Is your tax return valid?

When must you submit a return?

The ruling in S and U Patel v HMRC 2018 came at the perfect time for us as it coincided with a question from one of our subscribers about using a voluntary tax return to claim a refund. The Patels’ dispute with HMRC revolved around self-assessment tax returns (SATR) used to declare a tax liability. The forms were submitted without having been asked by HMRC. Strictly, you only have to complete a SATR if HMRC sends a notice requesting one.

HMRC’s approach to voluntary returns

HMRC’s policy is to treat unsolicited returns as if it had asked for them. It claims that all the usual rules about enquiries and penalties apply. Following this policy HMRC launched an enquiry into the Patels’ SATRs and demanded extra tax to account for mistakes in their returns. The Patels’ accountant, somewhat late in the day, cottoned on to the idea that HMRC’s policy on unsolicited returns might not be consistent with the law and appealed.

Is it a fair policy?

The First-tier Tribunal (FTT) considered HMRC’s policy, which at first sight doesn’t seem unreasonable. If someone submits an SATR they obviously intend for it to be accepted as such by HMRC. The alternative would be for it to refuse the form and issue a notice asking for it to be submitted, whereupon the taxpayer would send back the original document. If HMRC did that you can imagine the negative comments about bureaucracy it would receive.

To give its policy more weight HMRC argued at the FTT that the broad powers given to it by the Commissioners for Revenue and Customs 2005 (CRCA) allow it to “do anything which they think necessary or expedient” to collect tax.

The FTT’s ruling

The CRCA wasn’t intended to stretch as far as overriding other legislation, such as the rule which says that a SATR is only valid if HMRC has issued a notice asking for it to be submitted. The judge said the wording of the rules on the requirement to complete SATRs was clear and so HMRC couldn’t treat the forms submitted by the Patels’ voluntarily as valid. It followed that HMRC’s enquiry was also not valid.

Voluntary returns - what now?

HMRC is unlikely to change its policy as a result of this case, especially as it intends to phase out SATRs as part of Making Tax Digital. So be prepared to challenge an attempt by HMRC to start an enquiry into a voluntary SATR.

Tip. If you need to submit a SATR, the best option is to register for self-assessment with HMRC. The trouble is, it won’t agree to it unless you meet its criteria, as our subscriber discovered. He is owed a refund for 2017/18, but was told by HMRC that it wouldn’t register him, but would (probably) “get round to reviewing his tax position in the Autumn” .

Our advice to him, and anyone else in the same position, is to submit a voluntary tax return which, assuming HMRC sticks with its policy, should accelerate the refund.