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CLAUSE
86 AND SCHEDULE 28: AMENDMENTS TO THE MACHINERY OF SELF-ASSESSMENT
SUMMARY
1.
This clause gives effect to Schedule 28, which amends the legislation
governing assessments, enquiries and appeals under Income Tax Self
Assessment. The legislation is rewritten in a clearer form and some
new provisions are introduced. It will become possible to resolve
disputes about particular issues through litigation without having
to wait until the whole enquiry is complete. The procedure for amending
an assessment at the end of an enquiry is simplified.
2.
Much of the rewriting is based on the notion that the term “return”
includes the assessment made as part of the return. “Return” also
means an amended return. These concepts are already present in the
existing legislation, but a more consistent application of them has
enabled the legislation to be written in a simpler and more logical
way. An equivalent approach is used for partnership returns and partnership
statements.
3.
The opportunity has also been taken to correct a few errors and omissions
and clarify a few points of uncertainty.
DETAILS OF THE
CLAUSE
4.
Subsection (1) gives effect to Schedule 28, which contains
detailed provisions.
5.
Subsection (2) lists the subject-matter of the five parts of
Schedule 28.
6.
Subsection (3) provides that most of the changes made by Schedule
28 will come into effect in relation to all tax returns when the
7.
Finance Bill is passed. Some specific changes in Schedule 28 have
their own commencement rules though.
DETAILS OF SCHEDULE 28
8.
Paragraph 1 clarifies the current law relating to an assessment
made by the Inland Revenue, where the taxpayer delivers a return without
making a self-assessment. The paragraph confirms that such an assessment
made by the Revenue is to be treated as a self-assessment, and as
part of the tax return. This enables the rules concerning amendments
and enquiries to be rewritten more simply and clearly.
9.
Paragraph 2 replaces subsections (4) and (6) of section 9 Taxes
Management Act 1970 (“TMA”) with two new sections: section 9ZA and
section 9ZB. They cover the taxpayer’s right to amend his return,
and the Inland Revenue’s right to correct it. The paragraph also removes
subsection (5) of section 9 TMA, the substance of which is replaced
by new section 9B inserted by paragraph 4.
10. Section
9ZA enables the taxpayer to amend his return once he has filed
it, provided he does so within a year of the statutory filing date.
This provision is not new in substance, but it is now worded to be
consistent with the rule that a return includes a self-assessment.
It no longer makes a distinction between the return and the self-assessment
and thus removes any doubt that a taxpayer can amend the self-assessment
element of the return without amending any of the other elements.
11. Section
9ZB allows the Inland Revenue to amend a return so as to correct
any obvious errors or omissions. The correction must be made within
nine months of the delivery of the return, or within nine months of
the making of an amendment if it is a consequence of that amendment.
This is a rewriting of an existing provision to reflect the simpler
drafting approach.
12. Subsections
(4) and (5) add an explicit right for the taxpayer to reject a
correction as long as he does so within 30 days of its being issued.
13. Paragraph
3 replaces subsections (2) and (4) of section 12AB TMA with two
new sections: section 12ABA and section 12ABB. They cover a partner’s
right to amend a partnership return, and the Inland Revenue’s right
to correct it. The paragraph also removes subsection (3) of section
12AB TMA, the substance of which is replaced by new section 12AD inserted
by paragraph 5.
14. Section
12ABA is the equivalent for partnership returns of section 9ZA.
There is one difference, which already exists in the current legislation:
where a partnership return is amended, the Inland Revenue must make
consequential amendments to the individual partners’ returns.
15. Section
12ABB is the equivalent of section 9ZB for partnership returns.
As with section 12ABA, the Inland Revenue must make consequential
amendments to the individual partners’ returns.
16. Paragraph
4 replaces the existing section 9A TMA with new wording, and
introduces new section 9B, 9C and 9D.
DETAILS OF NEW CLAUSE 9A
17. Subsection
(1) allows the Inland Revenue to enquire into returns. The new
section is simpler because it does not distinguish between enquiries
into returns, amendments and claims. All are enquiries into returns.
