The first Simple Assessment computations, called PA302s, landed on doormats in October. The concept of Simple Assessment has been in development since December 2015, so what is it, and who will be affected?
The background to Simple Assessment
Simple Assessment, despite being a paper-based system, is part of the government’s Making Tax Digital programme. The goal is for HMRC to use information that it already holds to produce the income tax calculation for certain individuals and trusts, rather than require the submission of a tax return.
What information does HMRC hold?
Information on employment income, benefits and pension payments is provided to HMRC by employers and pension providers through Real Time Information. Details of state pension payments and other benefits are provided by other government departments. Most banks and building societies are required to report to HMRC details of the interest they pay to customers.
HMRC does not automatically receive details of rental income or dividends, nor does it have details of self-employment income. Individuals receiving income from these sources will not be eligible for Simple Assessment.
Simple Assessment will be available in future to those with capital gains, but it is assumed that individuals will need to supply some of the details of any disposals made, as HMRC is unlikely to have all the necessary information to calculate the gain(s).
Who will receive a Simple Assessment?
The first two groups of people to become eligible for Simple Assessment in 2016-17 are:
Taxpayers who are subject to PAYE, but where the tax due cannot be collected through the tax code, for example if it exceeds £3,000. These people previously received a P800 and a request for voluntary payment, or had to be moved to self-assessment.
Individuals who started to receive a State Pension in 2016-17 where that pension exceeds the personal allowance.
At this stage, HMRC says that no one has been taken out of self-assessment as neither of the above groups were in self-assessment. The first group to be moved from self-assessment to Simple Assessment from 2017-18 will be state pensioners who were receiving a state pension over the personal allowance prior to 2016-17. HMRC will issue a SA251 letter to those individuals in early 2018, advising them that they will no longer be required to submit a self-assessment return. If the pensioner has other income and needs to stay in self-assessment, or would prefer to stay in self-assessment, they should contact HMRC.
What should you do on receipt of a Simple Assessment?
On receipt of a Simple Assessment you should check the details of income received to see that all income sources have been included, and that the amounts of income are correct. You should also consider if there are any reliefs you are entitled to claim – for example job-related expenses, or other reliefs such as gift aid – which need to be included.
If anything is missing or incorrect, you have 60 days to contact HMRC to ask for an amendment. This is generally a shorter period than allowed to complete self-assessment. The legislation does permit HMRC to allow the taxpayer more time to raise a query, but we need to see how HMRC will interpret that in practice.
If HMRC needs more time to consider a query, it can postpone all or part of the Simple Assessment demand. Once HMRC has considered the query, it must send a final decision to the taxpayer. The taxpayer has 30 days to appeal in writing if they are not satisfied.
HMRC can replace and reissue a Simple Assessment if further information is received.
Your authorised agent, if you have one, should receive a copy of any Simple Assessment that is issued to you. If in doubt please contact us for advice
How to pay a Simple Assessment
The letter containing the assessment may not contain details of how to pay. You can either log into your Personal Tax Account (PTA) to pay online, or you can send a cheque, with the charge reference number for the assessment written on the reverse, to HMRC, Direct, BX5 5BD.
Payment is due by the usual 31 January 2018 deadline for 2016-17, unless the assessment is received after 31 October 2017. In that case, the tax will be due three months from the date of issue of the assessment.
HMRC advised in their October Talking Points session that the due date for payment is based on the date of the initial reconciliation and this will not change even if the bill is subsequently recalculated.
Once a Simple Assessment has been issued, the tax due can no longer be coded out. For example, an initial reconciliation produces a bill of £3,100. This cannot be coded out, so a Simple Assessment is issued to the taxpayer. They review this, identify an amendment, and the tax is reduced to £2,900. Although this is now under the limit for coding out, as a Simple Assessment has been issued, the tax must be paid directly. Taxpayers in this position could look to spread the cost by paying the bill in instalments via their PTA.
It is too soon to conclude how much of a simplification it will feel like for those affected. But as Simple Assessment is being rolled out in phases, this should hopefully allow HMRC to identify and resolve any issues as the system develops. As always speak to your accountant if you are unsure.