For most people completing the annual tax return is right up there with going to the dentist, unblocking a drain or cleaning the oven in the list of jobs you would rather not do. So it may come as a surprise to find that every year some 350,000 returns are submitted by individuals on a purely voluntary basis! It certainly came as a surprise to me when the figure was revealed in a recent tax tribunal report.
So are all these people masochists? There may be a few who consider completing a return to be their civic duty, but the vast majority of these returns are submitted by PAYE taxpayers who want to obtain a tax refund. You can download a return from the HMRC website, fill it in manually and send it by post to HMRC.
Now this is where things start to get interesting. You might think that if you complete the form and send it in to HMRC that you have submitted a tax return. After all, it looks and feels like a tax return. But the tribunal decided that in fact a voluntary tax return is not in fact a 'real' tax return.
That is because the tax legislation requires HMRC to issue a notice to file a return. Something filed without HMRC issuing a notice is not therefore a tax return. It gets more surreal. Because the 'tax return' is not a real tax return it must follow that an enquiry into that 'tax return' is not a valid enquiry because the 'tax return' is not a real tax return. So HMRC can’t amend the 'tax return' if they believe that it understates the tax due.
What a muddle! It shows yet again that even though self assessment has been with us for nearly 20 years there are still many quirks and anomalies which need to be ironed out. You may remember last year we talked about a case which showed that just because something was included in a tax return that did not necessarily mean that it was part of that tax return. There are others too numerous to talk about here and I am sure that yet more problems will emerge in years to come.
There was a way for HMRC to extricate itself from the muddle in this particular case. However by the time they realised what it was, the time limit for taking the necessary action had expired. You might think that the taxpayer got lucky, because in the end tax which was probably payable escaped assessment. But rules are rules and if the system falls down at times you can hardly blame the individuals who find that it gives them a better than expected result. After all, all too often we see cases where the system is weighted in HMRC’s favour.
For more information please contact Andrew Hubbard or your usual RSM contact.