Monday, October 4, 2010

"The taxman is happy with my return' - Sure?

As we move towards the first filing deadline for 2009/10 personal tax returns you may find it helpful to reflect on a key aspect of our tax system. Many people seem to misunderstand how things work. They mistakenly assume their affairs are in order long before they have any real evidence that this is actually the case.

The concept of "Process now - check later" - is a key element of our self assessment tax system. It means that tax returns are processed by computer long before a real person checks them. In most cases the computer then generates statements showing the tax payable or repayable based on the entries on the tax returns as submitted.

At this point no one has reviewed any exception reports generated by the computer and no real person has checked any of the entries or disclosures on the tax returns. So little comfort can really be drawn from the statements issued confirming that a tax return has been 'processed'.

And it is especially important to keep this in mind when you hear stories about how people have supposedly got one over on the taxman. This includes those who have claimed what might be spurious deductions on their tax returns, omitted to report potentially taxable income or secured the hoped for tax treatment of a tax avoidance scheme.

So when you hear anyone boasting about their own success or that of their clients just remember that the real timescales are much longer than they might imply. This is especially true for anyone who is referring to transactions they have undertaken since 6 April 2009. Transactions undertaken from that date through to 5 April 2010 will be reported on tax returns that need to be filed (online) by 31 January 2011. HMRC then have 12 months from the date the return was filed (so potentially until 31 January 2012) to start asking questions.

So it's a little premature to determine your own attitude and approach by reference to the way that someone else has supposedly beaten the taxman on a tax return that has yet to be checked or challenged.


  1. Nice article Mark. There is a small silver lining, at least the enquiry period is no longer 12 months from the submission deadline date.

    I had heard of accountancy practices that used to wait until January before submitting any personal tax returns, on the basis that it would limit the enquiry window - which of course didn't encourage early filing!

  2. Indeed Nick. That sort of story is exactly why they changed the rules. Apparently a number of accountants used to do the same thing - and I'll bet that quite a few are unaware of the rule change and still do the same as they've always done!

  3. It still is (or was last time I looked) the case for large corporates, and HMRC will complain that everyone leaves it to the last minute to send in the returns. Well they were told that would happen if there was no incentive to file earlier.

    It will be interesting to see what happens when iXBRL is introduced with effect from filing after 1 April 2011. If you can get the returns in before the end of March, say for a 30 June year end, paper filing is still permitted.