18. Subsection
(2) sets out the time allowed for opening an enquiry. The rules
are the same as at present, with one exception. In the case of returns
made on time, the twelve month period from the statutory filing date
will end on the anniversary of that date instead of, as now, the day
before the anniversary. This will apply to returns for the years 2001/02
onwards, by virtue of paragraph 4(2).
19. Subsection
(3) retains the existing prohibition on a second enquiry into
the same return, unless there has been an amendment.
20. Subsection
(4) makes explicit what is implicit in the current legislation,
that an enquiry into a return covers anything contained in the return,
including claims.
21. Subsection
(5) limits the scope of an enquiry into an amended return, where
there has already been an enquiry into the rest of the return, or
where the time limit for enquiring into the original return has passed.
In these circumstances the enquiry can only cover matters affected
by the amendment. This limitation reflects a limitation present in
the structure of the existing section 9A.
22. Subsection
(6) defines the filing date for the purpose of the time limits
in subsection (2).
23. Section 9B
replaces section 9(5) TMA which prohibits a taxpayer from making an
amendment to a self-assessment while an enquiry is in progress. This
new section reflects the new drafting approach and the new rules for
closing an enquiry in paragraph 8.
24. Subsection
(1) permits the taxpayer to amend the return during the enquiry.
25. Subsection
(2) provides that the amendment does not restrict the enquiry,
but may itself be taken into account in the enquiry.
26. Subsection
(3) provides that the amendment does not take effect until the
enquiry is completed.
27. Subsection
(4) provides that the amendment takes effect when the enquiry
is completed, unless it is taken into account in the conclusions which
the Inland Revenue issue at the end of the enquiry.
28. Subsection
(5) defines an enquiry “in progress”.
29. Section
9C replaces the existing section 28A(2). It allows the Inland
Revenue to amend the self-assessment while an enquiry is in progress,
if failure to do so would be likely to lead to a loss of tax to the
Crown. The substance of this provision is unchanged from section 28A(2),
but the wording reflects the drafting of new section 9A.
30. Section
9D replicates the existing section 28A(7A) and (7B), which enables
the Inland Revenue to determine which of the Cases of Schedule D should
be used where alternatives are allowed.
31. Paragraph
4(2) delays the introduction of the new time-limit for opening
an enquiry under section 9A(2).
32. Paragraph
5 makes similar provisions to paragraph 4 but in respect of enquiries
into partnership returns.
33. Paragraph
5(1) introduces new section 12AC TMA in place of the existing
section 12AC, and introduces sections 12AD and 12AE.
34. Section
12AC is the equivalent, for enquiries into partnership returns,
of new section 9A.
35. Subsections
(1) to (5) are the equivalent of subsections (1) to (5) in section
9A.
36. Subsection
(6) provides that where an enquiry is opened into a partnership
return, enquiries are also deemed to be opened into the returns of
the individual partners. This replicates the existing provision at
section 12AC(3).
37. Subsection
(7) is the equivalent of subsection (6) in section 9A.
38. Section
12AD replaces section 12AB(3). It deals with the amendment of
a partnership return during an enquiry, in the same way that section
9B does for enquiries into individual returns.
39. Subsections
(1) to (4) are equivalent to subsections (1) to (4) of section
9B.
40. Subsection
(5) makes it clear that the Inland Revenue cannot make consequential
amendments until the enquiry is completed.
41. Section
12AE replicates and replaces section 28B(6A) and (6B) which enable
the Inland Revenue to determine which of the Cases of Schedule D should
be used where alternatives are allowed, in a partnership enquiry.
42. Paragraph
5(2) delays the introduction of the new time-limit for opening
an enquiry under section 12AC. It is the equivalent, for partnerships,
of paragraph 4(2).
43. Paragraph
6 introduces a new right of litigation during a self assessment
enquiry.
44. Paragraph
6(1) inserts new sections 28ZA to 28ZE in TMA.
