Appendix 1 – Approaches to amending assessments in Australia and the United Kingdom
Amending GST assessments in Australia
A materiality approach is adopted in determining what errors can be included in a subsequent return for Australian GST. If a taxpayer makes a GST error on an earlier activity statement, they can choose to correct that error on a later activity statement if they meet certain conditions, including the materiality of the error and whether the error was a result of recklessness or intentional disregard of a GST law. Alternatively they could correct the error by revising the earlier activity statement.
The benefits of correcting GST errors on a later activity statement are:
- the taxpayer is not liable to any penalties or general interest charge
- it is generally easier than revising the earlier activity statement.
When the taxpayer has reported or paid too little GST for a period (a debit error), it can only be corrected in a later activity statement if it is under thresholds that relate to the taxpayer’s turnover. These are shown in the table on the following page.
Taxpayers can offset any credit errors against debit errors to work out whether they are below the debit error threshold.
The Government notes that the Australian approach applies very low materiality thresholds compared to the GST turnover. The percentage values are generally significantly less than 1%. However, the absolute amounts are very large. For small and medium-sized enterprises (with GST turnover under $20 million) the monetary threshold is significantly higher than the current minor error exception in New Zealand.
However, an error cannot be corrected in a later activity statement if the error was a result of recklessness or intentional disregard of a GST law. The error also cannot be corrected later if it relates to a matter that was specified to be subject to a compliance activity or if it was made in a reporting period that is subject to a compliance activity.
| Current GST turnover (AUD) | Time limit | Debt error value limit (AUD) |
|---|---|---|
| Less than $20 million | The error must be corrected in a GST return that is lodged within 18 months of the due date of the GST return for the tax period in which the error was made. | Less than $10,000 |
| $20 million to less than $100 million | The error must be corrected in a GST return that is lodged within 12 months of the due date of the GST return for the tax period in which the error was made. | Less than $20,000 |
| $100 million to less than $500 million | Less than $40,000 | |
| $500 million to less than $1 billion | Less than $80,000 | |
| $1 billion and over | Less than $450,000 |
Amending VAT assessments in the United Kingdom
A materiality approach is also adopted in the United Kingdom to determine whether an error can be included in a later VAT return. The option allows errors to be corrected later if the net value:
- does not exceed £10,000, or
- is between £10,000 and £50,000 and does not exceed 1% of the net outputs on the return (subject to certain other conditions).
Correcting errors this way is not a disclosure for the purposes of the penalties rules, so if the taxpayer has been careless they will not be able to gain the maximum reduction of the penalty unless they also notify HMRC separately in writing.
The United Kingdom approach has a higher threshold to include errors in a subsequent return and a larger percentage (at 1%) for the turnover threshold (net outputs). However, unlike the Australian approach, including the error in a subsequent return does not provide any protection from penalties. For any reduction to a penalty a taxpayer must provide a separate notice if they have made a careless error or deliberate inaccuracy regardless of its size or value.
The two countries allow for a much higher threshold than is being currently considered in New Zealand. The above examples balance the requirement to maintain integrity with the compliance costs of the amendment process. The balance requires that the higher turnover thresholds are matched with more conditions and requirements. Such requirements create boundaries and compliance costs for taxpayers in determining which process they can apply in different situations. It reduces the simplicity of the process. The Government considers that the lower threshold currently being considered avoids the need for more conditions and requirements that would complicate the process further.