Estimated Assessment
An estimated assessment is a tax assessment raised by HM Revenue based on the estimated profits or income of a taxpayer. This is generally done when the tax returns for the fiscal year have not yet been submitted. HM Revenue uses the level of profits from the previous period as an indicator to estimate the expected profits for the current assessment. Taxpayers have a period of 30 days to appeal against the estimated assessment if they believe it to be inaccurate. Once the actual profits or income for the fiscal year are available, the estimated assessment is revised accordingly. Under the self-assessment system, estimated assessments are not typically raised, as taxpayers provide their own income documentation.
Examples
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Example 1: A business had profits of $100,000 last year. For this current fiscal year, HM Revenue issues an estimated assessment assuming the same level of profits because the business has not yet submitted its returns.
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Example 2: A taxpayer receives an estimated assessment indicating $50,000 in earnings based on the last fiscal year. After submitting the actual figures, which show that this year’s profits are $60,000, the estimated assessment is revised to reflect the updated earnings.
Frequently Asked Questions (FAQs)
What is the purpose of an estimated assessment?
Answer: The purpose is to provide a preliminary tax assessment based on historical income data when current fiscal year returns have not been submitted yet.
How is the estimated assessment calculated?
Answer: It is usually calculated based on the previous period’s profits as a rough indication of the expected profits for the current assessment.
What are my rights if I receive an estimated assessment?
Answer: Taxpayers can appeal against the estimated assessment within 30 days if they believe it does not accurately reflect their income.
When is an estimated assessment revised?
Answer: It is revised once the actual profits or income for the fiscal year in question are known.
Are estimated assessments commonly issued under the self-assessment system?
Answer: No, under self-assessment, taxpayers provide their own income documentation, and estimated assessments are rarely issued.
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Tax Assessment: A formal determination of the taxable income of an individual or business.
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Fiscal Year: A one-year period used for financial reporting and budgeting, which may not coincide with the calendar year.
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Self-Assessment: A system where taxpayers calculate their own tax liability and submit it directly to the tax authorities.
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HM Revenue: Her Majesty’s Revenue and Customs (HMRC), the UK government department responsible for tax collection.
Online References
Suggested Books for Further Studies
- “Taxation: Finance Act 2023” by Alan Melville
- “Personal Tax Handbook” by Rebecca Benneyworth
- “Understanding UK Taxation” by Monica Boos
Accounting Basics: “Estimated Assessment” Fundamentals Quiz
### What is an estimated assessment?
- [x] A tax assessment based on estimated profits or income of a taxpayer.
- [ ] A final assessment by HM Revenue based on submitted tax returns.
- [ ] A custom assessment done by independent auditors.
- [ ] An assessment only applicable for businesses.
> **Explanation:** An estimated assessment is raised by HM Revenue based on estimated profits or income of a taxpayer, usually derived from the previous period's figures.
### How many days does a taxpayer have to appeal against an estimated assessment?
- [ ] 60 days
- [x] 30 days
- [ ] 90 days
- [ ] 15 days
> **Explanation:** The taxpayer has 30 days to appeal against the estimated assessment.
### What is used as a rough indication of the expected profits for the assessment under consideration?
- [ ] Future earnings projections
- [x] Level of profits from the previous period
- [ ] Industry benchmarks
- [ ] Current financial statements
> **Explanation:** The level of profits from the previous assessment period is used as an indication of the expected profits for the assessment under consideration.
### Under what system are estimated assessments not normally raised?
- [x] Self-assessment
- [ ] Manual assessment
- [ ] Random audit
- [ ] Annual review
> **Explanation:** Under the self-assessment system, estimated assessments are not normally raised as taxpayers provide their own income documentation.
### When is an estimated assessment revised?
- [ ] After the next fiscal year starts
- [x] Once the actual profits or income for the fiscal year are known
- [ ] Never
- [ ] Only after a taxpayer appeals
> **Explanation:** An estimated assessment will be revised once the actual profits or income for the fiscal year in question are known.
### What department raises estimated assessments in the UK?
- [ ] IRS
- [x] HM Revenue
- [ ] Financial Conduct Authority
- [ ] Department for Business, Energy & Industrial Strategy
> **Explanation:** HM Revenue (Her Majesty's Revenue and Customs) raises estimated assessments in the UK.
### Which of the following would likely *not* be a reason for issuing an estimated assessment?
- [x] Taxpayer submission of current fiscal returns on time
- [ ] Late submission of financial documents
- [ ] Absence of other tax declarations
- [ ] Delay in taxpayer's income reporting
> **Explanation:** If a taxpayer submits their current fiscal returns on time, there should be no need for an estimated assessment.
### Is the estimated assessment intended to be a final tax calculation?
- [ ] Yes, it is final and cannot be changed.
- [x] No, it is provisional and will be revised.
- [ ] Only if the taxpayer agrees with it.
- [ ] Yes, but only for limited companies.
> **Explanation:** The estimated assessment is provisional and will be revised once actual income figures are submitted by the taxpayer.
### What type of system mainly uses estimated assessments?
- [ ] Voluntary tax systems
- [x] Mandatory tax systems
- [ ] Commission-based systems
- [ ] Rebate-focused systems
> **Explanation:** Mandatory tax systems where taxpayers are required to report income but may face delays or administrative issues in doing so.
### Why might a taxpayer wish to appeal an estimated assessment?
- [x] It might inaccurately reflect their actual income.
- [ ] To extend the 30-day limit.
- [ ] To negotiate a lower tax rate.
- [ ] To avoid self-assessment.
> **Explanation:** A taxpayer might appeal because the estimated assessment might inaccurately reflect their actual income.
Thank you for exploring the intricacies of estimated assessments and testing your knowledge. Continue striving for mastery in the realm of accounting!
