Tax Administration, Ethics and Professional Standards
Tax Administration: Compliance, Enquiries and Penalties
Self assessment
Individual returns are due by 31 January following the end of the tax year (31 October for paper). Payments on account are two instalments (31 January and 31 July), each half of the previous year liability, where the prior year balancing payment exceeded 1,000 and less than 80% was collected at source. The balancing payment is due on 31 January. Companies file the CT600 within 12 months of the end of the accounting period, with tax due nine months and one day after the period end; quarterly instalments apply to large companies.
Enquiries and assessments
HMRC may open an enquiry within 12 months of the filing date (or the actual filing date if later). A closure notice is required to conclude it, and an appeal to the tribunal must be made within 30 days. Discovery assessments reach back 4 years normally, 6 years for carelessness and 20 years for deliberate behaviour. Claims and elections generally have a 4-year window.
Penalties and interest
Failure to notify, late filing (fixed, daily and tax-based penalties at 6 and 12 months), late payment (5% at 30 days, 6 months and 12 months, plus daily interest), and inaccuracy penalties: careless 30%, deliberate 70%, deliberate and concealed 100%, all reduced for disclosure depending on whether it is unprompted, its timing, size and the co-operation given.
Traps
Confusing the 12-month enquiry window with the 4, 6 and 20-year assessment windows. Forgetting that the 31 July amount is a payment on account, not a balancing payment. Missing that claims outside a return still have a 4-year window. Keep the phased Making Tax Digital for Income Tax start dates under review, as they have moved more than once.
Ethics and Professional Standards
The framework
CIOT members are bound by Professional Conduct in Relation to Taxation, which rests on five fundamental principles: integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour. PCRT also sets standards for tax planning (arrangements must have a proper legal basis, be disclosed where required, and not mislead HMRC), for handling errors, and for managing conflicts of interest.
Practical issues
- Engagement: agree scope and fees in writing, identify the client entity, obtain authority to act, and consider anti-money-laundering obligations.
- Errors: where a material error is found, advise the client to disclose. If the client refuses, consider whether to continue acting. You cannot disclose to HMRC without consent except where compelled by law.
- Money laundering: the 2017 Regulations require customer due diligence, ongoing monitoring and record keeping, and a suspicious activity report to the National Crime Agency where knowledge or suspicion arises. Tipping off is a criminal offence.
- Avoidance: DOTAS disclosure, the general anti-abuse rule and its double reasonableness test. Advising on avoidance is not in itself unethical, but the client must understand the risk and the arrangement must be lawful.
- Conflicts: between joint clients such as spouses, between firm and client, and between current and former clients.
Traps
Exam questions test the line between avoidance and evasion (evasion involves deception and is criminal), confidentiality versus statutory disclosure, and whether you can act for both sides of a transaction. Professional rules are not the same as the law: something lawful may still be unethical.
Rule of thumb
Ask: is it legal, is it disclosed where required, and could I explain it in writing to the client and to HMRC? If any answer is no, escalate within the firm before acting.