payment on account Robert's tax liability is more than £1,000 (increased limit for 2009/10). PAYE & tax paid at source cover less than 80% of the total due. Robert will need to make payments on account for 2009/10 (the year to 5 April 2010).

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Robert 3 - payments on account On 31 January 2010 Robert will also need to make a payment on account for the tax year 2009/10 (year ended 5 April 2010). His payment on account will be based on half of his 2008/09 tax liability. Robert will therefore need to pay £1,400 on 31 January 2010 (together with the balancing payment of £800 for 2008/09 we worked out above) and £1,400 on 31 July 2010.

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Robert 4 - claiming to reduce payments on account If the land became vacant so that Robert's income for 2009/10 is likely to be much lower than that for 2008/09, he can claim to reduce his payments on account. Robert works out that his rent has almost halved and he will only have a tax bill for 2009/10 of around £1,600. The reduction will be £1,200. He therefore claims to reduce each instalment of his 2009/10 payments on account by £600.

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Robert 5 - over-reduction of payment on account - interest On 10 June 2009 the land is let again and Robert realises that he has reduced his payments on account by too much. He thinks he will have a tax bill for the year of nearer £2,000 and not £1,600. Robert writes to the Revenue to let them know he will need to pay more tax on