DETAILS
OF SECTION 28ZA
45. Section
28ZA details the circumstances in which a matter may be referred
to the Special Commissioners whilst an Inland Revenue self assessment
enquiry is still open.
46. Subsection
(1) describes which types of enquiries this includes. It provides
for any question arising out of these enquiries to be put to the Special
Commissioners. The Special Commissioners will then make a determination
about that question.
47. Subsection
(2) provides that the notice of referral, which is the document
which will trigger the process, must be one which both the taxpayer
and the Inland Revenue have agreed should be submitted. It must be
a written document, submitted to the Special Commissioners on behalf
of both parties.
48. Subsection
(3) provides that the written notice is to set out what question
the Special Commissioners are being asked to determine. There may
be more than one question.
49. Subsection
(4) allows more than one referral to be put to the Special Commissioners
whilst the same enquiry remains open.
50. Subsection
(5) defines when an enquiry is open.
51. Subsection
(6) defines “the taxpayer” for the purpose of this section.
DETAILS OF SECTION 28ZB
52. Subsection
(1) allows either party to withdraw from the referral process
if they provide notice accordingly.
53. Subsection
(2) provides that the notice of withdrawal must be sent to the
other party and to the Special Commissioners, before the first hearing
by the Special Commissioners.
DETAILS OF SECTION 28ZC
54. Subsection
(1) enables the Lord Chancellor to make regulations for the operation
of the new process of referrals.
55. Subsection (2)
provides that in particular, the Lord Chancellor may make regulations
dealing with procedure before the Special Commissioners, further rights
of appeal beyond the Special Commissioners, including appeals to the
High Court, and proceedings in Northern Ireland.
56. Subsection
(3) allows the Lord Chancellor to make regulations with different
provisions for different cases or circumstances and to make any consequential
or other provisions.
57. Subsection
(4) provides that the regulations shall be made by statutory instrument
and subject to annulment if either House of Parliament resolves so.
58. Subsection
(5) brings within the scope of this general regulation-making
power, those sections of the Taxes Management Act which deal with
powers to make regulations concerning
(a)
the Lord Chancellor’s power in relation to procedural matters of appeals
to the Special Commissioners and
(b)
the Inland Revenue Board’s power in relation to appeals concerning
chargeable gains.
59. Subsection
(6) brings into effect for the referral process existing regulations
dealing with Special Commissioners’ procedure and appeals concerning
chargeable gains.
60. Subsection
(7) applies only to Scotland and requires the consent of Scottish
Ministers to any regulations made by the Lord Chancellor under this
section, if those regulations relate to proceedings in Scotland.
DETAILS OF SECTION 28ZD
61. Subsection
(1) prevents the self assessment enquiry from which the referral
has its origin being closed until the referral proceedings are ended.
Neither a closure notice nor an application for a direction to give
such a notice may be made.
62. Subsection
(2) defines when proceedings on a referral are in progress for
the purposes of this section.
63. Subsection
(3) defines when a question referred is finally determined for
the purpose of subsection (2).
DETAILS OF SECTION 28ZE
64. Subsection
(1) provides that a determination by the Special Commissioners
shall be binding on both parties to the referral, in just the same
way – and to the same extent – as a decision would be had it been
on a preliminary issue under appeal.
65. Subsection
(2) requires the Inland Revenue to take account of the decision
when completing the enquiry.
66. Subsection
(3) forbids any re-litigation of a question which has been referred
under this procedure when the enquiry closes. That is unless re-litigation
of the point were possible through some circumstance had the litigation
been made upon closure in the first instance rather than during the
enquiry.
67. Paragraph
6(2) provides that the new referrals procedure applies to any
enquiry which is open when the Bill receives Royal Assent, and to
any enquiry opened thereafter.
68. Paragraph
7 amends the legislation relating to self assessment for companies.
It inserts new paragraphs 31A, 31B, 31C and 31D in Schedule 18 Finance
Act 1998.
69. Paragraph
31A provides the corporation tax equivalent arrangements to those
provided for income tax in section 28ZA.
