26 Mar
Simple Assessments – The effect on Self-Assessment Tax Returns
Learn how Simple Assessment is affecting your tax returns and why HMRC is making these changes?
Simple Assessment is an easier and more convenient method of collecting taxes. The method which was recently adopted by the HMRC has proved to be beneficial for those who are supposed to file for their Simple Assessment tax.
Under Simple Assessment, HMRC automatically calculates tax liabilities using a Simple Assessment Calculation ‘SAC’ for some taxpayers. This removes them from the self-assessment system. The procedure will start by concentrating on new state pensioners and PAYE clients.
Why has HMRC introduced “Simple Assessment”?
There are over 11 million people who have to file tax returns on an annual basis to notify HMRC about their earnings. By using the existing information which HMRC already has access to, they can extract important information for taxpayers without needing them to file their tax return. This system is widely known as a Simple Assessment.
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What does it mean for customers?
From September 2017, HMRC has eliminated the requirement for certain customers to complete and file a tax return. There are two groups of people that will not have to submit tax returns for the tax year 2016-2017 and onwards. They will come under the simple assessment regime.
- New state pensioners: Individuals who have state pension greater than the personal tax allowance (£11,000) in the tax year 2016-2017 and onwards. However, their tax payments cannot be taken through their tax code.
- PAYE customers: Individuals who have tax due and cannot have their tax collected using their tax code.
Pensioners under point 1 who were already registered for self-assessment in the tax year 16/17 were expected to be moved to the simple assessment regime from tax year 18/19 onwards.
How does “Simple Assessment” work?
Instead of requesting customers individually to file in their tax return with unnecessary information. HMRC utilizes pre-existing data to estimate the amount of tax owed. Individual customers who have complex tax affairs and are filing Self Assessment returns regularly will continue to benefit from a revamped process in the future. Therefore, you will only be requested for information required to evaluate their tax, benefits and credits. However, other information will be completed automatically by HMRC.
What happens next?
HMRC is planning to use the simple assessment only in the simplest of situations for now. However, HMRC will release it for more complex cases together with the planned improvements to the personal tax account. HMRC will send out worked calculations showing tax due in writing to relevant taxpayers from September 2017 onwards. If you receive a new Simple Assessment (PA302 or an informal tax calculation (P800). Moreover, you need to be well-informed about the entire procedure in advance.
The Simple Assessment letter will hold the following information:
- Earnings from pay
- Pensions
- Savings interest
- State benefits
- Employee benefits
While HMRC says that it will include your income, tax deductions, etc. It would be better if you double-check with your tax accountant and revise accordingly. Without a tax return, HMRC cannot guarantee whether they have up-to-date knowledge or not regarding your taxes. Moreover, if HMRC makes any erroneous calculations, it is your responsibility to set it right. Failure to do so can result in penalties.
What does the future hold?
PA302s are the thin end of the wedge. Over the next few years, HMRC wants to shift more individuals out of the self-assessment category to achieve its goal of Making Tax Digital.
Customers are expected to examine whether the information is correct. In case all the information is correct, they may pay their bill either by cheque (in person) or online before the due date on the letter expires.
If a customer has any doubt regarding the information, they can inform HMRC within a period of 60 days.
Customers also have the option to appeal against the decision, within a period of 30 days. You may appeal to the HMRC if its follow-up response does not satisfy you. You can view our guide on how to appeal to the tax tribunal.
Taxpayers who miss their deadline might have to pay financial penalties. Therefore, it is advisable for customers to contact their personal tax accountants to explain to them the rules surrounding Simple Assessment in detail.
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Jibran Qureshi FCCA is the Managing Director of Clear House Accountants, and has over 10 years of experience in practice and across multiple industries. Jibran’s educational background includes a Master’s in Financial Strategy from Oxford University and an Executive MBA from Hult International Business School. His experience in Financial Strategy, Tax Planning, Operational Consultancy and Performance Reporting guide his cognizant approach to leading Clear House and its clients to the future. It was this dexterity that led him to be Enterprise Nation’s Top 50 Advisors.
Jibran is fueled by his passion for helping businesses. He unequivocally believes that as business advisors and accountants for our clients, it is our responsibility to work with them as business partners. As specialists, it is our duty to help our clients navigate through the complexities of constant change and the implications that come with it.
Over the past decade, innovative disruptions have changed the way businesses work, everything from cloud software, innovative business models, to AI and machine learning, have impacted how businesses operate, grow, and expand.
Jibran recognized the need to manage these disruptions sustainably, early on and shaped Clear House Accountants to not just be compliance specialists, but advisors who help build complex ecosystems around cloud accounting software, provide advice on funding support, help manage innovative tax schemes, set up and implement complex strategic plans, and much more. So, his clients can thrive, not just survive.
Jibran developed his prime role as the Managing Director to build Clear House’s capabilities so it can add value for their clients. He is of firm belief that this can be done through consistent high-level training, building the right tools, and creating roadmaps to help businesses cope with prospective disruptions. He envisages that every client that comes on board, is provided maximum value through onboarding, ongoing services and the right mix of tools to help them become the best in the world.