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HMRC internal manual

Compliance Operational Guidance

Alternative rights of recovery (PAYE directions): further action when a direction seems appropriate: primary and secondary legislation for SA

The Table below confirms the SA and PAYE legislation which has a bearing on direction tax.

Legislation Description
Section 8(1) (TMA 1970)  
Personal Return If given notice by an officer of the Board, a taxpayer is required to make an SA return.
  Section 8(1A)
Personal return A taxpayer is liable to file an SA return
  • by 31 January next following the year of assessment, or
  • within 3 months if the return is issued after 31 October following the year of assessment.  
      Section 9
Return to include self-assessment The return has to include a self-assessment of the tax payable unless it is delivered
  • before 30 September following the year of assessment, or
  • within 2 months of the Section 8 notice, provided the notice was issued after 31 July following the year of assessment.

If within these time limits the self-assessment of the tax payable is not made the SA office may make it on the taxpayer’s behalf on the basis of the information contained in the Return.

A Return can be amended

  • by HMRC within 9 months of its receipt to correct any obvious errors or mistakes in the Return
  • by the taxpayer within 12 months of the (Section 8(1A)) filing date.
Such amendments can be made only if a Section 9A enquiry is not open.  
  Section 9A

Power to enquire into returns

  HMRC can enquire into a return (giving notice in writing of the intention to do so)
  • 12 months from the normal filing date, that is 31 January next following the year of assessment or, if filed later
  • within the period ending with the quarter date next (31 January, 30 April, 31 July or 31 October) following the first anniversary of the filing date.
[The enquiry can remain open until such time that HMRC is ready to close it by notice in writing, though the taxpayer under Section 28A(6) can seek an earlier completion date – before the Tribunal if necessary.]  
  Section 28A(2)
Amendment of self-assessment where enquiries made During the enquiry window HMRC can immediately amend the SA return by notice in writing if
  • it is insufficient, and
  • there is a danger of a loss of tax.

The taxpayer has the option to

  • agree the amended assessment, or
  • disagree and lodge an appeal within 30 days of the notice (Section 31(1)(a)) and apply to postpone payment of the tax thought to be overcharged (S55(3)).    
      Section 28A(4) If HMRC gives notice that enquiries are now completed and states the amount of tax payable which should be contained in the taxpayer’s self-assessment, the taxpayer can within 30 days amend the self-assessment as considered appropriate. On the expiry of this 30 day period HMRC has a further 30 days in which to amend the self-assessment to achieve the desired result (allowing that the taxpayer may (i) not amend the return at all, or (ii) make an erroneous amendment). If HMRC amends the assessment the taxpayer has a further 30 days in which to appeal (see Appeals Review & Tribunals manual for details of further action to settle the appeal)
      Section 28C  
Determination of tax where no return delivered If the taxpayer does not make a return on or before the filing date HMRC (DMB in this case) may make a determination of the income assessable and the tax payable. A determination is
  • not appealable
  • superseded only by an SA return
  • fully recoverable, subject only to a lesser amount of tax payable by virtue of an SA return.
[If the DMB determination is found to be insufficient, for example its basis incorporates a PAYE tax credit which was not suffered, a ‘discovery’ assessment can be made for the deficiency following the making of a direction.]  
  Section 29
Assessment where loss of tax discovered HMRC may consider making an assessment to make good tax loss if it is discovered that
  • an assessment to tax is or has become insufficient, or
  • any income which ought to have been assessed to tax has not been assessed, or
  • any relief which has been given is or has become excessive.

This ‘discovery’ assessment can only be made if one of the following conditions is met:

  • the tax loss is attributable to fraudulent or negligent conduct by the taxpayer or a person acting on his behalf, or
  • The Section 9A enquiry window is closed and HMRC could not have been reasonably expected, on the basis of information made available to HMRC at that time, to be aware of one of the circumstances mentioned above. [This relates to information provided on the face of the return, or accompanying the return, and does not refer to third party information held by HMRC – such as the P14/P35/FPS return.]

The taxpayer can appeal the quantum of an assessment under the usual appeal provisions (Section 31), and also object to the fulfilment of the conditions above through the appeal mechanism.

[It is anticipated that most direction related ‘discovery’ assessments will be made on the basis that

  • the relevant office will not have known whether any PAYE tax credit claimed in the return was suffered (whether credited or not by virtue of Regulation 101A(2)), or whether a direction was competent
  • the effect of a direction in removing the PAYE tax credit is to make the self-assessment insufficient.
Fraudulent or negligent ‘discovery’ assessment are not ruled out but they may be rare and confined principally to director’s extractive remuneration in EM8701.  
  Section 30
Recovery of overpayment of tax HMRC can recover by a Section 30 assessment any tax which has erroneously been repaid to a taxpayer (unless the amount of tax which has been repaid is assessable under the provisions of Section 29).
[This provision may be particularly relevant in the SA era where returns are processed first and checked later.]  
  Section 31
Right of appeal Taxpayers can appeal amendments to self-assessments, and assessments which are not self-assessments, within 30 days of the notice of amendment or assessment being issued.
[The taxpayer can appeal the effects of a direction where the SA Return is amended.  (See COG932810 onwards for the appeals process against the direction itself). The relevant office can readily answer the appeal by reference to Sections 59A(10) and 59B(8), as appropriate, and Regulation 185.]  
  Section 34
Ordinary time limit of 4 years As assessment to tax may be made at any time (by HMRC or the taxpayer) not more than 4 years after the end of the year of assessment to which it relates.
  Section 36
Careless or deliberate  conduct Assessments where the taxpayer is careless have a six year time limit and deliberate conduct has a 20 year time limit following the year of assessment.  
  Section 59A(10) and 59B(8) Payment of tax These paragraphs give authority to Regulation 185 of the Income Tax (PAYE) Regulations 2003. They enable adjustments to be made to a self-assessment, affecting
  • the tax payable under the assessment for that year (59B(8)), and
  • the amount of tax payable on account for the following year (59A(10)).  
      Section 86
Interest provisions Interest on overdue tax is calculated from the following relevant dates:
  • Section 59A Payments on account (example 2011-12
    • 31 January 2012
    • 31 July 2102
  • Section 59B Balancing payment (example 2011-12)
    • 31 January 2013, or
    • 3 months after issue of a Section 8 notice issued after 31 October next following year of assessment.
[If a direction is made and an assessment is amended (for example, to remove a tax credit) automatic interest adjustments are made to the taxpayer’s SA record using these relevant dates, or other date if the relevant date is amended – for example, where it is changed to 19 April (COG931690).]  
  Regulation 185
Removal of tax credits Provides for PAYE tax credits to be removed or withheld from self-assessments when a direction is made. This may be made by
  • amendment of the SA return if the Section 9A enquiry is still open, or
  • under a Section 29 discovery assessment if the enquiry window is closed.