Jeopardy – danger of injury, loss, death, etc., says the dictionary. Being the subject of a Inland Revenue enquiry may generate all sorts of fears, but this seems a bit extreme. So how has this term crept into self-assessment enquiry procedures?
Article by Louise Pinfold, a senior technical editor with CCH and a consultant with IRPC Taxation Services, published in the February 2002 issue of Tax Adviser.
Put simply, the Revenue have statutory right, where an enquiry is open and ongoing, to amend the taxpayer's self-assessment to bring further tax into charge and this is known as a ‘jeopardy amendment’. There is no definition of this term in the legislation; it is merely a rather colourful shorthand phrase coined by the Revenue to describe a particular set of circumstances and actions.
The legislation itself says very little on this subject, merely that where a enquiry is in progress as a result of the issue of a notice under Taxes Management Act 1970 (TMA 1970), s. 9A and an officer of the Board forms the opinion:
- ‘that the amount stated in the self-assessment contained in the return as the amount of tax payable is insufficient, and
- that unless the assessment is immediately amended there is likely to be a loss of tax to the Crown,’
he may amend the taxpayer's self-assessment by giving written notice. The legislation applying to enquiries in progress at, or started on or after 11 May 2001 is contained at TMA 1970, s. 9C. The legislation applying before that date is to be found in former TMA 1970, s. 28A (although there is no difference in wording) and corresponding legislation applying to Corporation Tax Self Assessment enquiries is contained in Finance Act
1998 (FA 1998), Sch. 18, para. 30, the wording being identical to that quoted above.
Note that the legislation applies where an enquiry is open under TMA 1970, s. 9A or FA 1998, Sch. 18, para. 24 and as such, applies to enquiries into individual, trustee and company returns only. There is no provision for the Revenue to issue a jeopardy amendment in respect of a partnership return, although an amendment may be made to the individual partners’ own self-assessment provided an separate enquiry has been opened under TMA 1970, s. 9A.
There is no time limit for making a jeopardy amendment (it can be made at any time between the issue of the enquiry notice and the completion of the enquiry), nor are there any limits as to the number of such amendments which can be made, although in practice, there is unlikely to be more than one. Subsequent amendments would be considered only where further facts had emerged during the course of the enquiry which led the officer to think that the first amendment considerably underestimated the amount of tax due. The taxpayer may appeal against the amendment (see Appeals procedure below)
As there is really very little detail in the legislation, we have to turn to Revenue publications to see how jeopardy amendments work in practice and the remainder of this article is based on information/guidance given in the Revenue’s Tax Bulletin and Enquiry Handbook.
When is a jeopardy amendment used?
All the following statutory conditions must apply before an amendment is made:
- notice to enquire must have been given under TMA 1970, s. 9A or FA 1998, Sch. 18, para. 24;
- the enquiry is not yet completed;
- the officer is of the opinion that the tax contained in the self-assessment is insufficient; and
- the officer considers that if the self-assessment is not amended immediately to make good the deficiency, there is likely to be a loss of tax to the Crown.
In pre self-assessment investigations, inspectors would normally ask for a payment on account when they established further liabilities, but the investigation was not completed. This practice continues under self-assessment. Jeopardy amendments are considered in certain circumstances, however, where the inspector considers that there is a risk of a ‘loss of tax’ and where the taxpayer will not agree to making a payment on account. They are essentially the SA equivalent of pre-SA protective assessments; an alternative method of bringing tax into charge.
The legislation is silent about the circumstances in which a jeopardy amendment might be appropriate and the first guidance we have is in the August 1997 special edition of Tax Bulletin, where the Revenue make it quite clear that such a measure will be used rarely:
‘We would only use this power in cases where substantial amounts of tax were at stake and inadequate payments on account towards outstanding liabilities had been made.’
But what do the Revenue see as ‘loss of tax’? After all, a good proportion of enquiries lead to additional tax. Is it merely a question of how much? Again no guidance can be gleaned from the legislation, although though the Enquiry Handbook is most helpful here. It clarifies that consideration should be given to a jeopardy amendment where it seems that the taxpayer is intending to put himself or his assets out of reach of the Revenue, e.g. he:
- intends to dispose of assets;
- intends to become non-resident;
- intends to apply for bankruptcy/liquidation; or
- may be about to go to prison.
However, the Revenue interpret ‘loss’ of tax not only as meaning where tax might not be paid at all, but also where payment has been delayed for an unreasonable time owing to the default of the taxpayer, and jeopardy amendments can also be considered where the taxpayer refuses to co-operate:
‘but only if you have already established with some degree of certainty that the self-assessment is deficient’[italics added] (Enquiry Handbook, EH 431).
It would seem clear therefore that this measure is to be reserved for the more serious cases and not to be used routinely (it should be noted however, that it can apply in the case of aspect, as well as full enquiries). The Revenue's more normal response to delay would be the issue of a formal notice under TMA 1970, s. 19A (or FA 1998, Sch. 18, para. 27 in the case of a company).
The jeopardy amendment replaces the taxpayer's self-assessment and tax is therefore collectible on the basis of the amendment. The normal appeal and postponement provisions apply to the amendment and the tax charged by it.
Although an appeal against the amendment can be brought within 30 days of the date of issue under TMA 1970, s. 31 (FA 1998, Sch. 18, para. 30 for companies), the appeal cannot be heard until the enquiry is completed. The postponement application can be dealt with, however and the Revenue can either agree to this themselves or refer the matter to the commissioners.
It is of course also open to the taxpayer to apply for judicial review if it is felt that the amendment was not soundly based, Inspectors are therefore clearly instructed:
‘you should not make a jeopardy amendment routinely or speculatively’.
They are also advised to make a note of the reason for the amendment and the tax believed to be at stake.
The Revenue has an extensive armoury of formal powers to enforce its enquiry regime, should there be lack of progress and/or co-operation. Some are used regularly, e.g. notices under TMA 1970, s. 19A, while others may be seen only rarely.
Jeopardy amendments have not yet been the subject of any reported proceedings, and indeed there are no statistics to indicate the extent to which this measure has been used. It is likely that not many advisers, even those who deal with enquiries on a regular basis, will have seen such an amendment, which seems to bear out the Revenue’s statement that they will only be considered in the most serious cases.
However, it is of concern that there is so little in the way of statutory support for the Revenue’s interpretation of the circumstances in which such amendments are appropriate, with the result that their issue is at the discretion of an individual officer. Indeed, there is some anecdotal evidence of officers not following their own internal guidelines and issuing amendments in circumstances which fall far short of those outlined in the Enquiry Handbook
It is hoped that such instances will be rare.
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February 2002 by