How simple are simple assessments?

In September this year, HMRC began issuing simple assessments, as part of a longer-term plan to remove two million people from its self-assessment scheme, meaning they would no longer have to complete a tax return.

The move, says Brian Palmer, AAT tax policy adviser, is aimed at those with the simplest tax affairs, where HMRC can use the information it already has to calculate what they owe in tax. “It’s pensioners or people on PAYE income where HMRC gets sent information routinely under Real Time Information, who might have a small amount of bank and building society information which HMRC should also be aware of,” he says. “They’ll be on relatively modest incomes, so primarily pensioners, but it could also be people with lots of small jobs.”

The scheme is part of HMRC’s broader Making Tax Digital programme, designed to make better use of HMRC’s data. “One of the criticisms of HMRC over the years is that employers are submitting returns under Real Time Information or PAYE filing, so why do people need to then report this back, when HMRC has its hands on the jewels anyway,” says Nichola Ross Martin, director of practical tax database www.rossmartin.co.uk. “This is really HMRC using its own data, and joining up its own systems.”

The initial wave of simple assessments targeted those people who received a state pension for the first time in the 2016-17 tax year, and where this meant they exceeded their personal allowance. “Existing state pensioners are likely to receive their first simple assessments for the tax year ending 5 April 2018,” adds Angela Haig, partner at EQ Chartered Accountants.

Accountants will need to advise clients who may receive a simple assessment that they should inform them immediately if they receive one. “The number one thing is to check the figures very carefully against the taxpayer’s own records, and make sure that all allowances and reliefs have been taken into account,” says Robin Williamson, technical director at the Low Incomes Tax Reform Group, part of the Chartered Institute of Taxpayers. “HMRC should specify each source of income on the simple assessment and should also show separately the allowances and reliefs that have been applied to it.”

Where there are potential errors, individuals have 60 days to appeal this, which compares unfavourably with the year that is currently available to amend self-assessment tax returns, says Williamson. “That 60-day period might have to be extended if it turns out that a lot of people receiving these documents don’t really know what to do with them and aren’t getting advice on them until some way down the track,” he says. One it has received the appeal, HMRC then has a 30-day period to act.

In reality, HMRC is likely to take a relaxed approach to the appeal period, says Palmer. “HMRC will amend the assessment if something material comes in after that, so it’s not a once-and-done thing,” he says. Agents should also receive copies of the simple assessment if they are registered to that individual, he adds.

There are potential concerns with the new system, however. John Tooth, tax director at Paish Tooth, gives the example of one lady who approached his firm as she had received a large amount of bank interest but did not qualify to complete a tax return. But not everyone is as proactive. “There are a lot of people out there who won’t realise that they may have some liability to HMRC, so out of the blue they could get a simple assessment or even a few, depending on how long it takes for HMRC to catch up with them,” he says. “I know of no particular timescale as to when these might get issued, so it could be several years at once.”

After raising the issue with HMRC, the lady in question received a simple assessment form, but the details on it were incorrect. “They were still treating her as receiving a benefit-in-kind which she had stopped receiving about two-and-a-half years ago,” he says. “There is a risk that those people who do not have accountants or tax agents will simply assume figures are correct and pay up,” he adds.

This is also a concern for Williamson, particularly for pensioners or others on low incomes. “One wonders how many people are going to take the figures at face value because they’re coming in an official document,” he says. “It’s great they’re being taken out of self-assessment and have been given this simplified way of dealing with their tax affairs, but it does depend on people being alert and checking very carefully what the figures say against their own records.”

Nick Martindale is a freelance journalist, editor and copywriter. He regularly contributes to a wide range of national and business media, including The Telegraph, Raconteur supplements in The Times and HR magazine.