6 - Tax Compliance & Self Assessment Flashcards
What taxes are covered by self assessment?
- Income tax on all sources of income;
- CGT;
- Class 2 and 4 NICs.
What are the deadlines for sending in your self assessment tax return?
- Online: 31st January following the end of the tax year (same day as the final balancing payment).
- Paper: 31st October following the end of the tax year.
Self Assessment
What is payment on account?
Payment on account is for self employed people (or people who pay most of their tax via self assessment, as opposed to PAYE).
You pay two installments in advance based on half of the prior years tax bill, then the balancing payment (based on your actual tax bill for the year) on 31st January.
Self Assessment
What are the payment dates for payment on account?
The advance dates are 31st January (in the tax year, so 2 months before the tax year ends) and 31st July after the tax year ends. You pay half of the previous years tax bill.
Then on the next 31st January you pay a balancing payment including income tax, class 4 NICs, student loan repayments (etc.) less the advance payments you’ve already made.
Self Assessment - Payment on Account
What if your income goes down so the advance payments are too high?
It might be possible to apply to have the advanced payments reduced if you can provide income forecasts before the payments are due.
In general though you will end up paying based on the previous years tax bill and will receive a refund on 31st Jan.
Paying Tax
When is interest charged or payable on tax owed?
- You have to pay interest and surcharges if your tax payments are late;
- HMRC will pay you interest on any overpaid tax;
- You also get charged interest if you requested a reduced payment on account and it wasn’t justified.
What penalties might be charged by HMRC?
- Fixed penalties for filing late;
- Variable penalties for not keeping adequate records;
- 5% surcharge for unpaid tax over 31 days after the balancing payment is due.
How do HMRC enquiries work (and timing)?
HMRC enquiries into your tax return can be either random or targetted.
They will start within 12 months of you filing your tax return.
Therefore one year after sending your tax return you will know that it is final.
[Note that HMRC can launch investigations into your tax that go back several years into the past, but that’s a separate issue!]
PAYE processes and dates
3 form names
We’ve had real time reporting since October 2013.
Your employer calculates payslips, deducts tax and at the end of the month sends the tax and NICs to HMRC.
At year end (by 6th July after tax year) they produce the P11D or P9D for HMRC.
By 31st May (after the tax year end) they send you your P60.
PAYE interest charged and penalties?
HMRC will charge penalties to employers for late filing, and interest and penalties for late payment.
Which is illegal, tax evasion or tax avoidance?
What are a financial advisers obligations?
Tax evasion is illegal, avoidance is just using legal methods to reduce your tax bill.
Money laundering regulations mean that you are obliged to report any form of tax evasion. Otherwise by managing their finances you are effectively managing criminal proceeds and guilty of money laundering.
What have HMRC implemented to encourage the reporting of unpaid taxes?
They announced an amnesty where you would be fined only 10% of unpaid tax.
Later there was a second amnesty with a 30% penalty.
On 6/4/16 they introduced an online portal to report unpaid taxes.
What processes does HMRC have for dealing with avoidance schemes?
Tax avoidance schemes (legal ones) must register with HMRC and are given a number, which allows them to easily identify and monitor their usage. You have to use this number on your tax return so they can see you have used a certain scheme.
Promotors of these schemes must provide client lists to HMRC quarterly.
The General Anti-Abuse Rules (GAAR) were introduced in July 2013.
