Errors on self-assessment returns are very prevalent to taxpayers.

Mistakes can be caused due to various reason such as:

• Not declaring all other sources of income on the self-assessment returns.

• Declaring an incomplete record on Self-assessment returns.

• Overstating the expenses in the returns.

• Understating the expenses on the returns.

What happens when there are errors on self-assessment returns?

If the taxpayer is first to find out about this error, they can amend the returns. This is only if they are still within the timeframe of amending the returns.

The deadline for amending tax returns is the 31st of January after the end of the tax year. As after this date, returns are submitted.

However, The HMRC has the right to review tax return for common error up until 9 months after this return has been submitted.

If an error was picked up by the HMRC, the taxpayer would not be allowed to amend it and then could be penalised for the error made.

Nevertheless, if the taxpayer had made a genuine mistake and they can prove that they have taken reasonable care, no penalty is due.

If a penalty is applied, the taxpayer can appeal against such notice.

Example of errors that can be made on the return.

James is a Nurse that works in the NHS. He also has a rental property that he has just acquired in May 2018/19.

James is aware that he needs to report his rental income to the revenue so he has registered for self-assessment.

However, he wasn’t aware that he had to report his other earnings on the return.

James’s friend has recently told him that the returns he has submitted were wrong.

Effect of the error that James self-assessment returns.

James has not declared all his income on the returns,  therefore, it is most likely that the wrong tax has been applied to his rental income.

Due to this error, James has an underpaid tax.

Even though this is an honest error, as James knows, he has already paid tax under PAYE. Despite the fact that he is not aware of the error he has made, he would still be penalised by HMRC.

How the penalty on the error is calculated.

The tax is calculated based on the behaviour of the taxpayer. 

Behaviour                 Unprompted disclosure to HMRC             Prompted disclosure to HMRC
                                               
Reasonable care                     No penalty                                   No penalty
Careless                                  0% to 30%                                  15% to 30%
Deliberate                                20% to 70%                                 35% to 70%
Deliberate and concealed       30% to 100%                               50% to 100%

Continuing with the Illustration of the Error made by James.

If James friend had informed James of these errors within the time frame to amend his return, i.e ( before 31st of January 2020), he could amend the returns and pay the extra tax due.

Let’s say that James was not aware of this mistake and it was discovered by HMRC, he would be penalised by the HMRC.

The percentage stated above would be applied on the tax unpaid by James.

As it was a prompted disclosure, the percentage applied would be from 0-100% depending on the behaviour of James.

At this stage, HMRC would be the one amending the returns and a new tax calculation issued to James with the correct amount of tax due.

The best way is to contact the HMRC in writing with the amended returns so that this would be an unprompted disclosure.

Conclusion

If a taxpayer, like James, makes an error on their returns, whether genuinely or not, the best approach is to declare this error to HMRC by themselves (unprompted disclosure) and ensure that they don’t try to conceal the tax due to HMRC to limit the tax due.

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