Changes to legislation and practice affecting tax compliance seem to be happening at a rapid pace. Below is a summary of some recent significant practice procedural changes, and when they take effect.
Tax return filing dates
The changes to personal tax return filing dates announced in FA 2007 apply to tax returns for 2007/08 and later years. 31 July has become a significant date under the new filing regime. The general rule is that paper returns must be filed on or before 31 October following the end of the relevant tax year, or alternatively electronic returns must be filed by 31 January. However, an exception to this rule is that if HMRC issue a paper tax return (or filing notice) after 31 July, the filing date is extended to three months beginning with the date on the return (or notice).
Tax return enquiries
HMRC’s tax return enquiry ‘window’ also changed in respect of personal tax returns for 2007/08 and later years, and most company returns for accounting periods ending after 31 March 2008. The enquiry window is no longer linked to the filing date for the return, but now normally runs for twelve months from the date on which the return was delivered to HMRC. Firms would therefore be well-advised to maintain a log showing the dates on which tax returns for 2008 and later years were delivered to HMRC, if they do not already do so.
Penalties for errors
As indicated in the previous article, a new penalty regime applies to return periods starting on or after 1 April 2008, where the due date for filing is on or after 1 April 2009. Firms will probably need to be familiar with the ‘old’ and ‘new’ penalty regimes for some time to come. For example, suppose a self-employed taxpayer submits his 2007/08 self-assessment return on 30 January 2009. HMRC open an enquiry into the return in January 2010, by which time the taxpayer’s 2008/09 return has already been filed. HMRC’s enquiry into his 2007/08 return uncovers understated cash sales, and an enquiry is also opened into the 2008/09 return, which results in the individual making a prompted disclosure of a similar error. When discussing the level of penalties with HMRC, the taxpayer’s agent will need to take account of the different methods by which penalties can be mitigated for 2007/08 and 2008/09 respectively.
Assessment time limits
Provision was made in Finance Act 2008 to amend the time limits for assessments, claims etc, in an attempt to provide greater uniformity and alignment where possible across the various taxes (e.g. income tax, corporation tax, VAT). For example:
- The general time limit for taxpayers to make relief claims for income tax (including PAYE and under the Construction Industry Scheme) and CGT purposes (in TMA 1970, s 43) is changed to 4 years after the year of assessment, from the previous 5 years and 10 months (or 6 years for corporation tax). The same time limit applies to error or mistake claims (under ss 33 or 33A).
- The ordinary time limit for assessments by HMRC is also reduced to 4 years, from 5 years and 10 months (or 6 years for corporation tax). This time limit also applies to discovery (or mistake) assessments.
- However, an extended time limit of 6 years after the year of assessment (previously 5 years and 10 months, or 6 years for corporation tax) applies if a loss of tax is brought about carelessly, or 20 years (previously 20 years and ten months, or 21 years for corporation tax) if the loss of tax has been brought about deliberately, and also to recover a loss of tax resulting from failing to notify HMRC of liability to tax under TMA 1970, s 7, or failing to disclose tax avoidance schemes.
- For VAT purposes, the normal period for VAT assessments is increased to 4 years (from 3 years). An extended time limit of 4 years also applies to VAT claims. However, the time limit for assessments to recover a deliberate loss of VAT is 20 years, which was also previously the time limit for VAT assessments in cases of fraud.
The Finance Act 2008 changes to time limits will enter into force on a future date to be specified by Statutory Instrument. All in all, there are interesting times ahead for firms and clients!
This article is based on an article in ‘Busy Practitioner’, which is published by Tottel Publishing. For further information and ordering details, click here.