IR160: Enquiries Under Self Assessment
How Settlements are Negotiated
This leafflet explains what happens at the end of an enquiry into your Self Assessment tax return
When we start an enquiry it does not mean that we think you have done anything wrong. We check some tax returns to make sure they are right or if we need further information to understand the figures. We also randomly select tax returns for enquiry to ensure the system is operating fairly.
The enquiry might be concerned with one or more particular aspects of your tax return or the whole of it. If nothing is wrong, we will not make any amendments to your Self Assessment tax return. If our enquiry reveals that you made an innocent mistake, we will
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tell you in writing that we have completed our enquiries, and
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amend your Self Assessment to the correct figures.
You will not be liable to a penalty but we charge interest on any additional tax that may be due. You could also incur a surcharge if you pay late.
If our enquiry reveals that you paid too little tax, or paid it late, as the result of fraudulent or negligent conduct, including sending in your tax return late without a reasonable excuse, you may be liable to a penalty.
If you claim tax credits and our enquiry shows that your award may have been wrong we will review that award.
We can use formal procedures to close the enquiry and amend your Self Assessment to bring the additional tax into charge on your next Statement of Account. These statements will include
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interest on the additional tax due from you, and
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any penalties or surcharge that we formally determine are appropriate.
However, where penalties are involved, we will probably ask you to make an offer to pay an amount including interest, and penalties or surcharge, to settle the sum due from you. This leaflet describes the procedures involved.
Do I have to co-operate with your enquiry?
We would welcome your co-operation with our enquiry and in establishing the correct tax and National Insurance. The extent to which you co-operate with us and provide us with information is entirely a matter for you. However, in making your decision, you may wish to get help from a professional adviser. If you do, your adviser can accompany you to all meetings held with us. He or she may correspond with us on your behalf.
We make notes of all meetings and can give copies of the notes to you or your adviser if you ask for them.
In calculating the amount of any penalty, we take into account the extent to which you have been helpful and freely and fully volunteered any information about income or gains, which were omitted or understated.
When we are ready to close our enquiries we will normally ask you and your professional adviser, if you have one, to attend a meeting with us.
We will tell you
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what we have found
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the amount of tax we think you owe, and
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how far we believe the late payment or underpayment of tax is due to fraudulent or negligent conduct on your part.
We will listen to any explanations you or your professional adviser give. We will then tell you the maximum amount of penalties we think could be determined under formal procedures and the amount of interest and possibly surcharge that you could pay.
Finally, we will explain that it is normal to ask someone in your position to offer to pay one sum for tax, interest, and penalties or surcharge. We will then ask you if you are prepared to make such an offer. If you ask, we will suggest an amount.
How do you work out the figure you think I should offer?
We add together the tax, the interest on that tax, any surcharge and an amount for penalties. We calculate interest from the date the tax should have been paid up to the date you actually paid or will pay it.
How do you work penalties out?
The penalty figure will be a percentage of the tax underpaid or paid late. In law it could be 100% of that amount, but in practice it is always less than that in a negotiated settlement.
We start with a penalty figure of 100% and reduce it by an amount which depends on
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whether you disclose all the details of your tax affairs
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how well you co-operated over the whole period of the enquiry, and
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the seriousness of the offence.
Disclosure - A reduction of up to 20% (30% for full voluntary disclosure where there was no fear of early discovery by us).
If you make a full disclosure at the time we first open the enquiry, you will get a considerable reduction in the amount of the penalty.
If you deny until the last possible moment that anything is wrong, you will get little or no reduction for disclosure.
Between these two extremes a wide variety of circumstances is possible. We will consider how much information you gave, how quickly, and how that contributed towards settling the enquiry.
Co-operation - A reduction of up to 40%.
If you supply information quickly, attend interviews, answer questions honestly and accurately, give all the relevant facts and pay tax on account when it becomes possible to estimate the amount due, you will then get the maximum reduction for co-operation.
If you put off supplying information, give misleading answers to questions, do nothing until we take formal action against you and generally obstruct the progress of the enquiry you will not get any reduction at all.
Between these extremes there is a wide range of possible circumstances and we will look at how well you have co-operated with the enquiry.
Seriousness - A reduction of up to 40%.
Your actions may amount to a premeditated and well-organised fraud or something much less serious. We will take into account what you did, how you did it, how long it went on and the amounts of money involved. The less serious the offence, the bigger the reduction in the penalty.
How does this all work in practice?
If, for example, we think that the reduction for disclosure is 15%, for co-operation 30% and for seriousness 20%, the total reduction will be 65%, making the expected penalty 35% (100% -65%).
The calculation of what we think you should offer might look like this.
