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Where Taxpayers and Advisers Meet

Can HMRC make an Assessment if no tax to pay?

hombre contento
Posts: 13
Joined: Tue Oct 03, 2017 10:22 pm

Can HMRC make an Assessment if no tax to pay?

Postby hombre contento » Tue Oct 03, 2017 10:56 pm

I filed my Self Assessment return for 2014/15 in January 2016. In March 2017, I received a letter from HMRC asking for more information regarding the sale of a property owned jointly with my wife, which had been her PPR and therefore for which i had claimed PPR relief. I supplied the relevant information and, after some dialogue, HMRC have come back that they believe PPR relief was not due and therefore I should have recorded a large capital gain. However, there is no tax to pay as I have considerable capital losses carried forward to date. HMRC states that they have NOT instituted an Enquiry and don't plan to (presumably because they are too late to do so in any case). They state they have made a "Decision" under TMA 70 s28A, but yet the cover letter actually asks me to "please make a manual adjustment on your tax return?" As for as i understand it, that section relates to an official Enquiry so it's not valid to make a Decision if there is no Enquiry. So, I presume I can reject their request to change my tax return as they missed the window to launch an Enquiry. But what next? Can they make an Assessment for the same issue? I understand that the power to make an Assessment allows HMRC to collect a "loss of tax", but there is no loss of tax here as all that would happen would be a reduction of my losses carried forward. I understand the period for an Assessment is 4 years from the date of filing the tax return (i.e. Jan 2020). Presumably, if i run through the reduced capital losses in this period, there could be a loss of tax and they could make an Assessment in that year. But, if not, have we reached some kind of stalemate? HMRC have lost the ability to direct a change of my tax return because they missed the window to launch an Enquiry, but they equally cannot issue an Assessment as there is no tax to pay. Can they issue an Assessment about a reduction in carried forward losses that might result in a loss of tax in some future period?

SteLacca
Posts: 432
Joined: Fri Aug 07, 2015 2:17 pm

Re: Can HMRC make an Assessment if no tax to pay?

Postby SteLacca » Wed Oct 04, 2017 10:33 am

Why are you so reluctant to amend your Return?

If you force HMRC into an enquiry, then penalties based on the PLR (Potential Lost Revenue) will be chargeable. The PLR will be based on the capital loss that you are otherwise carrying forward to set-off against future gains (when in fact, those losses should be used against this gain). Given that HMRC have requested that you amend your Return, refusal would also constitute a deliberate action, meaning no chance of suspending penalties.

They make take the view that you are attempting to evade (rather than avoid) tax which is a criminal charge. This will also give them a 20 year window.

So I'll re-ask, why are you reluctant to amend the Return when you are not going to suffer an additional tax liability?

The Ivy Office Ltd
Posts: 333
Joined: Wed Aug 06, 2008 3:44 pm

Re: Can HMRC make an Assessment if no tax to pay?

Postby The Ivy Office Ltd » Wed Oct 04, 2017 11:53 am

There could be a problem with bringing capital losses forward where if you haven't reported that loss to HMRC. You have a four year window after the end of the tax year to report that loss. Losses prior to 5th April 1996 have no time limit for a claim

Is this what is causing the problem?

Dennis@taxesclear.co.uk

bd6759
Posts: 3010
Joined: Sat Feb 01, 2014 3:26 pm

Re: Can HMRC make an Assessment if no tax to pay?

Postby bd6759 » Thu Oct 05, 2017 12:00 am

Why are you so reluctant to amend your Return?

If you force HMRC into an enquiry, then penalties based on the PLR (Potential Lost Revenue) will be chargeable. The PLR will be based on the capital loss that you are otherwise carrying forward to set-off against future gains (when in fact, those losses should be used against this gain). Given that HMRC have requested that you amend your Return, refusal would also constitute a deliberate action, meaning no chance of suspending penalties.

They make take the view that you are attempting to evade (rather than avoid) tax which is a criminal charge. This will also give them a 20 year window.

So I'll re-ask, why are you reluctant to amend the Return when you are not going to suffer an additional tax liability?
Presumably because the window for amending his return expired on 31 January 2017, meaning the law does not allow him to do it?

