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Mark McLaughlin highlights an important change to the filing of self assessment returns for 2008 and later years.

Mark McLaughlin

31 October 2008

A further date in the tax calendar will become important for some taxpayers and practitioners from 2008. That date is 31 October. Whereas previously a single filing deadline of 31 January generally applied to personal tax returns under self assessment, following changes introduced in Finance Act 2007 the tax return filing date for 2007/08 and later years depends on whether the return is filed electronically, or is submitted in non-electronic format.

For electronic tax returns, the normal filing date (from 6 April 2008, for 2007/08 tax returns and returns for later years) continues to be no later than the following 31 January. However, non-electronic tax returns (for simplicity referred to here as ‘paper’ returns) must normally be submitted to HM Revenue & Customs (HMRC) no later than 31 October following the end of the tax year (TMA 1970, s 8(1D)).

There are exceptions to this 31 October deadline. If HMRC issue a notice to file the tax return after 31 July but before 31 October in the following tax year, paper returns must be filed within three months from the date of the notice (nb. the filing date for electronic returns remains unchanged). If HMRC do not issue a notice to file a tax return until after 31 October in the following tax year, the return must be filed within three months from the date of the notice. This applies whether the return is electronic or non-electronic (s 8(1F), (1G)).

Permitted ‘paper’

An ‘electronic return’ for these purposes is broadly one which is capable of passing through HMRC’s electronic gateway, although HMRC have statutory powers to prescribe what constitutes an electronic return. HMRC had originally accepted the recommendations of Lord Carter’s review of HMRC’s online services that computer-generated ‘paper substitute’ returns (ie. paper returns generated using commercial software) should not be accepted, from 6 April 2008 in respect of 2007/08 and later years’ returns. In HMRC’s document ‘Paper substitute returns for income tax SA – HMRC’s position’  (http://www.hmrc.gov.uk/budget2007/substitute-returns.pdf), the justification given for this policy is that: “The resultant re-keying of these returns is wasteful and introduces errors, thus reducing data quality and potentially leading to additional - unnecessary - contact between agents and the department.”

However, following representations from professional bodies, HMRC subsequently announced some relaxations in this proposal. First, for registered pension schemes set up under trust, non-resident companies liable to income tax and a very small number of other taxpayers for whom facilities to file online are not yet available, HMRC will allow extra time beyond the statutory deadline of 31 October (i.e. until 31 January) to file without incurring a late filing penalty.

Second, substitute paper returns identical to the official form (which HMRC anticipate would be based on pdf versions of the tax return downloaded from the HMRC website) will be accepted in the following cases:

• “…for the very small number of SA customers for whom facilities to file online are not yet available…for technical or operational reasons” - HMRC consider that this category accounts for less than one per cent of taxpayers required to file self assessment returns (although HMRC’s initial guidance does not identify those taxpayers considered to fall within it); and
• Specified categories – registered pension schemes set up under trust and non-resident companies liable to income tax, as mentioned above.  

HMRC state that such returns will be accepted whether the pdfs are downloaded and overprinted direct from the website, or downloaded, printed, and then filled in by hand, or incorporated into commercial software before printing. However, the latter alternative is intended to be used by those taxpayers for whom online filing facilities are not yet available.

Taxpayers in general

Although not originally intended for general use, the filing of paper returns prepared using HMRC downloaded pdfs incorporated into commercial software is available to taxpayers in general. However, the 31 October filing deadline for paper returns will apply to them (http://www.hmrc.gov.uk/budget2007/carter.htm).

The above facility applies to self-assessment returns for individuals, trustees and partnerships of individuals. At the time of writing (September 2007), the ‘ban’ on other computer-generated paper returns does not extend to other returns or forms (eg. tax repayment claim form R40), although this is unlikely to remain the case indefinitely. HMRC are currently preparing detailed guidance and specifications, but it seems likely that the above relaxations will only be temporary. It is hoped that HMRC will make this information available in good time for practitioners and taxpayers to prepare themselves fully for the changes.

HMRC state that “The great majority of software products currently providing for paper substitute outputs already enable online filing.” Practitioners who have not already done so should take the opportunity to check that the software they are using is capable of filing tax returns online. Otherwise, they are faced with the prospect of filing their clients’ tax returns up to three months earlier than usual. HMRC’s own online tax return facility is being expanded in time for the ban on paper substitutes, to include online amendments to returns. The availability of additional pages such as Capital Gains Tax and foreign income is also being considered.

HMRC enquiries

Another forthcoming important change to self assessment for personal tax returns is the linking of the time limit for HMRC enquiries into tax returns to the date on which the return was filed. For returns in respect of 2007/08 and later years, the time limit for HMRC to enquire into a tax return is generally twelve months from day following that on which the return was delivered. However, if the return (or amendment) is submitted after the filing date, the time limit for an enquiry becomes one year from the date on which the return (or amendment) is filed, plus the period to the next ‘quarter day’ (ie. 31 January, 30 April, 31 July or 31 October) (TMA 1970, s 9A).

The new rule also applies to most company tax returns for accounting periods ending after 31 March 2008  However, the enquiry window for groups of companies other than ‘small’ groups (ie as defined in Companies Act 2006, s 383(2)) remains unchanged, as does the enquiry deadline for returns submitted late (FA 1998, Sch 18 para 24, as amended).

Practitioners should therefore be prepared for a potential shift in work patterns, in respect of those clients who will prefer to submit their tax returns earlier in the tax year, to achieve certainty against the possibility of HMRC enquiry sooner.