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Busy Practitioner by Mark McLaughlin ATII TEP

This article outlines some key deadlines and practice points for accountants and tax practitioners.With the 31 January 2003 tax return deadline fast approaching, practitioners may be facing the dilemma of whether to include estimated or provisional figures on some clients’ tax returns. N.B. An ‘estimated’ figure is broadly one that the taxpayer does not intend amending later. A ‘provisional’ figure is one that will be replaced by the correct figure when it becomes available.

Using estimated figures

Estimates may be considered if there is inadequate information to arrive at a reliable figure (e.g. due to the loss or destruction of records) or if there is inadequate information to arrive at a precise figure, but a reliable estimate can be made (e.g. where the private proportion of motoring expenses has been calculated on the basis of the detailed records of a representative sample period).

Estimates that may not be very reliable should be identified and, where appropriate, the return should include an explanation in the ‘white space’. However, the Revenue’s Tax Return Guide (2002) states: ‘But if you are including an estimate which, while not a precise figure is sufficiently reliable to enable you to make an accurate tax return, there is no need to make specific reference to it’.

Using provisional figures

Provisional figures can be entered on tax returns, based on the principle established in Dunk v General Commissioners of Income Tax for Havant and Commissioners of Inland Revenue [1976] 51 TC 519 that if the taxpayer has ‘done his best’ to obtain final figures, but without success, using figures on a provisional basis should be acceptable. This decision pre-dates self-assessment, but the Revenue still appear to recognise the principle (Investigation Handbook, 5064).

The Revenue announced a change of view concerning provisional figures in income tax returns in a Press Release dated 25 January 2002, possibly following challenge (see ‘The Appeal That Never Was’ by Robert Maas in Taxation, 8 November 2001). Its previous view was that provisional figures could be used if:

• the existence of the estimate was drawn to their attention i.e. by ticking box 23.2 (on the 2002 return);

• describing in the ‘white space’ which figures were provisional;

• explaining why final figures could not be given; and

• providing a date on which those figures were expected to be available.

Following their change of view, the Revenue will not send back a return which does not include an adequate explanation of why a provisional figure is needed, or which does not give a date for supplying final figures. However, the absence of this information from the return will be a factor taken into account by the Revenue when deciding whether to enquire into it.

When entering provisional figures, the relevant boxes of the return should be completed as properly as possible. The Revenue’s Self Assessment Manual (at para 1.45) warns that ‘There should be no short cuts because the figures are only provisional. A restriction of the number of boxes to be completed only applies where it is “impossible” to provide the figures’.

Examples of ‘impossible’ include accounts figures in the year of commencement where the first accounting period ends after the filing date, or if the first accounting period ends ‘close to’ the filing date, i.e. within three months of the filing date (Tax Bulletin issue 37, October 1998). The taxpayer should generally provide final figures as soon as they become known.

Notes of caution

It is recommended that the following points are noted.

• Practitioners should avoid habitually accepting estimated figures from clients. Revenue staff are instructed (see Self Assessment Manual, para 1.45) that ‘Where it appears that a particular agent is filing a significant proportion of returns with provisional or estimated figures, you should inform the Compliance Manager’.

• Provisional figures can result in an incorrect return for which a penalty may be charged, e.g. if the taxpayer does not take reasonable care in calculating the provision, or if final figures could have been obtained before the return was submitted to the Revenue.

• In the Revenue’s view ‘If a taxpayer has made little or no effort to obtain the final figures before the filing deadline we would argue that a key element of the ‘Dunk’ principles is absent and the taxpayer has failed to comply with the notice to make a return’ (Tax Bulletin Issue 37). Clients should therefore be cautioned against using provisional or estimated figures simply because it is convenient.

• In Tax Bulletin (Issue 53, June 2001), the Revenue indicated that a return containing unjustified provisional figures should be returned to the taxpayer (or agent) as not satisfying the filing requirements of TMA 1970, s 8. This includes one arising from pressure of work on the taxpayer or his agent or the complexity of a taxpayer’s affairs.