A guide to HMRC Simple Assessment and paying your tax bill

For anyone who regularly completes an annual tax return, HMRC’s introduction of ‘Simple Assessment’ will be welcome news. Unfortunately, it doesn’t yet apply to the majority of the 11 million people who file a return, but the process has been introduced for certain taxpayers and may be expanded over time, although it operates separately from HMRC’s ‘Make Tax Digital’ programme.

Initially, Simple Assessment was made available to two groups from September 2017:

• New state pensioners with a pension income greater than their personal allowance in the 2016/17 tax year. Simple Assessment applies if the excess amount cannot be collected through PAYE.

• Employees on PAYE who have underpaid tax. Simple Assessment applies if the underpaid amount cannot be collected through their tax code.

The wider rollout has been gradual, with HMRC continuing to focus on straightforward cases where sufficient data is already available.

However, the initiative is set to continue, so in this guide we will explain how Simple Assessment works and your personal responsibilities for dealing with it and paying the correct amount of tax at the right time.

The basics of Simple Assessment

As the name suggests, HMRC aims to make life simpler by completing most of the information for you. They can do that by using real time information provided by employers, the Department for Work and Pensions (DWP), other government departments, private pension providers, banks and building societies.

HMRC uses data it already holds from third parties to prepare the calculation, reducing the amount of information you need to provide. However, you remain responsible for ensuring all relevant income is correctly reported.

Instead of completing an annual tax return, you will receive a tax calculation from HMRC, typically as a Simple Assessment (PA302) or, in some cases, a P800 tax calculation. These are separate processes used in different circumstances.

The Simple Assessment letter includes the following information held by HMRC:

• Income from employment

• Employee benefits

• State pension

• Private pension

• State benefits

• Savings interest

Based on that information and your personal allowance for the tax year, HMRC provides their calculation of the tax due.

If HMRC issues a Simple Assessment, you will not usually need to complete a Self-Assessment tax return for that tax year, unless you have other income or HMRC specifically requires one.

Your responsibility for checking Simple Assessment

Although you don’t have to provide information to HMRC, it is your responsibility to check that the information HMRC uses is accurate.

If there are errors, you should contact HMRC as soon as possible to report any errors in the calculation. If you don’t and you underpay tax because of HMRC’s error, you may be liable to additional tax, interest, or penalties depending on the circumstances.

You can check the information by comparing the figures on documents that pension providers, banks, building societies and government departments such as DWP send you.

If HMRC rejects your claim that their information is incorrect, you can appeal, but you must file your appeal within 30 days of HMRC’s notification.

When you are checking the figures, you may find it difficult to calculate the exact amounts you received within the periods covered by the tax year for items such as state benefits or savings interest. A phone call to the provider may be more informative than a standard letter or bank statement covering a different period.

Paying your tax bill

If you agree with the assessment, you must pay the due amount by the date given in the letter, either online or by cheque payable to HMRC.

The due date for payment is likely to be either 31st January following the end of the tax year or three months after the date of the Simple Assessment letter if it is later than 31st January.

You must pay by the correct date or HMRC may charge interest and penalties on any overdue amount.

If you are unable to pay by the due date, you must contact HMRC and explain your circumstances. You may be able to arrange a ‘Time to Pay’ agreement, subject to HMRC’s approval.

Scope of Simple Assessment

HMRC primarily uses Simple Assessment for straightforward cases, such as individuals with PAYE income, state pensions, or underpaid tax that cannot be collected through a tax code.

Taxpayers with more complex affairs, such as multiple income sources or significant deductible expenses, will generally continue to file a Self-Assessment tax return.

Expanding Simple Assessment

HMRC may expand the use of Simple Assessment over time as more data becomes available through its digital systems.

In practice, HMRC is increasingly pre-populating data in digital tax services, reducing the amount of information taxpayers need to provide. Each individual would only have to enter data that HMRC does not hold.

In the longer-term, HMRC’s aim is to capture more of the non-standard data through regular digital submissions and updates by taxpayers.

Maintaining records for Simple Assessment

Even if you are within Simple Assessment, you should retain records of your income and relevant documents. It is good practice to keep supporting records and receipts for any income or expenditure.

The records could prove useful if you find errors in HMRC’s calculations or if you require evidence in the event of an HMRC investigation into your tax affairs.

Under traditional tax return rules, you must keep your records for at least 5 years after the 31st January submission deadline of the relevant tax year. For example, records for a tax return submitted by 31 January following the end of the tax year should generally be kept for at least five years from that deadline.

Support from Accounts and Legal

This is a brief outline of HMRC’s Simple Assessment process. Although the initiative’s aim is to make tax simpler, we recognise that some taxpayers may find problems in reviewing HMRC’s calculations or appealing their decision.

If you would like professional advice on any aspect of Simple Assessment or would like confirmation that you are paying the correct amount of income tax, our team of experienced tax accountants will be glad to help.

To find out more, please contact us on 0207 043 4000 or info@accountsandlegal.co.uk.