70. Paragraph
31B provides the corporation tax equivalent arrangements to those
provided for income tax in section 28ZB.
71. Paragraph
31C provides the corporation tax equivalent arrangements to those
provided for income tax in section 28ZD.
72. Paragraph
31D provides the corporation tax equivalent arrangements to those
provided for income tax in section 28ZE.
73. Paragraph
8 introduces a new procedure for completing an enquiry into a
personal or trustee’s tax return.
74. Paragraph
8(1) replaces the existing section 28A TMA with a new section
28A.
75. Subsection
(1) provides that an enquiry into a taxpayer’s return is completed
when the Inland Revenue issue a closure notice. The closure notice
must state the Inland Revenue’s conclusions.
76. Subsection
(2) provides that the closure notice must also either state that
no amendment of the return is needed, or else make any necessary amendments.
77. Subsection
(3) provides that the closure notice takes effect when it is issued.
78. Subsection
(4) allows the taxpayer to apply to the Commissioners for a direction
that the Inland Revenue must issue a closure notice within a set time.
This replicates the substance of existing section 28A(6) TMA.
79. Subsection
(5) provides that the rules for dealing with appeals should apply
to an application for a closure notice. This replicates the substance
of existing section 28A(6A) TMA.
80. Subsection
(6) provides that the Commissioners who hear the application must
direct the Inland Revenue to issue a closure notice, unless they are
satisfied that there are reasonable grounds for not doing so. This
replicates the substance of existing section 28A(7) TMA.
81. Paragraph
8(2) provides that the new procedure for completing an enquiry
comes into effect for any enquiry which is open when the Finance Bill
receives Royal Assent.
82. Paragraph
9 introduces a new procedure for completing an enquiry into a
partnership return, equivalent to that introduced for personal returns
by paragraph 8.
83. Paragraph
9(1) replaces the existing section 28B TMA with a new section
28B.
84. Section
28B(1) to (3) is the equivalent, for partnerships, of section
28A subsections (1) to (3).
85. Section
28B(4) provides that where the partnership return is amended by
the closure notice, the Inland Revenue must make consequential amendments
to the returns of the individual partners.
86. Section
28B(5) to (7) is the equivalent, for partnerships, of section
28A subsections (4) to (6).
87. Paragraph
9(2) provides that the new procedure for completing an enquiry
comes into effect for any enquiry which is open when the Finance Bill
receives Royal Assent.
88. Paragraph
10 introduces a new procedure for completing an enquiry into a
claim not included in a return, equivalent to that introduced for
personal returns by paragraph 8.
89. Paragraph
10(1) refers to Schedule 1A TMA, which deals with claims not included
in a return.
90. Paragraph
10(2) substitutes a new paragraph 7 for the existing Schedule
1A paragraph 7 TMA.
91. Paragraph
7(1) provides that an enquiry into a claim is completed when the
Inland Revenue issue a closure notice. The closure notice must state
the Inland Revenue’s conclusions.
92. Paragraph
7(2) provides that in the case of a claim for discharge or repayment
of tax, the closure notice must also either state that no amendment
of the claim is needed, or else make any necessary amendments.
93. Paragraph
7(3) provides that in the case of any other claim, the closure
notice must either allow the claim, or else disallow it to the appropriate
extent.
94. Paragraph
7(4) to (7) are the equivalent, for enquiries into claims, of
new section 28A subsections (3) to (6).
95. Paragraph
7(8) ensures that the procedure for completing an enquiry into
a claim can apply to claims made by a partnership, by providing that
references to a claimant are to the person who made the claim or his
successor.
96. Paragraph
10(3) provides that the new procedure for completing an enquiry
comes into effect for any enquiry which is open when the Finance Bill
receives Royal Assent.
97. Paragraph
11 makes changes to the existing appeal provisions to reflect
the changes made in other parts of the Schedule to the rules concerning
assessments, amendments and enquiries.
98. Paragraph
11(1) inserts a new section 31 and sections 31A, 31B, 31C and
31D in place of the existing section 31 TMA.