HMRC cannot amend his return under s28A because they have not opened a valid enquiry. The OP is correct that the so called decision is not a formal notice under s28A.

HMRC can make an assessment under s29. They will assess the gain without giving any losses. On appeal, either the gain will be nil (if PPR is due), or losses will be utlised to reduce the gain to nil.

If there is a gain, the PLR will be 10% of the losses that were utilised.

Failure to co-operate in 2017 does not mean that the inaccuracy was deliberate when the return was submitted in 2015. But is is a factor in determining the reductions for disclosure.

SteLacca
Posts: 432
Joined: Fri Aug 07, 2015 2:17 pm

Re: Can HMRC make an Assessment if no tax to pay?

Postby SteLacca » Thu Oct 05, 2017 9:07 am

Failure to co-operate in 2017 does not mean that the inaccuracy was deliberate when the return was submitted in 2015. But is is a factor in determining the reductions for disclosure.
No, it doesn't, but a continuing failure to co-operate knowing that either gains have not been declared or losses that are not available are being carried forward to utilise in the future is a deliberate act.

I'm well aware of the time limits for amendment. However, if HMRC have invited rectification I see no issue with taking up the offer.

bd6759
Posts: 3010
Joined: Sat Feb 01, 2014 3:26 pm

Re: Can HMRC make an Assessment if no tax to pay?

Postby bd6759 » Thu Oct 05, 2017 4:38 pm

Sch24 provides for a penalty where (1) a document contains an inaccurac, and (2) where that inaccuracy was careless or deliberate. It is the behaviour which caused the inaccuracy that counts, not any subsequent behaviour.

The provision you are thinking about is para 3(2), which treats an inaccuracy, that was not originally careless or deliberate, as careless (not deliberate) if the inaccuracy is discovered after the document has been submitted but no steps are taken to tell HMRC about it.

Neither HMRC nor the person can amend a return after the deadline date. That is what the law says. HMRC cannot ask him to do what the law says he cannot do. In any event, the OP says that he has not made a chargeable gain (PPR relief is, in his opinion, due), therefore there is nothing for him to amend. PPR relief is due until HMRC can show that, on the balance of probabiltiies, it is not.

There is nothing wrong with the OP telling HMRC that he cannot do what they ask and invite them to follow the correct procedure. That is not unreasonable: in fact it would be seen as perfectly reasonable in the eyes of the Tribunal.

SteLacca
Posts: 432
Joined: Fri Aug 07, 2015 2:17 pm

Re: Can HMRC make an Assessment if no tax to pay?

Postby SteLacca » Fri Oct 06, 2017 9:03 am

I agree with everything that you say. My original reading of the OP suggested to me that the poster accepted HMRC's contention that PPR was not due.

Perhaps, on re-reading, I've assumed too much.

someone
Posts: 341
Joined: Mon Feb 13, 2017 10:09 am

Re: Can HMRC make an Assessment if no tax to pay?

Postby someone » Fri Oct 06, 2017 10:05 am

The OP says it was his wifes PPR, not his own. Unless it was his PPR at some point I don't think he gets the relief.

bd6759
Posts: 3010
Joined: Sat Feb 01, 2014 3:26 pm

Re: Can HMRC make an Assessment if no tax to pay?

Postby bd6759 » Fri Oct 06, 2017 8:25 pm

The OP says it was his wifes PPR, not his own. Unless it was his PPR at some point I don't think he gets the relief.
I passed no comment on the claim because we have absolutely no information on which to base a decision. HMRC do, and don't think it is due. The ball is in their court.

bd6759
Posts: 3010
Joined: Sat Feb 01, 2014 3:26 pm

Re: Can HMRC make an Assessment if no tax to pay?

Postby bd6759 » Fri Oct 06, 2017 11:57 pm

I agree with everything that you say. My original reading of the OP suggested to me that the poster accepted HMRC's contention that PPR was not due.

Perhaps, on re-reading, I've assumed too much.
In those circumstances I would also agree with you. If he accepted that there was a gain, he could simply agree with HMRC that he had a gain of X, utilised losses of Y and had losses of Z remaining to carry forward. No need for any formalities.


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