Taking a look at self assessment

The annual rush to complete self assessment tax returns before midnight on 31 January will not have the same urgency this year after HMRC announced it would waive late filing and late payment penalties for one month. The measure will give those taxpayers affected by the pandemic extra time, if they need it, to complete their 2020/21 tax return and pay any tax due. Here, we take a look at the tax authority's decision and the wider self assessment process.

Deadlines

Although it has granted taxpayers valuable breathing space HMRC is still encouraging them to file and pay on time if they can. It says that millions of the 12.2 million taxpayers who need to submit their tax return by 31 January 2022, have already done so.

The deadline to file and pay remains 31 January 2022. The penalty waivers will mean that:

• anyone who cannot file their return by the 31 January deadline will not receive a late filing penalty if they file online by 28 February; and
• anyone who cannot pay their self assessment tax by the 31 January deadline will not receive a late payment penalty if they pay their tax in full, or set up a Time to Pay arrangement, by 1 April.

However, interest will be payable from 1 February.

Angela MacDonald, HMRC's Deputy Chief Executive and Second Permanent Secretary, says: 'We know the pressures individuals and businesses are again facing this year, due to the impacts of COVID-19. Our decision to waive penalties for one month for self assessment taxpayers will give them extra time to meet their obligations without worrying about receiving a penalty.'

The self assessment cycle

Under the self assessment regime an individual is responsible for ensuring that their tax liability is calculated, and any tax owing is paid on time.

Tax returns are issued shortly after the end of the fiscal year. The fiscal year runs from 6 April to the following 5 April. Tax returns are issued to all those whom HMRC are aware need a return including all those who are self-employed or company directors. Those individuals who complete returns online are sent a notice advising them that a tax return is due. If a taxpayer is not issued with a tax return but has tax due, they should notify HMRC who may then issue a return.

A taxpayer has normally been required to file his tax return by 31 January following the end of the fiscal year. The return must be filed by 31 October 2022 if submitted in 'paper' format. Returns submitted after this date must be filed online otherwise penalties apply.

Late filing penalties

For those that fail to file their returns on time there is an automatic £100 penalty (even if there is no tax to pay or the tax due has already been paid). This year that date will be 28 February due to the reasons set out above.

The full penalty of £100 will always be due if your return is filed late even if there is no tax outstanding. Generally, if filing by 'paper' the deadline is 31 October and if filing online the deadline is 31 January.

Additional penalties can be charged as follows:

• over three months late – a £10 daily penalty up to a maximum of £900
• over six months late – an additional £300 or 5% of the tax due if higher
• over 12 months late – a further £300 or a further 5% of the tax due if higher. In particularly serious cases there is a penalty of up to 100% of the tax due.

Calculating your tax liability

The taxpayer does have the option to ask HMRC to compute their tax liability in advance of the tax being due in which case the return must be completed and filed by 31 October following the fiscal year.

Whether you or HMRC calculate the tax liability there will be only one assessment covering all your tax liabilities for the tax year. 

Changes to the tax return

HMRC may correct a self assessment within nine months of the return being filed in order to correct any obvious errors or mistakes in the return.

An individual may, by notice to HMRC, amend their self assessment at any time within 12 months of the filing date.

Enquiries

HMRC may enquire into any return by giving written notice. In most cases the time limit for HMRC is within 12 months following the filing date.

The main purpose of an enquiry is to identify any errors on, or omissions from, a tax return which result in an understatement of tax due. Please note however that the opening of an enquiry does not mean that a return is incorrect.

If there is an enquiry, we will also receive a letter from HMRC which will detail the information regarded as necessary by them to check the return. If such an eventuality arises we will contact you to discuss the contents of the letter.

Keeping records

HMRC wants to ensure that underlying records to the return exist if they decide to enquire into the return.

Records are required of income, expenditure and reliefs claimed. For most types of income this means keeping the documentation given to the taxpayer by the person making the payment. If expenses are claimed records are required to support the claim.