DETAILS OF THE NEW SECTION 31
99. Subsection
(1) allows an appeal to be made against amendments and assessments
made by the Inland Revenue, and against conclusions stated in closure
notices at the end of an enquiry. In substance it replicates the existing
section 31(1).
100.
Subsection (2) provides that an appeal cannot be heard until
an enquiry is completed, if it is an appeal against an Inland Revenue
amendment made during the enquiry. This replicates the substance of
existing section 31(1A).
101.
Subsection (3) provides that a determination by the Inland
Revenue of which alternative Case of Schedule D is to be used may
not be questioned on appeal. This replicates the substance of existing
section 31(1AA).
102.
Subsection (4) provides that the section is subject to express
provisions elsewhere in the Taxes Acts. This replicates part of the
substance of existing section 31(6).
DETAILS OF SECTION 31A
103.
Subsection (1) provides that notice of an appeal must be given
in writing, within 30 days of the specified date, to the relevant
officer of the Board.
104.
Subsections (2) to (4) define the specified date and the relevant
officer, for the various types of appeal. In each case the specified
date is the date of issue of the notice which is appealed against,
and the relevant officer is the officer who gave the notice.
105.
Subsection (5) provides that the notice of appeal must specify
the grounds of appeal.
106.
Subsection (6) provides that the Commissioners may allow additional
grounds to be put forward at the hearing, as long as the original
omission was not wilful or unreasonable. Subsections (5) and (6) together
replicate the substance of existing section 31(5).
107.
Section 31B provides that the appeals covered by section 31
must be to the General Commissioners. This is subject to specific
statutory exceptions, and subject to the right to elect to appeal
to the Special Commissioners, which is contained in section 31D.
108.
Section 31C lists types of appeal which are to be heard by
the Special Commissioners.
109.
Subsection (1) provides that where an appeal relates to a return
which has been under enquiry, and during that enquiry a question was
referred to the Special Commissioners under the new section 28ZA procedure,
then the appeal must also be to the Special Commissioners, unless
the Special Commissioners direct otherwise. This applies even if the
referral was withdrawn before the Special Commissioners considered
it.
110.
Subsection (2) provides that appeals against assessments which
are either made by the Board, or made to recover certain tax deducted
from payments, must be heard by the Special Commissioners. This replicates
the substance of existing section 31(3).
111.
Section 31D (1) provides a right to elect to appeal to the
Special Commissioners, instead of to the General Commissioners.
112.
Subsections (2) to (7) restrict that right by replicating the
provisions currently at section 31(5A) to (5E).
113.
Paragraph 11(2) determines how the new appeal provisions are
introduced. They will apply to amendments and closure notices which
are issued under the new provisions introduced by the Finance Bill,
and to all assessments issued after the Bill receives Royal Assent.
114.
Paragraph 12 makes amendments to the provisions for appealing
against amendments to claims, to reflect the new procedure for completing
an enquiry into a claim not included in a return.
115.
Paragraph 12(1) refers to Schedule 1A TMA
116.
Paragraph 12(2) substitutes a new paragraph 9(1), and 9(1A),
in place of the existing Schedule 1A paragraph 9(1) TMA. The new sub-paragraphs
provide that an appeal may be brought against any conclusion, amendment
or decision contained in a closure notice when an enquiry into a claim
is completed. The appeal must be made in writing within 30 days of
the issue of the closure notice, to the officer who issued the closure
notice.
117.
Paragraph 12(3) to (7) make consequential amendments to other
parts of Schedule 1A paragraph 9 TMA. These reflect the changes made
to Schedule1A paragraph 7 and paragraph 9(1) TMA.
118.
Paragraph 12(8) provides that the changes made to the appeal
provisions which relate to enquiries into claims only take effect
for closure notices issued under the new provisions brought in by
the current Finance Bill.
119.
Paragraph 13 amends the corporation tax legislation to provide
that appeals subsequent to a referral must be made to the Special
Commissioners. This is the equivalent for corporation tax of section
31C(1) TMA.
