Making Tax Digital – Simple Assessments

HMRC’s vision of the future is that all dealings with tax payers and agents will be digital.

As a first step in this process, the 2016 Finance Bill contains clauses for the introduction of a new system of Simple Assessment for taxpayers with “straightforward” affairs. Straightforward means where HMRC already hold all the information they need to calculate an individual’s tax position without the need for any further information to be supplied on a tax return. The idea is that this will remove many people from the self-assessment system.

The new provisions will enable HMRC to issue these taxpayers with an assessment (a simple assessment) showing the information which has been used to calculate the tax and the amount of tax payable. It will then be up to the taxpayer to tell HMRC if they think the assessment is incorrect. HMRC will then confirm, amend or withdraw the simple assessment. If you cannot reach agreement you will have a period of 60 days to lodge a formal appeal against the assessment. However, HMRC hope that it will be possible to settle most queries at the query stage without the need to go through the formal appeal process.

The system applies from the 2016/17 tax year onwards, which means that the first simple assessments will start to be issued in April or May 2017. Simple assessment is intended to cover income and capital gains, although how HMRC will obtain the information to enable them to correctly assess capital gains tax due on things like shares which have been held for many years, is yet to be seen.

The payment dates for the tax assessed under simple assessment will be the same as under self-assessment i.e. 31 January following the end of the tax year. In addition, the same interest and late payment penalties regime which currently applies to self-assessment is also likely to apply to simple assessment, although the legislation is not yet in place.

HMRC’s press release on simple assessment states that “the main benefit for individuals will be an improvement in the customer experience. In particular these customers no longer need to complete a Self-Assessment tax return.” It goes on to say that “The Simple Assessment will reduce the need for customers to contact HMRC because they are experiencing difficulties completing their tax return” and “this measure will reduce the number of customers who incur a penalty or have to pay interest because they have not sent a return in on time”.*

We are aware of many instances at the moment where HMRC are unable to correctly tie up PAYE and self-assessment records for our clients, resulting in incorrect tax calculations and, in some cases, incorrect tax repayments being sent to clients. Undoubtedly, HMRC will have improved their systems by next year. However, we would suggest that anyone who receives a simple assessment next year should check it carefully to make sure it is correct rather than just assuming that it is.

If you have income or capital gains which are not included on the simple assessment, the onus is on the taxpayer to ensure that this income is declared to HMRC in the normal way. Non-declaration will result in the same exposure to penalties as under the self-assessment regime.

Trying to bring simplicity to one of the most complex tax codes in the world is laudable and time will tell if simple assessment will prove to be so simple.

If you would like any further advice, please contact Dorothy Johnston.

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