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What's Final
One of the big benefits of self-assessment is that it reduces the need for correspondence between the taxpayer and the Inspector - it's hard to imagine now how many letters, assessments and other pieces of paper used to pass to and fro. The single tax return and the statements of account may seem bad enough, but it used to be worse.
The self-assessment system usually works by the taxpayer sending off the return, the Revenue's computer processing it, and the taxpayer paying the amount shown as due...and that's it. In many cases, no further questions are asked. But what if the Revenue decide to look more closely?
To start with, they have a year from the filing date to start an enquiry - asking the taxpayer questions about the return. If they haven't started in that time, they are not allowed to start an enquiry afterwards. But they are still entitled to make a 'discovery assessment', if they can judge how much extra tax to ask for without asking the taxpayer a question. Discoveries can be made for another four years after the enquiry period has finished.
The Inspector is not allowed to make a discovery assessment if the tax return disclosed enough information to make that assessment, so the Inspector was fully aware of the position at the end of the enquiry period. That's one of the reasons for putting details in the 'white spaces' on a tax return - if you disclose the details in advance, you might be protected from discovery later, if the Inspector looks at your return and decides to disagree with what you have done.
In a recent case, the Court of Appeal did not accept that a taxpayer's disclosure was enough to prevent a discovery. The return included a house transferred by his employer at a valuation of £100,000. After investigating the employer, the Revenue reckoned this should be £145,000 - so they did not need to make an enquiry into the individual's affairs, they just asked for the money. The Court held that simply disclosing that a figure was based on a professional valuation was not enough - to give the Inspector enough information, the return would actually have to say that the valuation was wrong (which is ridiculous!).
After this decision, the Revenue are very happy that they have the right to make discoveries in more cases than they thought, and tax advisers are very unhappy that they cannot be sure of finality in their clients' affairs. We will have to watch closely to see what the Revenue do with this decision.
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