Understanding The Simple Assessment Tax Scheme

When you’re self-employed, ensuring compliance with your tax obligations can be a daunting and time-consuming prospect, especially if you don’t have an accountant. The clue is in the name, and Simple Assessment was introduced by HMRC in 2017 to make the self-assessment tax return process less onerous and more accessible for eligible taxpayers.

What is Simple Assessment Tax?

Simple Assessment Tax is a Government initiative to make the income tax process simpler for eligible people whose tax affairs are relatively straightforward. It’s a different method of assessing and calculating an individual’s income tax liability which puts the onus on HMRC instead of the taxpayer.

With the self-assessment tax return (SATR) system, the taxpayer must complete their own return, or appoint an accountant to help! Completing your own SATR can be a time-consuming and frustrating process and Simple Assessment is designed to alleviate this.

For Simple Assessment, HM Revenue and Customs (HMRC) will calculate your tax liability for you based on information that they already hold. To do this they use data sourced from multiple bodies such as your employer, your pension provider and the Department of Work and Pensions (DWP).

Do You Qualify for Simple Assessment?

Not all taxpayers are eligible for Simple Assessment and it’s not something that you can register for. Simple Assessment is generally applicable to individuals with financial situations that are not complicated and that meet one of more of the below criteria:

  • Owe Income Tax that can’t be deducted from income
  • Owe £3,000 or more to HMRC
  • Pay tax on State Pension

How Does Simple Assessment Work?

If you qualify for the scheme, you will receive a Simple Assessment letter from HMRC to inform you. This will include your reference number, tax code, taxable income amount and income sources, the amount of income tax that you’ve paid and the amount that you owe based on the information available to HMRC.

You can then review your Simple Assessment Calculation by checking the amounts against the records you have including your p60, any correspondence from the Department for Work and Pensions and your bank records. It’s important to check the figures carefully.

If you’re confident everything is correct and accurate, you can approve it online or by contacting HMRC directly. You will then receive a payment request which will include details of how to pay your Simple Assessment tax bill. There are various options for paying your tax bill including online through your personal tax account or by bank transfer or cheque.

If your Simple Assessment contains any issues, errors or discrepancies, you have 60 days to inform HMRC what the incorrect amounts are and what you believe they should be. HMRC will then either send you a new Simple Assessment if they agree it was wrong, otherwise you’ll receive a decision letter explaining why HMRC believes it to be correct, as well as information on how to pay and how to appeal.

What are the Benefits of Simple Assessment?

From the taxpayer’s perspective, Simple Assessment Tax is far simpler and easier than completing a self-assessment tax return. If you’re eligible for the scheme, HMRC will supply you with a completed tax return which just needs to be reviewed and confirmed which significantly reduces the effort and time needed to do your tax calculation and complete your return.

It also gives you both peace of mind and confidence that your tax affairs and obligations are in order without you needing to wrestle with the piles of paperwork and calculations needed for self-assessment. This can be a source of stress and anxiety for some taxpayers, especially those for whom the self-assessment process is very complex compared to their financial affairs.

You’ll receive timely updates from HMRC regarding your tax position too, meaning you know where you stand and have time to budget to ensure you have the funds in place to pay your liability.

From HMRC’s perspective, calculating tax returns using trusted data provides better accuracy reducing potential omissions, errors and fraud. Overall this is a more efficient process for HMRC, and one which might also help to close the tax gap.

Much like Making Tax Digital, Simple Assessment utilises automation to simplify the tax system improving accessibility and making it less onerous for eligible taxpayers, not to mention improving accuracy for HMRC.

For expert advice and guidance on Simple Assessment or Self-Assessment Tax Returns, you can speak to an accountant on 0330 024 0406 or request a call back today.