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HMRC highlights common self assessment errors

15 December 2020. HMRC highlights common self assessment errors and issues in its latest Agent Update. Some are more relevant to unrepresented taxpayers filing their own returns, but several are also relevant to agents.

Marriage allowance

The processing of self assessment (SA) returns which include relief for marriage allowance may be delayed if the transferor has not already submitted a marriage allowance claim online or by telephone/letter. Where both partners are in SA, it is recommended that the transferor’s return is submitted before the transferee’s return to avoid processing delays.

Submitting a return as an amendment

HMRC receives large numbers of online returns submitted as an amendment rather than an original return. It is unable to process these returns as the original has not been submitted.

HMRC also advises that amendments for 2018/19 returns which are submitted on the 31 January 2021 deadline day may not be processed automatically. Where possible, it recommends submitting amendments earlier.

Closed SA records

If HMRC has closed an SA record it may not be possible to submit the return online. HMRC will usually send an SA closure letter (form SA832) when it closes a record. SA accounts can be reopened for filing either by phone, webchat or by submitting an SA1 or CWF1.

Registration for national insurance

HMRC will only collect class 2 national insurance contributions if the client is correctly registered as self-employed on the national insurance and PAYE system (NPS). Details of the class 2 liability according to NPS is displayed in the agent portal. If the registration is incomplete a CWF1 will need to be submitted.

Out-of-date software

HMRC receives some returns submitted using older versions of software. This can cause the return to be rejected as it is not compatible with HMRC systems. These returns have to be reviewed manually, causing a lengthy delay. Check with your software provider whether you need to update your software to a newer version.

Income reported in the wrong section of the return

Some taxpayers have found they are not eligible for Self-employment Income Support Scheme (SEISS) grants because they had completed their previous tax return incorrectly. Common errors included reporting income from self-employment in the employment section of the return or as other taxable income in the main section of the return.

Most of the cases were in the construction and entertainment sectors, where the individual may not have been clear about their employment status on particular contracts. As well as affecting eligibility for SEISS, the individuals concerned will probably not have paid their class 2 and class 4 national insurance liabilities. ICAEW’s Tax Faculty has queried why HMRC processes do not pick up such errors.

Not completing the return fully

Each year a number of returns are completed, but the final submission step is omitted. A copy of the submission receipt number should be retained for future reference.

Personal details on paper SA returns

Where it is necessary to submit a paper return, the personal details (national insurance number, unique taxpayer reference, name and address) on the front of the return must be completed before submission. Including these details in a covering letter is not sufficient.

HMRC regularly receives returns with incomplete personal details, causing delays to processing. If an online filing exclusion applies, the exclusion number should be marked very clearly on the front of the return. 

Claims to entrepreneurs’ relief showing as claims to investors’ relief

HMRC has identified an issue with some claims to investors’ relief (IR) and entrepreneurs’ relief (ER) (now known as Business Asset Disposal Relief) in 2019/20 returns.

The 2019/20 return is the first one to include a box specifically for capital gains qualifying for IR: box 49 on the SA108. Box 50 on the SA108 continues to relate to ER. HMRC has identified that some claims to ER have incorrectly appeared on returns as claims to IR.

If you have already filed a return that includes a claim to either of these reliefs, check to ensure the claim has been made correctly. If you identify an error, make an amendment and include a short note to explain the change. For any future claims, ensure that your software is up to date and that any claims are reported in the correct box before submitting the return.