EM5175 - Penalties: Culpability - Defences: Failure to Make a Return - Provisional Figures

This guidance deals specifically with SA cases. For information on provisional figures in CTSA returns see CTM93280.

The time limit for filing an SA tax return gives the taxpayer a minimum of three months and normally about 10 months to complete their return. The vast majority of taxpayers are expected to be able to provide correct and final figures by the filing date. But, we do recognise that there are sometimes occasions when a final figure cannot be known. In these circumstances, the return guidance says that, to avoid a penalty, the return must reach us in time and the taxpayers should enter their best estimate of the figure. The taxpayers must tell us on the return which figures are provisional. The return guidance is based on our view of the law, which is explained below.

We expect the taxpayer to have done all they reasonably can to obtain the final figures to put on their return. We do not accept that pressure of work or the complexity of someone's tax affairs justifies the use of provisional figures. The taxpayer (and their agent) should take such factors into account when considering how long it will take to complete the return.

The tax return guidance tells the taxpayer to tick the relevant box and to tell us the reason for each provisional figure and the date by which they expect to be able to tell us the final figure. If the information is not provided or the taxpayer gives an inadequate explanation, such as "pressure of work", they have still made a return that we should process. Then the inadequacy of the information will be a factor in deciding whether tax may be at risk as a result of the use of provisional figures and whether you need to open an enquiry.

Where there is evidence that the taxpayer has acted fraudulently or negligently in submitting a return containing provisional figures, penalties under Section 95 or 95A TMA may be due. This can be where you establish that provisional figures were unnecessary, because final figures could have been obtained in time for the filing date or where the provisional figures were not a reasonable estimate in the light of the information available at the time.

Standard Accounts Information (SAI) in SA returns

We do not expect to receive a single figure of estimated profit where, for example, it was only "impossible" to prepare final SAI figures because the taxpayer made little or no effort to have the final figures prepared in time to meet the filing deadline. There may be a few circumstances in which it is genuinely impossible to provide accounts information. The only common circumstance would be where, in the case of a newly commenced business, the first accounting period does not end until close to or after the statutory filing date. By "close to" we mean within 3 months of the filing date, so for the normal 31 January deadline, that means accounting periods ending on or after 1 November.

There may be circumstances in which some, or all, of the standard accounts information is entered on a provisional basis. For example, there may have been a change of accounting date requiring two sets of accounts to be prepared. If only the earlier set of accounts were final then provisional standard accounts information would be required, pending completion of the second set of accounts. We would expect provisional figures for each of the anticipated entries in the standard accounts information.

What to do with Returns containing Provisional Figures

Typical examples of provisional figures might be:

• income from abroad
• income from an estate
• partnership income where a partner has to complete a personal return before knowing his or her share of partnership profits for the period.

As soon as a final figure is available the taxpayer should notify us without delay and make the necessary amendment to the return. Any unreasonable delay in providing a final figure could make the taxpayer liable to a penalty if the tax payable on the basis of the original estimate was insufficient, even if the original return was not submitted negligently EM5180.

But, in reality the taxpayer may do one of four things.

1. Notify us of the final amount within 12 months of the fixed filing date and not amend the self assessment.
2. Notify us of the final amount within 12 months of the fixed filing date and amend the self assessment.
3. Notify us of the final amount more than 12 months after the fixed filing date.
4. Never notify us of the final amount.

Where situation 1 applies you will be entitled to enquire into the return until the original 12 months from the fixed filing date runs out. If an amendment to the self assessment is required you must ensure that an enquiry is taken up within that time limit.

Where situation 2 applies you will be able to enquire into the amendment for 12 months from the quarter day next following the date it was made.

Where situation 3 applies you may be able to take action, but you would have to use the discovery provisions EM3250+. 

Finally if situation 4 applies and you do not take action within the 12 month enquiry period you will have difficulty in making a discovery assessment unless you obtain further information to suggest the provisional figure is incorrect.

So when you receive a return which contains a provisional figure

• the return should be risk assessed in the usual way
• if the case is selected for full or aspect enquiry because other risks are present the provisional figure should be included on the enquiry plan and pursued as the enquiries proceed
• if no other risks are identified in the return the Compliance Manager or Enquiry Officer should decide whether the provisional figure can be treated as a final figure. If so you need take no further action.

If you cannot treat the provisional figure as a final figure, and

• the final figure is promised within the 12 month enquiry window you should note the case for further review at that time. If it is not received you should open an aspect enquiry immediately
• the final figure is promised after the 12 month enquiry window, you should open an enquiry some time before the window closes, to protect the position.

When you open an enquiry you can either ask for the figure right away if you think it should be available, or use the enquiry to establish the date by which it will be provided.