120.
Paragraph 14(1) provides for section 59B TMA to be amended.
121.
Paragraph 14(2) amends subsection (4A)(a) of section 59B, substituting
‘28A(1)’ for ‘28A(5)’ (reflecting the change to section 28A TMA in
paragraph 9) and removing the words ‘treated as’.
122.
Paragraph 14 (3) substitutes a new subsection (5) in section
59B TMA.
123.
New subsection 59B(5) provides that an amount of tax payable
or repayable as a result of an amendment or correction of a self-assessment
under various specified provisions is payable or repayable on or before
the day specified in Schedule 3ZA TMA.
124.
Paragraph 15 inserts a new Schedule 3ZA into TMA.
DETAILS OF SCHEDULE 3ZA
125.
Paragraph 1 provides that the Schedule specifies the day by
which tax has to be paid or repaid following the amendment or correction
of a self-assessment; that if the general rules in section 59B(3)
and (4) of the Taxes Management Act give a later day those rules apply
instead; and that the provisions of the Schedule have effect subject
to section 55(6) and (9) of the Taxes Management Act (which relate
to postponement of payment etc in case of an appeal).
126.
Paragraph 2 provides that where tax is payable or repayable
as a result of an amendment of a self-assessment by the taxpayer,
it is due within 30 days of the notice of amendment. But if the amendment
is made during an enquiry, and its effect delayed, then the due date
is calculated from the date it takes effect.
127.
Paragraph 3 provides that tax payable or repayable as a result
of the correction of a self-assessment by the Inland Revenue is payable
or repayable on or before 30 days from when notice of correction was
given.
128.
Paragraph 4 provides that tax payable or repayable as a result
of the amendment of a self-assessment by the Inland Revenue to prevent
loss of tax is payable or repayable on or before 30 days from when
notice of the amendment was given.
129.
Paragraph 5 provides that tax payable or repayable as a result
of the amendment of a self-assessment by closure notice following
an enquiry is payable or repayable on or before 30 days from when
the closure notice was given.
130.
Paragraphs 6 to 11 provide that tax payable or repayable as
a result of the consequential amendment of a partner’s return (where
the partnership return has been amended or corrected) is payable or
repayable within 30 days of when the consequential amendment notice
was given.
131.
Paragraph 16 provides that the changes in paragraphs 14 and
15 apply where the first day of the relevant 30 day period falls on
or after the day this Act is passed
132.
Paragraph 17(1) amends section 28C of the Taxes Management
Act, which relates to determinations of tax in the absence of a personal
or trustee return, to ensure that section 28C(4), which allows proceedings
for the recovery of tax charged by a determination to be continued
where the self-assessment is received, extends to all forms of recovery
proceedings.
133.
Paragraph 17(2) makes a similar amendment to paragraph 40 of
Schedule 18 to the Finance Act 1998 in relation to determinations
of tax in the absence of a company tax return.
134.
Paragraph 17(3) applies the changes in this paragraph to proceedings
begun after the passing of the Finance Act.
135.
Paragraphs 18 to 40 make consequential amendments to various
parts of the Taxes Acts. These reflect the new and rewritten provisions
enacted by the other parts of the Schedule, and in particular the
new approach described at paragraph 2 above .
BACKGROUND
NOTE
136.
The two main new measures (resolving disputes during an enquiry, and
simpler completion procedures) are a result of a recommendation which
came from the joint report by the Chartered Institute of Taxation
and the Inland Revenue into income tax enquiries under Self Assessment,
published in November 2000.
137.
The existing completion procedure involves up to four stages:
·
issue of a closure notice, stating the Inland Revenue’s conclusions
·
opportunity for taxpayer to amend self-assessment
·
opportunity for Inland Revenue to amend self-assessment
·
taxpayer’s right of appeal against Inland Revenue amendment.
138.
The new procedure involves only two stages. The closure notice includes
any necessary amendment, and the taxpayer may appeal against it.
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