Top tips when using provisional figures in self-assessment tax returns
A tax return containing provisional figures should only be submitted if it becomes clear that a more accurate figure will not be available before the filing date.
HMRC will not accept a return containing estimated or provisional figures when the client did not provide any information at all (figures are missing from the return), little or no effort is made to obtain and submit figures, the accountant did not request that information on time or was under pressure due to the complexity of the taxpayer’s affairs.
Is the figure estimated or provisional?
Provisional figures are the best estimates available at the time the return is submitted. These figures will be revised, so an amended return always follows as soon as final figures become available.
Provisional figures should not be confused with estimated figures, which are final and will be the only ones ever available. Figures may be estimated when records are lost or in case of inherently judgemental transactions, for example a valuation figure.
How to notify HMRC
Sole traders do not need to mark figures are provisional, provided the accounts are prepared following GAAP rules, unless the trader has elected to opt for the simplified cash basis.
If notifying, notification in the full tax return is made by:
ticking box 20 (page TR8) and
including a note in the white space explaining which figures are provisional or estimated and for provisional figures indicating when final figure is expected or, for estimated figures, the basis on which the figure has been calculated and the reason why the figure has to be estimated.
When submitting a short tax return, provisional figures can be included without notifying HMRC (there is no equivalent of box 20).
There is no guidance on how to notify HMRC when estimated figures are reported in the short tax return, and so a full tax return is likely to have to be submitted.
HMRC is likely to withhold any tax repayments due, until final tax return is submitted following the filing of a provisional tax return.
If estimated figures were submitted, HMRC is likely to withhold any tax repayments until it is satisfied the estimates are reasonable, following the conclusion of its enquiry.
How to submit an amended return
Submit new return with box 20 tick removed and comments in the white space removed, with the same figures if there is no change, or figures changed as appropriate. Returns can be amended within 12 months of filing deadline.
Any provisional tax return not yet revised within the deadline is likely to be selected for enquiry and a penalty for filing an incorrect return issued.
A penalty for a careless or deliberate inaccuracy in a tax return could be charged if HMRC find there was no good reason for using a provisional figure or the amount was not estimated reasonably.
When using estimated figures, to avoid penalties, always be clear on how the figure was calculated and any assumptions made are robust and reasonable.
To avoid penalties when submitting provisional figures, always ensure there is a valid reason for not providing the final figures in time, and submit amended return on time.