Finance Act 2016, which became law on 15 September 2016, contains provisions designed to help clarify the time allowed for making a self-assessment.
The time limit is four years from the end of the tax year to which the self-assessment relates. This is the same time limit as for assessments by HMRC. The provisions will have effect on and after 5 April 2017, although there are transitional arrangements for years previous to this, as follows:
- for tax years prior to 2012/13, taxpayers have until 5 April 2017 to submit a self- assessment;
- for 2013/14, the deadline is 5 April 2018;
- for 2014/15, the deadline is 5 April 2019; and
- for 2015/16, the deadline is 5 April 2020.
The four-year time limit applies to everyone and those that are currently outside the time limit have notice to put in their self-assessment by 5 April 2017.
The concept of 'finality' is a key feature of the self-assessment system. The time limit for HMRC to make enquiries into information given in a return is generally linked to the date it was submitted. For personal tax returns delivered by the filing date (generally 31 January following the end of the tax year), the enquiry window closes 12 months after the delivery date. Once this date has passed a taxpayer can usually assume that his affairs for that year are final.
However, finality of a return within the above timeframe can be jeopardised if HMRC discover a loss of tax. In cases of where there has been careless or deliberate behaviour resulting in the loss of tax, the normal four-year window may be extended to 20 years.
Many taxpayers are not aware of HMRC's discovery powers and even where they are aware of the possibility of discovery outside the enquiry window, they need to be aware that the subject of disclosure is itself not entirely free from doubt and may still be in a state of evolution.
The basic condition for a discovery assessment to make good a loss of tax is that an HMRC officer discovers income or gains which have not been assessed, or an insufficient assessment, or an excessive tax relief. However, this power is restricted in its application. Firstly, if the taxpayer has delivered a tax return containing an error or mistake, HMRC cannot make a discovery assessment if the return was based on the practice generally prevailing when it was made. Secondly, HMRC cannot make a discovery assessment unless one of the following conditions is satisfied:
- the loss of tax, etc. was caused by careless or deliberate behaviour by the taxpayer or a person acting on his behalf; or
- when HMRC can no longer enquire into the return, the officer could not have been reasonably expected from the information previously available to be aware of the matter giving rise to the discovery.
The taxpayer has the right of appeal against a discovery assessment on the ground that neither of the above conditions has been satisfied.
Taxpayers are required to exercise their judgment in providing the necessary level of disclosure. HMRC encourage submission of the minimum necessary, yet warn that 'Information will not be treated as being made available where the total amount supplied is so extensive that an officer 'could not have been reasonably expected to be aware' of the significance of particular information and the officer's attention has not been drawn to it by the taxpayer or taxpayer's representative.'
In the case of returns where discovery is a possibility, taxpayers must give careful thought to the question of disclosure.