HMRC would like us all to file online, and the legislation is gradually being amended to force us to do so – all of us except MPs, of course, as the security arrangements for online filing apparently are not quite good enough for their tax returns.
The 2007 Finance Act contained changes to the time limits for filing personal tax returns, which will affect the filing dates for the 2007/08 Self Assessment returns.
The Old Rules
The return for 2006/07 was the last one filed under the old rules. As you are no doubt well aware, the deadline for filing the return was 31 January 2008, but there are two other consequential deadlines that apply:
The deadline for HMRC to open an “Enquiry” into the return is the anniversary of the filing date, so as regards the 2006/07 return, that closes on 31 January 2009. As far as the 2005/06 return is concerned, if you hadn’t heard from HMRC by 31 January 2008, you can relax – it is now too late for them to question it unless they “discover” an error arising from fraud or neglect (this is dealt with in the February 2006 edition of Tax Insider).
The deadline for amending the 2007/08 return is also 31 January 2009, so if you become aware that you made a mistake in that return, you have until then to correct it – you will pay interest on any unpaid tax, but there should not be a penalty.
The New Rules
Your return for the year ending 5 April 2008 will be sent out shortly after 5 April 2008, but the deadline for filing it will depend on whether you file online or send in a paper return.
If you file online, you will have the same deadline as now – 31 January 2009, plus however many extra days HMRC have to allow as a result of the almost inevitable failures there will be in the technology!
If you file a paper return, the new deadline is tighter – for the 2007/08 return, it will be 31 October 2008, just under seven months from the end of the tax year.
Tax Calculation
Currently, HMRC will calculate your tax for you if you file a paper return by 30 September after the end of the tax year (if you file online, the calculation is done for you automatically). This date will be moved back to 31 October as well for the 2007/08 return.
Enquiry and Amendment Deadlines
This is the good news. Whether you file online or by paper, the “Enquiry Window” during which HMRC can open an Enquiry into your return will close on the anniversary of the day you file it, rather than the anniversary of the last possible date for filing, so if you really get your skates on and file your 2007/08 tax return before the end of April 2008, the enquiry window will close on the same date in April 2009, rather than on 31 January 2010.
The deadline for you to amend the return, however, will remain at the anniversary of the latest filing date – whether you file on paper or online, that will be 31 January 2010 for the 2007/08 return.
Implications of the Changes
As a professional, I suppose I should give a guarded welcome to the changes – January is always a miserable month for us, badgering our clients to come up with the information we need for their returns and rushing to beat the 31 January deadline.
The introduction of the October deadline for paper returns may have the effect of spreading the load somewhat – though like most firms, we are more probably going to respond by filing more and more returns online, so frantic dashes on 31 January to the local tax office with a bundle of returns will no doubt be replaced by frantic hours spent sitting staring at a “frozen” computer screen.
The changes to the enquiry windows, however, are more interesting. The more switched-on clients will be pressing for their returns to go in as early as possible so as to reduce the period during which they are vulnerable to an Enquiry, and there will be more emphasis placed on exactly when returns were received by HMRC as this will affect the date the Enquiry Window closes. When we send in a client’s paper return, we always ask for a receipt to confirm exactly which day it was received, and these will become more important in the future – though when filing online, the receipt is issued automatically. .
As the pressure to file online increases, there will also be an issue about “disclosure”. In order to take full advantage of the early closing of the Enquiry Window, it is important that any relevant details are disclosed in the return when it is filed.
To take one example, if a valuation has been used (say, a 31 March 1982 value for CGT), it is wise to send a copy of the valuation in with the return, and currently this is impossible to do if you file online. This is one of the reasons why my firm currently favours paper filing, but we are going to have to change our ways to adapt to the new rules, and it will be important that we are still able to make appropriate “disclosures” for our clients.
Such “disclosures” are becoming more important to protect our clients’ interests – the new rules on “income shifting”, for example, will mean that family company shareholders will need to include quite extensive “disclosures” about the company’s salary and dividend policies in their personal tax returns.
Lord Justice Sedgley famously and contemptuously described the VAT legislation as a “fiscal Theme Park, in which relatively uncomplicated solutions are a snare and a diversion”. Let us hope HMRCs enthusiasm for online solutions does not prove to be another such snare.
