HMRC can require any person to file a self-assessment return, if it considers that the return is necessary. HMRC has a statutory power to issue a notice to file a tax return. For personal tax returns by individuals, this power is contained in TMA 1970, s 8. There is a similar power in respect of trustee returns (in s 8A), and a separate power in respect of partnership returns (in s 12AA).
However, there is no legislation setting out the criteria for HMRC to issue a filing notice. HMRC’s website has a page entitled ‘Do you need to complete a tax return?’ (www.hmrc.gov.uk/sa/need-tax-return.htm), which lists some common circumstances where HMRC will require a tax return to be completed. This list includes, for example, cases where a person is self-employed or a business partner. It also includes most company directors, or those who receive total income of £100,000 or more, or those who receive £10,000 or more from taxed savings and investments or more than £2,500 from untaxed savings and investments, or those with property income of £10,000 or more gross (i.e. before deducting allowable expenses) or £2,500 or more net.
HMRC will issue tax return filing notices to an individual based on the information that HMRC holds about them. Of course, an individual’s personal circumstances can change, and HMRC’s information can quickly become out of date. This means that HMRC will sometimes issue a tax return filing notice where no return is actually necessary, such as where a source of taxable income has ceased.
The previous position
For tax years prior to the changes introduced in Finance Act 2013, if HMRC has issued a person with a tax return filing notice, strictly speaking the return has to be completed even if the return is unnecessary. There is no statutory basis for those years that specifically allows HMRC to disregard or withdraw a tax return filing notice. This will obviously be inconvenient to the recipient of a filing notice, as it will involve time and possibly expense to file the return in order to avoid possible late filing penalties. It is not an ideal position for HMRC either, as their resources are already stretched without having to process unnecessary returns as well.
Although there is no express let out from the obligation to file a return after a filing notice has been issued, TMA 1970, s 1 broadly states that HMRC has a duty of “collection and management” for income tax, corporation tax and capital gains tax purposes. In February 2012, HMRC began inviting individuals who received a notice to file a tax return, but who thought they should not be within self-assessment, to contact HMRC with a view to getting the filing notice withdrawn, and also any late filing penalty cancelled. The HMRC website page mentioned earlier states (at the time of writing) that if an individual has received a tax return but thinks it is not needed, the individual should contact HMRC’s self-assessment helpline.
The new system
Finance Act 2013 introduces new legislation into TMA 1970. New TMA 1970, s 8B allows a person who has received a notice to file a personal tax return or a trustee’s tax return to request HMRC to withdraw the tax return notice.
This facility to ask HMRC to withdraw a filing notice is obviously good news, but there are some points to note:
- Firstly, there is a time limit for making the request to withdraw the notice, which is two years from the end of the tax year to which the filing notice relates. HMRC has a discretionary power to extend the time limit, but only in ‘exceptional circumstances’.
- Secondly, there are two circumstances in which a request to withdraw a filing notice cannot be made to HMRC. The first is where a personal tax return or trustee’s return has already been filed in response to the filing notice. The second is where HMRC has issued the person with a notice of determination under TMA 1970, s 28C, which is a determination of tax where no return has been filed on time after HMRC has issued a filing notice.
- Thirdly, on receipt of the request HMRC will decide whether to withdraw the notice. If they do decide to withdraw it, HMRC will issue the person with a withdrawal notice, which specifies the date on which the tax return filing notice is withdrawn. If the notice is withdrawn, this does not prevent HMRC from later issuing another filing notice to the same individual or trustee in respect of the same tax year.
In addition to the new legislation for individuals and trustees, there is a new TMA 1970, s 12AAA for partnerships. It largely mirrors the new s 8B for individuals and trustees, except that the period when a partner may request HMRC to withdraw a partnership tax return filing notice is slightly different, depending on the type of partnership.
For partnerships of individuals, the withdrawal period is the same as for individuals or trustees, i.e. two years from the end of the tax year to which the filing notice relates. However, if the partnership includes one or more companies, the withdrawal period is two years from the end of the period specified in the filing notice for the partnership return. In either case, the withdrawal period may be extended in exceptional circumstances at HMRC’s discretion.
There are also new penalty provisions to deal with situations whereby a tax return filing notice has been issued, which has triggered a penalty for the late filing of the return. The legislation dealing with penalties for failing to make returns etc is in FA 2009, Sch 55. Finance Act 2013 introduces new paragraphs 17A and 17B into FA 2009.
New paragraph 17A provides that if a penalty has arisen in respect of a late personal tax return or trust tax return and a request is made to HMRC for the withdrawal of the filing notice, the withdrawal notice may provide for the penalty to be cancelled. It is interesting to note that the legislation uses the word ‘may’ in the context of cancelling the late filing penalty. This would seem to suggest that HMRC’s power to cancel the penalty is discretionary. However, it is difficult to envisage a situation in practice where HMRC would not cancel a late filing penalty if they have already agreed to withdraw a filing notice because the tax return is considered to be unnecessary.
New paragraph 17B similarly provides that HMRC may cancel a late filing penalty for a partnership tax return, if a request is made for HMRC to withdraw the filing notice for the partnership return.
The new legislation applies to personal tax returns and trustee tax returns for 2012/13 and later years. The same applies to partnership returns where there are no corporate partners. For partnerships with one or more companies, the new rules apply to return periods beginning on or after 6 April 2012.
There are also changes to the time limit in TMA 1970, s 7 for a person to notify HMRC that they are chargeable to income tax or capital gains tax for a tax year, if they have not received a notice to file a personal tax return or trustee tax return. Section 7 previously required the person to notify HMRC within six months from the end of the relevant tax year, i.e. by the following 5th October. The amended s 7 broadly states that if no personal or trustee tax return filing notice has been received, or if the filing notice has been received but has been withdrawn, the person must notify HMRC of chargeability to income tax or CGT within a defined ‘notification period’.
If no filing notice has been received, this notification period is six months from the end of the relevant tax year. If a filing notice has been received, but has later been withdrawn, the notification period is the later of six months from the end of the tax year, or 30 days starting with the day after the filing notice was withdrawn.
There are penalty provisions in FA 2008, Sch 41 for failing to notify chargeability to tax under TMA 1970, s 7. These rules are also amended to deal with the situation where a tax return filing notice has been received but later withdrawn. The ‘potential lost revenue’ for penalty purposes in those circumstances is broadly so much of the person’s income tax or CGT liability for the tax year as is unpaid on a defined ‘relevant date’ and remains unpaid at the end of 30 days from the day after the filing notice has been withdrawn.
The ‘relevant date’ for these purposes is 31 January following the end of the tax year. For potential lost revenue due to HMRC refunding a payment on account after 31 January, the relevant date is the day after the refund is issued.
Finally, the late payment interest charge provisions in FA 2009, Sch 53 have been amended to deal with situations where a tax return filing notice has been withdrawn but there is subsequently a requirement to notify chargeability to income tax or CGT under TMA 1970, s 7 in respect of that tax year. The effect of the amendment is broadly that the relevant interest provisions apply as if the tax return filing notice had not been withdrawn.
The new provisions allowing HMRC to withdraw tax return filing notices and cancel late filing penalties are a welcome, and probably overdue, change. They will no doubt save taxpayers considerable time and inconvenience in the long run, as the new rules start to kick in.