Self-Assessment Validation – What Checks does HMRC Perform and Why

1) The HMRC Self-Assessment Validation Process – Frequency and Purpose

Her Majesty’s Revenue and Customs (HMRC) have a statutory duty to ensure the integrity of the UK tax system. A key component of this responsibility is the validation of self-assessment tax returns submitted by individuals and businesses. While millions of taxpayers submit accurate returns each year, HMRC performs various checks to confirm that the information declared is both correct and complete.

Frequency of Validation

Historically HMRC has not validated every single self-assessment return submitted. Instead, it uses a risk-based approach to identify returns that require further scrutiny. This system combines automated risk assessment algorithms with random sampling to strike a balance between efficiency and thoroughness. Some checks are performed annually as part of routine compliance, while others are triggered based on specific red flags or discrepancies.

The frequency of these checks can depend on several factors, including:

• The taxpayer’s income level or type
• Historical compliance behaviour
• Inconsistencies in the return compared to third-party data (such as P14s or P11Ds)
• Random selection for audit

In recent years though we have noticed a higher incidence in the volume of self-assessment personal tax returns being checked, potentially due to greater integration of HMRC’s systems and the ability this gives them to automate validation checks of this nature.

Purpose of Validation

The primary aim of the validation process is to:

• Detect and correct errors or omissions
• Ensure taxpayers are reporting income, deductions, and reliefs accurately
• Prevent tax evasion and fraud
• Maintain public confidence in the fairness of the tax system

Validation is not the same as a full investigation. Instead, it is typically a series of cross-referencing exercises using data already held by HMRC. Historically If discrepancies were identified, HMRC would initiate an enquiry, issue a correction, or contact the taxpayer directly for clarification.

However, in recent years HMRC has initiated a new process whereby they are willing to work alongside accounting companies to coordinate responses on a bulk basis with respect to their own clients.  This process involves HMRC notifying the accounting company which clients they wish to perform checks on and why.

We then in turn contact our clients and let them know that HMRC wish to examine their tax return and provide details of the type of check they would like to perform.

Clients are then able to investigate the situation in more detail with our assistance, after which point we can:

• EITHER amend the tax return on their behalf based on the provision of new missing information.
• OR we can report back to HMRC that the client does not believe that any amendment is required, and explain the reasons for this.

While this is a relative new process, we have found it to be a very proactive, positive, and well received to date from the perspective of all parties involved:

• Our Clients – Our clients typically prefer this arrangement, and find it much less stressful than being contacted by HMRC directly for the purposes of opening an enquiry.
• Our Company – We are fully engaged in the process from the start and able to provide additional advice and guidance to our clients about why HMRC have made this request, what the taxation impacts will be, and prepare a revised tax return where this is required.
• HMRC – HMRC are no longer required to open individual enquiries and investigate each client instance with all clients directly. Instead they receive a summary of which returns have been amended, and vice versa, and they can then focus their attention on any remaining higher risk case (for instance where clients have not responded to validation requests).

2) What are P14 / RTI Validation Checks?

Understanding the P14 Form

Form P14 was historically used by employers to submit details of an employee’s annual pay and tax deductions under PAYE (Pay As You Earn) to HMRC. These have now been replaced by Real Time Information (RTI) submissions which are made electronically on a monthly and annual basis by the Payroll software employers use for PAYE.

P14 / RTI data includes:

• Gross pay
• Tax deducted at source
• National Insurance contributions

How P14 / RTI Checks Work

When a taxpayer files a self-assessment return and declares employment income, HMRC cross-check this figure against the information submitted by the employer via RTI submissions. This ensures that the reported figures match and that the taxpayer has not under-reported income or over-claimed tax relief.

Common issues can include:

• Misreporting Earnings – Taxpayers record earnings on their tax return which is different to that which has been previously reported by an employer. The risk from HMRC’s perspective is the UNDER-statement of earnings.
• Misreported Taxation – Taxpayers record tax paid at source on their tax return which is different to that which has been previously reported by an employer. The risk from HMRC’s perspective is the OVER-statement of tax paid at source.
• Incorrect tax codes – Tax code differences can give rise to differences between tax calculated on your tax return and that previously charged by employers.
• Multiple employments – Taxpayers with more than one job may forget to include income and tax suffered at source from one or more of these other employments.
• RTI Errors – Where the figures reported on your tax return correctly match the P45 and P60 documents supplied to you by your employer, it is also possible that there have been errors in their RTI submissions which they will need to investigate on your behalf.

3) What are P11D Validation Checks?

Understanding the P11D Form

Form P11D is used by employers to report expenses and benefits provided to employees and directors that are not processed through payroll. This includes:

• Company cars
• Private medical insurance
• Interest-free or low-interest loans
• Non-cash vouchers
• Accommodation
• Etc

The information on the P11D is submitted annually and must be included by the employee in their self-assessment tax return.

How P11D Checks Work

HMRC uses P11D data to validate self-assessment entries concerning Benefits In Kind (BIKs). For instance, if an employee is provided with a company car, the taxable value of this benefit must be included in their self-assessment.

The process involves matching the employer’s P11D submission with the individual’s return. Any discrepancies will be flagged.

Common issues can include:

• Omitted Benefits – Taxpayers may forget to include taxable benefits on their tax return.
• Incorrect Benefit Values – Taxpayers may record taxable benefits on their tax return which are different to that which has been previously reported by an employer. The risk from HMRC’s perspective is the UNDER-statement of taxable benefits.
• Confusion Over Taxable vs Non-Taxable Benefits – Not all employer-provided benefits are taxable, and misunderstanding these differences can lead to omission or mis-reporting.

A common mistake made by clients is to exclude P11D taxable benefits because they have already been taxed at source.  Note – P11D Taxable benefits need to be included on your tax return even when they have already been taxed at source!  This is because you need to include ALL income and tax already paid inclusive of benefits for the computation in your tax return to be accurate.  If you exclude these values because they have already been taxed at source, then the calculations in your tax return may for example: incorrectly allocate your tax-free personal allowance, or incorrectly change the value of dividends or other income subject to tax at higher rate tax bands!

4) What are Higher Income Child Benefit (HICB) Validation Checks?

Background to HICB

Since January 2013, the High Income Child Benefit Charge (HICBC) has applied to taxpayers who receive Child Benefit but whose income (or their partner’s) exceeds £50,000. The charge effectively claws back some or all of these benefit via self-assessment.

The charge operates on a sliding scale:

• If income is between £50,000 and £60,000, part of the benefit is repayable.
• If income exceeds £60,000, the full amount must be repaid via the charge.

How HICB Checks Work

HMRC uses a combination of Child Benefit records and self-assessment declarations to assess whether the charge applies. The system compares declared income with Child Benefit claims to validate whether:

• The HICBC has been correctly calculated
• The taxpayer has declared the charge if applicable

Common issues can include:

• Failure to Register for Self-Assessment – Some taxpayers may not realise they must register and submit a tax return if the HICBC applies.
• Failure to Declare Child Benefits – Taxpayers may forget to include the HICBC on their tax return.
• Incorrect Child Benefit Values – Taxpayers may record child benefits on their tax return which are different to that which has been previously reported by the Child Benefits Agency. The risk from HMRC’s perspective is the UNDER-statement of child benefits.
• Wrong Partner Recording the Child Benefit – It is essential that the partner who has the highest taxable income must declare the child benefits, otherwise the self-assessment tax returns for BOTH partners will be wrong!

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