Tax return online filing, NRCGT penalties, and Money laundering supervision

In our latest tax tips email for accountants we said:

Halloween normally marks the end of the paper tax return filing season, but this year that may not be the case. HMRC has amended its software to allow more tax returns to file online, but problems remain. We have some good news concerning late submission of NRCGT returns. Finally, the fees for supervision under the money laundering regulations are increasing, which may impact your practice and some of your clients.

Below is just an extract from that email. To receive the full email when it is published each Thursday, simply follow the link on the right (or below, if you’re reading this on a mobile device)

Tax return online filing

HMRC implemented an in-year fix to the official 2016/17 personal tax calculation on 23 October, and all tax return filing software should now have been updated to align with the new version of that tax calculation.

Contact your software provider if you haven’t received a notice to update since 23 October, but beware of links in emails which may be spoofs from software companies. The fraudsters are keen to gather login details from accountants in this way.

The revised tax calculation should allow SA tax returns to be submitted online which fell into exclusions numbered: 48 to 56 and 58 to 59 (see exclusion list version 7). This should cover the majority of the excluded tax returns. However, the exclusion list has been extended by four more categories which came to light due to work on the tax calculation fix.

There are also significant problems with exclusion number 68 which concerns the reallocation of the savings rate band and personal allowance where there is significant dividend income. Software providers have found it very difficult to program this wide exclusion. As a result, their software may block online filing of tax returns based on exclusion 68, when in fact the revised tax calculation would produce the correct result, and online filing should be permitted.

For most of the live exclusions HMRC has provided an estimate of the amount of tax which would be overpaid if the tax return is submitted online. This is useful as you can have a sensible conversation with your client about the amount of tax at stake versus extra costs for submitting a paper tax return.

Where tax returns have already been filed on paper or online, HMRC will review the tax computation and amend it where necessary to align with the fixed version of the tax calculation. If an adjustment is needed, the taxpayer, and you as their agent, should receive a revised SA302 computation and a letter advising of the correction.

Problems with SA filing, What are the facts?, Money laundering regulations

The P11D and P11D(b) forms should be completed by now as the deadline was the end of June, so you can turn your attention to the SA tax returns. But before you plough ahead read our update on the latest software issues, and how to avoid them. We also have a tale of what can go wrong where your client doesn’t provide all the facts about the land he has sold. Finally, you need to be aware of new anti-money laundering regulations.

Below is just an extract from last week’s tax tips email. To receive the full email when it is published each Thursday, simply follow the link on the right (or below, if you’re reading this on a mobile device)

Problems with SA filing

Personal tax is now so complicated that it can require a complex algorithm to work out the most beneficial off-set of allowancesagainst classes of income for an individual taxpayer. We explained the problems this is causing in our newsletters on 30 March and 27 April 2017.

HMRC’s current work-around is to issue a list of SA exclusions for online filing. If the taxpayer’s circumstances fall within one of those exclusions, the SA tax return for 2016/17 should be filed in paper form, not online. HMRC has recently issued version 4 of this list (see below).

The list of exclusions covers much more than incorrect allocations ofreliefs and allowances. For example, averaging for farmers and artists (exclusion no.61), and trade or property losses broughtforward into 2016/17 (exclusion no. 58) may cause problems. If your client has any unusual circumstances to report on their 2016/17 tax return, check the exclusions list before attempting to file online.

All software providers should have incorporated HMRC’s exclusionslist into their 2016/17 tax return software, but as version 4 of this list was published on 19 June, it will take sometime for all tax return software to be updated. In the meantime, the advice from the professional bodies is to wait a few weeks before filing in paper form, as an electronic solution may become available.

HMRC has some other problems with its online SA service.Taxpayers who access the service through the GOV.UK Verify (identity checking service), can’t request reductions to payments on account or set up a direct debit to pay their tax. A work-around is to set up a one-off tax payment through the taxpayer’s bank account, and used the paper form SA303 submitted by post to reduce a payment on account.

Employee expenses, Tax deducted by banks, Donations by a company

Some clients may have already sent you their tax papers for 2016/17, so last week we examined two issues that crop up on relatively simple tax returns; employee expenses and tax deducted by banks. We also had a quick reminder of what donations a company is permitted to make and whether they are tax deductible.

Below we share just part of one of the above 3 tax tips – see the side boxes on this page to learn how you could subscribe to receive the full 3 tax tips every week.

Tax deducted by banks

Since 6 April 2016 interest paid by most deposit takers: banks, building societies and NS&I, should be have been paid without tax deducted. This doesn’t mean you can ignore the interest certificates issued by deposit takers, as the interest must be declared on the taxpayer’s SA return.

The interest is taxable, if it is not paid out of an ISA account, but in most cases the tax rate will be 0%. This zero rate applies where the interest is covered by the taxpayer’s personal savings allowance of £1,000 (£500 for higher rate taxpayers), or their savings rate band of £5,000. Additional rate taxpayers are not entitled to a savings allowance.

It’s worth noting that many PAYE codes for 2016/17 and 2017/18 have not taken account of the available personal savings allowance or savings rate band, and have incorrectly set the taxpayer’s personal allowance against estimated amounts of interest received. Such taxpayers should be due a tax repayment if the personal allowance could have been set against taxed employment income.

Look closely at the bank interest certificates, as those issued in respect of payments into “reward” current accounts may have basic rate tax deducted for 2016/17. The “reward” paid by the bank is not interest, so it can’t be paid gross, and it is not covered by the personal savings allowance or the savings rate band. The reward is an annual payment and it should be declared on the tax return under “other income”, with the tax deducted also reported. A higher rate or additional rate taxpayer will have more tax to pay on such a “reward”.

Confusingly cash-back payments are not “rewards” and are not interest either. They do not have to be reported on the tax return if the cash-back is paid in respect of a personal account. However, if the cash-back is received on a business bank account (which is unlikely), it should be declared as part of the trading receipts (see BIM100210). The bank concerned should issue guidance as to the tax treatment of its current account rewards or cash-backs.