Self Assessment and voluntary restitution

[em91]

For a couple of reasons I was late filling a self assessment return for two old tax years:

1) Unaware of the liability (in each year there was a transaction related to share options that unknowingly resulted in the need for a self-assessment return).
2) HMRC sending correspondence to an old address (they had two addresses and were using the old one).

This was realised a few years later and returns filled but they seem not to have been processed. Now almost 2 years later they have sent a letter that notes the 6 year time limit has passed (I believe in April last year for the first and April this year for the second). The letter they have sent suggests voluntary restitution for the amount calculated and included in the returns (+ interest). There's not been any question that any of this was deliberate and I can understand why they may ask for it. I'm curious though what it really means and more importantly than that, what the consequences might be? Does anyone have experience of anything similar?

[bd6759]

It means HMRC do not think that they have the ability to make an assessment to legally recover the tax from you.
It’s a matter of conscience whether you choose to do so. If you don’t, they may reconsider their view on whether they can assess. If they do, they will also consider penalties.

A crucial point here is whether HMRC gave you notice to file a return. You say “unknowingly resulted in the need to file”. The only requirement to file is by being given notice to do so.

[em91]

On the question of whether there was a notice to file, I think this is where the fact HMRC was sending correspondence to the wrong address comes in - I never received one which was a source of the delay in filling. In fact I don't think penalties are applicable where the wrong address was used and maybe that even applies to assessing as well (in this case is it a 6 year limit or 20)? I'm not 100% sure on either of these points though but I guess they could try nevertheless.

[bd6759]

HMRC can send a notice to your last known address, and it will deemed to be served in tug. If a notice was served, you would have incurred penalties for a late return. It seems that you were not served if you haven’t incurred Kate penalties.

That means you had an obligation to tell HMRC that you had a liability, and the deadline for telling was 5 October following the end of the year. If you didn’t, this is called a failure to notify. The time limit for HMRC making an assessment where there is such a failure is 20 years. No need for careless or deliberate.

That is why their request for voluntary restitution is curious.

[em91]

I guess this bit I am unsure about:

"HMRC can send a notice to your last known address, and it will deemed to be served in tug. If a notice was served, you would have incurred penalties for a late return."

Looking online in the past I found references like this:

https://www.moorethompson.co.uk/hmrc-loses-tribunal-after-posting-correspondence-to-wrong-address/

In my case the circumstances are different (not a directorship) but my reading of the gov.uk guidance at the time was that a return was not required for the same reason (I also thought all tax had been collected through PAYE). It was only a few years later when I thought a return was needed in a subsequent year (based on the gov.uk guidance) that I contacted HMRC to request one and found out about the earlier years, which I think this gives the same grounds for claiming a "reasonable excuse" for them.

TBH what I expected at this point was for HMRC to charge the earlier years + interest but without penalties which is consistent with the link above and others I found at the time. The only curious thing that arises now is because HMRC have taken so long to process the returns.

As an aside, looking at the voluntary restitution information published by HMRC I'm not sure they would normally seek penalties at this point:

https://www.gov.uk/hmrc-internal-manuals/enquiry-manual/em3980

It would make some sense to me that voluntary restitution may be offered without penalties, but that penalties could be added on later if the offer is refused (it gives an incentive to accept the offer). However in my case I wonder if that incentive is even there, if penalties were never in play in the first place?

I should perhaps say that I fully intended to pay the tax + interest and have simply been waiting on HMRC to confirm the final amount. That they have come back with voluntary restitution for the same figure is therefore ok too. I'm only asking out of curiosity about how the different rules/interpretations interact. I can imagine other possibilities - for example you could try to argue that if you decline voluntary restitution it casts doubt on whether you were motivated by a "reasonable excuse" for not filling at the time, and so attempt to claim penalties. I don't think this works though, since it's more plausible to say someone doing that was just making a choice based on the options available to them at the time. I realise this is probably a very unusual set of circumstances so it's a matter of opinion, but it's the reasoning I'm interested in.

[pawncob]

You don't say how much tax is being requested. If you decline to make an offer, they're more likely to consider assessment if the sum is worth the hassle.

[bd6759]

It seems that HMRC believe that you were given notice to file. You don’t want to shatter that illusion by highlighting that they didn’t send the notices to the correct address, thus confirming that they weren’t properly served.

That means they can only assess if the tax liability was brought about deliberately. That is a high bar, so they aren’t bothering.

I’m really surprised that you don’t have late filing penalties.

Thank them for their kind invitation, but decline it. If there are penalties, pay them.