How to survive self-assessment

Revenue staff can get tough, so be ready for an inquiry, says Liz Loxton

As we enter the third year of self-assessment, experts are cautiously suggesting that taxpayers are finally getting to grips with it. Revenue errors still occur but less frequently.

The basic idea behind self-assessment is to streamline the processing of returns by encouraging taxpayers to work out their own tax liability. The onus is firmly on the individual to provide all the information relevant to that calculation.

But inevitably, both the calculations and the data on which they are based come under scrutiny by Revenue staff. This means that more taxpayers come into contact with the Revenue's inquiry machine.

So what happens if you are subject to an inquiry? There are three types: a random inquiry, an aspect inquiry and a full inquiry. Some 10,000 random inquiries are carried out each year. Aspect inquiries are usually quite minor and easily settled. You may be requested to produce a marriage certificate, for example, to prove that you got married in a particular year. But a full inquiry is a more serious affair. It allows tax inspectors to look into all the entries on your tax return and to request further documentation. They may also want to interview you.

The Revenue's first step is to send a formal letter to the taxpayer, notifying him or her that the return is under inquiry. It is not allowed to request information (except in limited circumstances) before announcing its intention to carry out an inquiry. The next step is to request further documentation. Perhaps the most unsettling aspect of the full inquiry is the fact that the Revenue does not have to give a reason why it is looking into a return. If you receive a request for information that looks irrelevant to your return, you or your accountant can ask the inspector to explain why it is needed. If you still cannot agree over the relevance of this information, you can ask the inspector to issue a formal notice, which you can then appeal against through the General Commissioners.

The inspector will then request an interview with you. You do not have to comply with this request, but it may be advisable to do so. Francesca Lagerberg, senior tax manager at the Institute of Chartered Accountants' tax faculty, says that taxpayers should beware unreasonable requests.

"There is no statutory right of the Revenue to insist on an interview," she says. "It can be a good way of proceeding, but sometimes it may be better to ask for questions in writing and to give a considered response."

If you have been handling the inquiry yourself, this may be a good time to find an accountant. Richard Murphy, partner with Murphy Deeks Nolan, says that an accountant can warn clients of the questions they will be asked, and ensure they are fairly put.

Above all, remember to file your return on time. If you intend to file in January, do not leave it until the last week (see below). Rumours persist that late filers are more likely to be subject to an inquiry than other taxpayers.

Liz Loxton is features editor of 'Accountancy Age'.

USEFUL CONTACTS

To find an accountant or tax adviser in your area, call the Practitioner Bureau at the Institute of Chartered Accountants of England & Wales on 01908 248090; the Chartered Institute of Taxation on 0171-235 9381 (www.tax.org.uk); or the Association of Chartered Certified Accountants on 0171-396 5900.

You can request a copy of the Inland Revenue Code of Practice from your local tax office. The Inland Revenue Self Assessment website (www.inlandrevenue.gov.uk/sa/index2.htm) provides a guide to procedures and also includes an exhaustive list of frequently asked questions.