Taxpayers need to be extra careful when preparing their tax returns or face an increased risk of being investigated by HM Revenue and Customs (HMRC).

The warning from business and financial advisers Grant Thornton comes as HMRC staff threaten to strike during the annual last-minute scramble to file self assessment forms.

Gary Ashford, tax investigations director at Grant Thornton, commented, “Self assessment is becoming increasingly complicated following recent tax cases and the growing complexity of tax legislation.”

He expects a sharp increase in the amount of investigations conducted by HMRC over next year.

Offshore account initiative 

Ashford believes that with the deadline having passed for the first ever tax 'amnesty' for offshore bank accounts (Offshore Account Disclosure Initiative), HMRC will be carefully combing through individual tax returns to check that the accounts disclosed as part of the 'amnesty' are also included on the 2007 return.

Ashford says that HMRC are currently reviewing the disclosures made as part of the offshore account initiative and it is widely expected that the taxman will test out its newly merged criminal powers on some of those who did not disclose under the 'amnesty'.

“Therefore, anyone who still has some offshore funds to reveal would be wise to make a disclosure now before HMRC descends on them," he adds.

He continues, "Regardless of whether you've an offshore account or not, individuals need to make sure their tax return is correct and sent in on time or face the consequences, whether they be penalties, or, in more extreme cases, investigation."

Government shortfall

The total number of £100 automatic late filing penalties dished out for those self assessing in 2006/07 was up nearly 6 per cent on 2003/04 levels in HMRC's latest accounts and is expected to total more than £40 million.

Yields from self assessment compliance enquiries have doubled since 2003/04 with HMRC expecting to pull in more than £1 billion from compliance enquiries in 2006/07.

Ashford says that the Government racked up a shortfall of £7.8 billion in December last year so HMRC's inspectors will be tasked with looking closely for any errors on submitted tax forms, which could prompt penalties or investigations and result in the collection of additional revenue.

He urges individuals to take extra care when filing their forms owing to this increased scrutiny.

Ashford adds that one of the reasons for the increased effort and yield return is a three year Government initiative, launched in March 2004 and costing £115 million, in which HMRC committed to recover £2 billion over the three years 2004/05 to 2006/07.

He says that we will have to wait for the latest accounts from HMRC to confirm performance, but that at a glance it would appear the taxman is on track.

Ashford concludes, "Don't forget that even if you have not been sent a tax return by HMRC, you are obliged to tell them if you have acquired a source of income, for example: rental income, or income from investments or self employment, or if you have made a capital gain, which makes you liable to tax.”

Such notifications should have been sent to HMRC by 5 October 2007 but Ashford says that a late notification is better than no notification at all.

Automatic penalty 

Francesca Lagerberg, head of Grant Thornton's national tax office, warns that there is an automatic £100 penalty if returns are not received by 1 February, limited to the tax outstanding.

In addition, HMRC can ask the Appeal Commissioner to impose hefty fines of £60 per day until the outstanding bill has been paid.

Last year, HMRC issued 46,084 daily charges, four times the amount issued in 2003/04, amounting to an estimated £71.6 million.

To help meet the deadline Lagerberg offers the following tips:

• Make sure you sign the return. Forgetting to sign is one of the most frequent errors on hard copies of the return and can lead to a missed deadline.
• Always identify anything contentious in the additional information box, it may save an enquiry into the return.
• If you are planning to file online, you should register immediately, as there is a delay while you are sent your user details and password. HMRC recommends registering by 22 January - so it may be too late for some already.
• Remember to make an entry in box 19 if you want to receive a refund of any tax overpaid in the year. You can choose to have your refund paid directly to charity and you will then receive tax relief on your refund. If you do not claim a refund, HMRC will keep it as a credit on your account.
• You must complete Capital Gains Tax pages either if the disposal proceeds exceed £35,200 in total, your taxable gains exceed £8,800 (the annual exempt amount for 2006/07), losses are being offset against gains totalling more than £8,800 (before the offset), claims or elections are being made or if a capital gains tax liability arises on your main residence.
• Keep a log of all gift aid payments made in the year and anything you have ticked the gift aid box on i.e. sponsorship forms. If you are a higher rate taxpayer you will be due relief.
• If you find you have not got all the extra pages you need to fill in your return you can obtain these forms by ringing the order line on 0845 9000 404, but if you wish, you can download them from the Internet using the Self Assessment Section of HMRC's website.
• Get hold of copies of all your income and benefits. If you are an employee you should have been sent a P60 by your employer setting out your salary and tax paid in the year and possibly a P45 if you changed jobs during the tax year. If you have any taxable benefits, like a company car, your employer should have sent you a Form P11D listing those you need to report.
• In calculating your tax liability, make sure that you have taken into account any outstanding tax which is being collected for a previous year through your tax code.
• Don't forget that you may have income on which you have a tax liability, even though the income has not yet been paid to you. This might happen, for example, if you have an interest in a trust that you have created, or where you are a beneficiary of an Estate of a deceased relative. The Executors should be able to give you this information.
• Income tax is payable in instalments. Apart from the balancing payment for 2006/07, which is due on 31 January, you may also have to make the first interim payment for 2007/08. This will normally be based on your income tax liability for 2006/07, but you can apply to reduce the interim payment if you have good reasons for believing that the tax liability for 2007/08 will reduce from the previous year.
• You may be entitled to extra relief if your employer has reimbursed you for business mileage at a lower rate than that allowed in the approved mileage allowance payment (normally 40p per mile for 2006/07). If you receive less than this, you can claim the difference as a business expense, always assuming that the business mileage was wholly, exclusively and necessarily incurred as part of your employment.
• Those who have overpaid tax during 2006/07 will benefit from filing their self assessment form. This particularly appeals to those who have savings taxed at source and those who have spent time abroad.
• Finally if you get into difficulty, you can ring HM Revenue and Customs Helpline on 0845 9000 444, or visit the website at the link below.

Lagerberg concluded, "Don't forget that even if you haven't been sent a self assessment form, you will still have to pay tax if you have any untaxed income or gains."

Related links

• Grant Thornton
• HM Revenue and Customs

Share this: digg   del.ico.us   Newsvine   Reddit   Furl   technorati   Facebook

Comments (0)

Subscribe to this comment's feed

Name (required)

Email (required) (not published)

Website

Title

POST

By posting on this website you are agreeing to abide by our website comment policy and all posts are subject to the approval of the website editor. We will remove posts that contain offensive or threatening language, personal attacks on the writer or other posters, posts that are off topic and posts that are considered spam or specifically used to promote any commercial products or services. Any poster who repeatedly contravenes the policy will be banned from posting on the website.