Revenue Scotland’s Guide to Amending Tax Returns During Enquiries

Revenue Scotland amending a tax return during an enquiry

Revenue Scotland can change a tax return before an enquiry ends if it believes too little tax has been assessed and waiting could lead to tax being lost. This is an interim power only, but it can create an immediate payment obligation, with interest running from the original filing date, while the enquiry continues.

• Revenue Scotland can use this power only during a valid open enquiry and only where it considers the self-assessment is too low and immediate action is needed to protect tax collection.
• The amendment is not a closure notice, so the enquiry stays open and Revenue Scotland can continue checking other issues.
• Any extra tax and interest must be paid straight away, with interest backdated to the original filing date; unpaid amounts may be pursued as a debt and can trigger late payment penalties after 30 days.
• There is no immediate right to a review or appeal against this amendment while the enquiry remains open, and the taxpayer cannot amend that Revenue Scotland amendment themselves.
• If the case involves only a taxpayer’s later amendment to a return, after an earlier enquiry into the original return has finished, Revenue Scotland can use this power only for tax shortfalls caused by that later amendment.
• A separate penalty may also arise if the return contains an inaccuracy.

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Revenue Scotland amending a tax return during an enquiry

This page explains when Revenue Scotland can change a tax return before its enquiry has finished. This matters because the amendment can create an immediate tax payment obligation, with interest running from the original filing date, even though the wider enquiry is still ongoing.

What this rule is about

Under the Revenue Scotland and Tax Powers Act 2014, Revenue Scotland can enquire into a tax return after issuing a notice of enquiry. Normally, an enquiry ends only when Revenue Scotland issues a closure notice. But there is a separate power that allows Revenue Scotland to amend the return before that point in limited circumstances.

This is an interim power. It is designed to protect the tax position where Revenue Scotland believes the self-assessment is too low and that waiting until the end of the enquiry could lead to tax being lost.

What the official source says

The official guidance says Revenue Scotland may amend a return during an open enquiry if both of these conditions are met:

• Revenue Scotland forms the view that the tax shown in the self-assessment is insufficient.
• Unless the return is amended immediately, there is likely to be a loss of tax to the Crown.

If those conditions are met, Revenue Scotland may notify the taxpayer and amend the return to correct the shortfall.

The guidance also makes these further points:

• Interest is charged on the extra tax resulting from the amendment, backdated to the filing date of the return until payment is made.
• This amendment is not a closure notice. The enquiry stays open.
• If the return contains an inaccuracy, a penalty may also arise depending on the facts.
• Once Revenue Scotland has notified the taxpayer of this kind of amendment, the taxpayer cannot then amend that amendment themselves, even if the normal taxpayer amendment window has not yet expired.
• While the enquiry remains open, there is no right to require a review or bring an appeal against the decision to make this amendment.
• If the enquiry is into a taxpayer amendment only, because an earlier enquiry into the original return has already been completed, Revenue Scotland can only use this power where the tax shortfall is attributable to that taxpayer amendment.
• The extra tax, and any interest, must be paid immediately on receipt of the notice of amendment.
• If it is not paid, Revenue Scotland may pursue it as a debt in the same way as tax self-assessed by the taxpayer.
• If the amount remains unpaid 30 days after the due date, a late payment penalty may arise.

What this means in practice

The practical effect is serious. Revenue Scotland does not need to wait until the enquiry is finished if it believes there is an under-assessment and a real risk that the tax may not be recovered later. It can increase the amount due straight away.

That means a taxpayer may face three things at once:

• an ongoing enquiry that is still unresolved;
• an immediate demand for additional tax;
• interest running from the original filing date, not from the date of the amendment notice.

The guidance gives an example of likely loss of tax as a case where Revenue Scotland has reason to believe the deficient tax may not be paid once the enquiry is complete. The underlying idea is protection of collection, not final determination of every issue in dispute.

The absence of an immediate appeal or review right is also important. The taxpayer cannot challenge the amendment through those routes while the enquiry is still open. The dispute may instead need to be addressed through the enquiry process and any later appeal rights that arise once the enquiry is concluded.

How to analyse it

If Revenue Scotland amends a return during an enquiry, the key questions are:

• Is there a valid open enquiry? The power only applies where a notice of enquiry has been given and the enquiry has not been completed.
• What is the alleged deficiency? Identify exactly how Revenue Scotland says the self-assessment is too low.
• Why does Revenue Scotland say there is likely to be a loss of tax? This is a central condition for using the power.
• Is the amendment within the proper scope of the enquiry? This is especially important where the enquiry is limited to matters arising from a taxpayer amendment.
• What amount is now said to be payable immediately, including interest?
• Could a separate inaccuracy penalty issue arise on the same facts?
• Has the taxpayer’s ability to make their own amendment now been cut off by Revenue Scotland’s notification?

Where the enquiry is limited because an earlier enquiry into the original return has already been completed, there is an extra restriction. In that situation, Revenue Scotland cannot use this power to reach beyond the taxpayer’s later amendment. The tax deficiency must be attributable to that amendment.

Example

Illustration: A taxpayer files a return and later Revenue Scotland opens an enquiry. During the enquiry, Revenue Scotland concludes that the tax declared is too low. It also believes that if it waits until the enquiry ends, there is a real chance the extra tax will not be paid. Revenue Scotland may then issue a notice amending the return during the enquiry.

The taxpayer must pay the additional tax immediately on receiving the notice, together with interest calculated from the original filing date. The enquiry itself does not end. Revenue Scotland can continue investigating other points until it issues a closure notice.

Why this can be difficult in practice

The main difficulty is that this is not the final resolution of the enquiry, but it has immediate financial consequences. A taxpayer may feel they are being required to pay before the dispute has been fully determined. That is built into the structure of the rule where Revenue Scotland considers there is both an under-assessment and a risk of tax loss.

Another fact-sensitive area is the condition that there is likely to be a loss of tax to the Crown unless the return is amended immediately. The guidance gives one example, but whether that condition is met in a particular case may depend on the surrounding facts and Revenue Scotland’s reasons.

Scope can also be important. If the enquiry is only into matters arising from a taxpayer amendment made after an earlier enquiry into the original return has closed, Revenue Scotland’s interim amendment power is narrower. It cannot be used for deficiencies unrelated to that taxpayer amendment.

Finally, taxpayers can easily miss the payment consequences. The amount is due immediately, and late payment can trigger both debt enforcement and late payment penalties if the amount remains unpaid after 30 days.

Key takeaways

• Revenue Scotland can amend a return during an open enquiry if it believes the self-assessment is too low and delay is likely to cause loss of tax.
• The amendment does not end the enquiry, but the extra tax and interest are payable immediately.
• There is no review or appeal against that amendment while the enquiry is still open, and late payment can lead to enforcement and penalties.

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Useful article? You may find it helpful to read the original guidance here: Revenue Scotland’s Guide to Amending Tax Returns During Enquiries

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