Tax underpaid Interest, say Penalty at 35% Total |
£ 10,337 4,165 3,618 18,120 |
How can I negotiate the offer?
We will have already agreed the figures for tax, interest and, where appropriate, surcharge leaving only the penalty to be negotiated.
You will have the opportunity to draw our attention to any matters affecting the penalty figure, which you think we have not given enough weight to. We will consider the effect of these on the figure we had in mind, and will comment on any figure you might suggest. As a result, we might be able to reach an agreement either straight away or after a few days consideration.
If you agree to make an offer, you have to sign a formal letter offering to pay the agreed sum within a stated period and give or send that letter to us. If we are happy with it, we will then issue a letter of acceptance.
The exchange of letters amounts to a legal contract between us and we are both bound by its terms. If you pay under the terms of the contract, we cannot use formal proceedings to recover the tax, interest, surcharge or penalties. For this reason, we make sure that the terms of the letter are precise.
When we send the acceptance letter, we will include a payslip showing the Accounts Office Network Unit to which you should send your payment. When you pay the amount under the terms of the contract, the matter will be at an end. If you do not keep to the terms of the contract, we will charge interest for late payment and we may take Court action to recover the amount due.
We will not take advantage of the fact that a formal closure notice has not been issued. If any additional liabilities, relating to the years covered by the enquiry, come to light at any time after we have accepted your offer, we will not under any circumstances seek to amend your assessment. But we will arrange to recover any such liabilities.
If you agree the amount to be paid, but cannot pay the full amount straight away, it may be possible to arrange payment by instalments. We will expect you to make as large a down payment as you can and to pay the rest, including an amount for extra interest, by agreed instalments over as short a period as possible. We will suggest you pay by direct debit.
What if I do not make an offer?
If you do not want to make an offer or you make one which we cannot accept, we will regard this as the end of negotiations (unless you seek to reopen them). We will then proceed as follows.
Tax
We will issue a notice of closure for each Self Assessment year that has an open enquiry, which will explain
• that our enquiries have finished
• what our conclusions are
• the amendments we are making, and
• that for other years involved we will issue
assessments.
The tax due will be shown on your next Statement of Account.
Interest
When the further tax appears on your Statement of Account, interest will automatically be charged and will run from the date that the tax should have been paid until the date you actually pay it.
Surcharges
These will, where appropriate, be imposed automatically when the additional tax liabilities appear on your Statement of Account. However, we do not impose surcharges on any tax on which tax geared penalties are also being charged. If you need more information on surcharges please ask for leaflet SA/BK7 ‘Self Assessment. Surcharges for late payment of tax’.
Penalties
We can determine the amount of penalties that we think should be imposed.
You have a right to appeal against our conclusions or amendments and against any surcharges and penalties. Details of the appeal procedures are in the Department for Constitutional Affairs leaflet ‘Tax Appeals. A guide to appealing against decisions of the Inland Revenue on tax and other matters’.
We may use the information or documents you provided during the enquiry in any appeal proceedings.
Can I still negotiate after formal action has started?
Yes. If you want to make an offer you can re-open negotiations with us at any time before the penalties become final and conclusive.
What can I do if I am unhappy about the way the enquiry is being handled?
If at any time during the enquiry you are dissatisfied with the way we are handling it, or you think that it should end, you can ask the Appeal Commissioners to consider whether the enquiry should be closed. This and the full complaints procedure is explained in our leaflet Code of Practice 11 ‘Self Assessment. Local office enquiries’, which was issued to you when the enquiry was opened.
We produce a wide range of leaflets. Some we have mentioned
which you might find useful are
COP1 - Putting things right. How to complain
COP11 - Self Assessment. Local office enquiries
SA/BK7 - Self Assessment. Surcharges for late payment of tax.
Our leaflets are
available at www.inlandrevenue.gov.uk and from
any Inland Revenue Enquiry Centre. Most are open to the public
from 8.30am to 5.00pm, Monday to Friday. Addresses are in your
local phone book under ‘Inland Revenue’ and at www.inlandrevenue.gov.uk/local
You can get many of our leaflets from our Orderline by
• phone or textphone (for Minicom users) on 0845 9000 404 from
8.00am to 10.00pm, every day except Christmas Day, Boxing Day and New
Year’s Day
• fax on 0845 9000 604
• completing the on-line order form at www.inlandrevenue.gov.uk/contactus/staustellform.htm
• writing to PO Box 37 St Austell Cornwall PL25 5YN.
Your library or Citizens Advice Bureau may also have copies of some of our leaflets, but may not have them all.
These notes are for guidance only and reflect the position
at the time of writing.
They do not affect your right of appeal.
Issued by Inland Revenue Marketing and Communications
August 2004
© Crown Copyright 2004
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