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Last Updated: Monday, 2 February, 2004, 08:48 GMT
Self assessment reality check
By Andrew Shaw
Partner at Kingston Smith chartered accountants

Andrew Shaw
A leading accountant provides some help for people perplexed by the Inland Revenue's self assessment rules.

What exactly is self-assessment?

It is the term given to the regime by which taxpayers - or their accountants on their behalf - are required to complete their tax returns, calculate the tax they owe and return this to the Inland Revenue.

How do I know if I should be completing a self-assessment form?

If you haven't received a self-assessment form, this is most likely to be because your tax affairs are dealt with under the Pay As You Earn (PAYE) regime.

However, if you have income that the Inland Revenue may not be aware of, you must contact them to request a form.

Even if you don't believe you ought to have been sent the form, you will still need to return it to avoid the risk of a fine

This will apply to you if, for example, you have inherited some money and have put this in a bank or building society account or perhaps sold a holiday home.

Who is likely to be caught in the self-assessment net?

Self-assessment affects a wide range of people.

  • The self-employed
  • Company directors
  • Employees who pay higher rate tax
  • People with complicated tax affairs who pay higher rate tax

If the Inland Revenue has sent you a self-assessment form you are obliged to complete it.

Even if you don't believe you ought to have been sent the form, you will still need to return it to avoid the risk of a fine, along with a letter explaining why you believe that you don't need to complete the form in future.

When are the deadlines for self assessment?

31 January 2004 is the very final date for your form to be at the Inland Revenue to avoid penalties and fines.

If you wanted the Inland Revenue to calculate what you owe then you needed to have returned your form by the end of September.

However, people can fill out their self-assessment tax form online and have what they owe calculated right up until the 31 January deadline.

What happens if I don't return my form on time?

Anyone whose form is not received by 31 January will be subject to a 100 fine.

All in all, some 900,000 people fail to submit their forms by the January deadline and as a result are hit with a fine.

Further penalties could follow. An additional surcharge of 5% of the unpaid tax is added if you have not paid by 28 February.

If the inspector believes that something more fundamental may be wrong with your form, he will then start to make enquiries

If it still remains unpaid more than six months after it was due, another 5% surcharge is added and a further 100 fine is incurred.

What happens if I have not paid in previous years but own up this time around?

You should request and complete a self-assessment form for this tax year (2002/03) and include with this a letter informing the Inland Revenue of whatever it is you have not told them in previous years.

Remember, the self-assessment form is a complete declaration - you must tell the Inland Revenue everything on this form, including your salary.

The Inland Revenue will charge you interest and surcharges from when the tax was due, so it is better to come clean sooner rather than later.

What will happen if I make a mistake on my self assessment tax return?

That rather depends on the sort of mistake you have made.

If it is something obvious, such as an arithmetical error, the inspector will either correct the mistake or contact you for clarification.

If the inspector believes that something more fundamental may be wrong with your form, he will then start to make enquiries.

How frequently are the details given on a self-assessment form investigated and how is this usually done?

The Inland Revenue checks out a relatively small percentage of returns each year, although this adds up to several hundred thousand enquiries.

If you are selected for investigation, you will receive a letter saying that the Inland Revenue is making enquiries.

This is most commonly regarding a specific aspect of your return, but in some instances, they may ask for your complete books and records.

There are relatively few cases where the Inland Revenue carries out a full investigation.

On Tuesday, the Commons Accounts Committee revealed that the Inland Revenue only carries out about 400 serious fraud investigations annually.

Once an investigation is underway it can take anything from a few weeks to several months to complete.

As a rule of thumb, the Inland Revenue has 12 months after a self assessment form has been received to open enquires.

However, forms received late can be open to investigation for a longer time span.

The views expressed are solely those of Mr Shaw and are for general information only.

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