Tax return management – carrot or stick?

HMRC bowed to the inevitable and deferred the issue of the initial £100 late filing penalty for a month. Accordingly, tax payers have a further month to file their returns online for 2019-20 – by 28 February 2021 – without incurring the £100 penalty.

This is a mixed blessing for practitioners, who we are sure would rather get the job done this month.

The word anti-climax comes to mind.

Although the filing deadline remains 31 January, as do any resulting tax payments for 2019-20, the gesture to defer the initial fine, for 2019-20 online returns not filed by 28 February 2021, effectively moves the goal-posts; good news for tardy clients but good news for practitioners?

Firms will have burnt the midnight oil, coping with homeworking and other obstacles, in order to meet the 31 January deadline. As a profession we are used to the end of January ground-rush. This is a rug now removed and the notion that we can relax from 1 February is now taken away for up to four weeks. Unless, of course, all your SA returns are filed…

How do you manage SA returns processing?

There are three schools of thought.

The first is charge a fee based on complexity, but apply no incentive to file early in the tax cycle, or additional fees if information is provided late in the tax cycle.

The latter strategies are described in more detail as the carrot (incentive) rather than stick (penalty) approach below.

Carrot or stick?

To incentivise clients to provide tax return data in the early part of the tax cycle the “carrot” approach would look something like this:

  • Calculate fee payable based on complexity at premium rates.
  • Offer clients a fixed discount if they submit their records before say 31 October in the filing cycle.

Alternatively, the “stick” approach would be:

  • Calculate fees at standard rates based on complexity.
  • Charge client’s additional fees, say 25% more if information submitted after 31 October but before 31 December, and 50% more if information provided to complete returns after 1 January.

In either case clients would incur lower fees if returns were completed early in the tax cycle.

Making Tax Digital

To some extent these musings on SA return management will become redundant once MTD is applied to income tax. It is expected that the formal filing of returns will no longer be necessary if HMRC are successful in pushing tax data to each tax payer’s online tax account. Practitioners will still have a role to play, but this will no longer be a filing responsibility, but a Tax audit to ensure HMRC’s numbers add up.

HMRC’s announcement

The press release setting out HMRC’s agreement to charge no late filing penalty – for 2019-20 returns – for those who file online by 28 February 2021 can be accessed here https://www.gov.uk/government/news/no-self-assessment-late-filing-penalty-for-those-who-file-online-by-28-february

Bob Edwards

Bob has been working with practices across the UK offering novel ways to improve cross-sales and increase new client acquisitions. He is also interested in "step changes" in legislation that offer challenges, and therefore opportunities, for practitioners to provide new recurring and one-off support services to clients.

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