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I have a client who is always tardy with his return, and I calculate the tax due on cobbled-together figures on 29 January, and he pays it. This year he had a capital gain on which to pay tax, but he told me that he was sure he had a capital loss brought forward from years ago to offset against this. I calculated the tax on the basis that he would not find the paperwork to justify a loss claim - some £17,000 to pay.
I have a client who is always tardy with his return, and I calculate the tax due on cobbled-together figures on 29 January, and he pays it. This year he had a capital gain on which to pay tax, but he told me that he was sure he had a capital loss brought forward from years ago to offset against this. I calculated the tax on the basis that he would not find the paperwork to justify a loss claim - some £17,000 to pay.
By the time he submitted the return (mid-April) he had actually found evidence (Inland Revenue letter!) of the capital loss in 1981-82, which has certainly never been used up and was therefore available for relief. This reduced the tax by about £1,500. He had also found a few more expenses and his final accounts had a slightly lower profit, so the final tax liability was £1,700 less than my rough calculation.
The repayment came with 1p of repayment supplement, representing one day's worth. When I questioned this, the reply was that repayment supplement is only added to a repayment of an 'overpayment of tax'. If the taxpayer 'deliberately overpays', interest is not paid.
If my client had submitted a provisional return on 31 January and later corrected it, the Inspector accepts that the client would have been due repayment supplement.
Any possible solutions to this dilemma would be welcome.
(Query T16,042) - Mike.
I am afraid that 'Mike' will get no mileage out of the Inland Revenue on this one. Supplement would normally be paid under section 824(1), Taxes Act 1988 and applies to any income tax paid for a year of assessment. At the time, the taxpayer paid £17,000, but the actual liability to tax (generated and formalised by the submission of a self assessment) was only £15,300. The balance of £1,700 was not therefore a payment of tax, but simply a payment of money to the Revenue. As it is not tax, section 824(1) cannot be applied and supplement is not due. The £1,700 apparently overpaid does not qualify under section 824(1)(a) as a payment of income tax under section 59A, Taxes Management Act 1970 and does not qualify under section 824(1)(b), Taxes Act 1988 as 'any income tax paid by or on behalf of an individual for a year of assessment'. This covers payments made under other processes, e.g. pay-as-you-earn, as well as balancing payments under section 59B, Taxes Management Act 1970. The taxpayer's payment in this instance does not fall under section 59B as it is not the difference between the amount shown as due for the year and the aggregate payments already made. The £1,700 overpaid was a payment unassociated with any obligation and thus does not attract supplement. This effectively stops the Revenue acting as a bank.
The absurdity about this whole situation is that if you submitted a wholly estimated tax return showing a liability of £17,000, this would have created the legal charge to tax and thus any amendment of the liability downwards would have created a refund which would have attracted supplement on the whole amount. This is ludicrous, as you gain financially by doing something that you know to be wrong. The moral of the story is that if you ever have to estimate a liability for a client, you should enter a provisional tax return with a self assessment of that amount, just to create the legal charge to tax. - Quiet Achiever.
The return mentioned appears to be for the year ending 5 April 2001, so that section 59B(4), Taxes Management Act 1970 would have required the related tax to be paid by 31 January 2002, when the estimated payment (excessive by £1,700) was made.
The measure of this liability is taken as the excess over any payments on account (or income tax deducted at source) of the amount of income tax and capital gains tax self assessed as chargeable by the individual in accordance with section 9, Taxes Management Act 1970, following receipt of a return form under its section 8.
A repayment supplement is authorised by section 824, Taxes Act 1988 on the making of a repayment in various circumstances, in particular as regards any income tax paid by or on behalf of an individual for a year of assessment. As stated above, this is identified from the return submitted which, we are informed, was not delivered until mid April. If the return had specified a greater tax liability (perhaps because the evidence of loss was further delayed) which matched the actual payment in January, then that whole amount would have answered to the description of a self-assessed charge.
In the past the Revenue paid out large tax-free supplements to astute individual taxpayers, but now only companies may make payments upfront, with disadvantageous rates. Individual taxpayers in the position of 'Mike's' client could still purchase a certificate of deposit, albeit carrying low rates of interest. - Bear.
Editorial note. It is understood that 'Quiet Achiever's' reply sets out the official view of the Revenue.
