One of the fundamental principles of self-assessment is that the taxpayer should get “finality” within a set period of submitting his tax return and tax computation.
This period is normally 12 months from the filing deadline, during which the taxpayer can amend the return, and HMRC can open an enquiry. HMRC can also raise discovery assessments within a much longer period.
Where there is an obvious error or omission, or anything else that the officer has reason to believe is incorrect in the return, HMRC can correct it. They have used this procedure to adjust for the omission of the HICBC (see our newsletter 12 February 2015). The taxpayer has 30 days to reject the HMRC correction, otherwise it will stand.
HMRC should make any such corrections within nine months of the submission date on the return (TMA 1970 s 9ZB(3)), but they are now using this correction power for tax returns for 2016/17 and 2017/18 which were affected by the online filing exclusions.
Since April 2017 the number of exclusions for online filing has escalated (see our newsletter 27 April 2017), and HMRC has recalculated the tax due for up to 40,000 returns for 2016/17, and for least 15,000 returns for 2017/18, so far. Where the HMRC adjustment reduces the tax payable for the year, the taxpayer will be quite happy. But what if it generates a tax underpayment?
Where the 2016/17 return was filed by the due date of 31 January 2018, any tax demanded following the recovery performed in November 2018 is not due because the correction was made more than nine months after the return was filed. If your client paid the extra tax on request of HMRC, they can ask for it back.
The recalculation exercise for the 2017/18 returns was performed on 28 October 2019, so that will also be out of time for all 2017/18 returns except those filed on or after 29 January 2019. So for those taxpayers should not have to pay any further tax demanded.