When is a tax return needed?, How to make a tax claim, How to get a CIS repayment

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We examined three basic tax compliance tasks last week: who needs to submit a self-assessment tax return, how to make a tax claim, and how to apply for a CIS tax repayment. HMRC’s guidance on the first question is not in line with tax law. The second question has a surprising answer derived from a recent tax case, and a new procedure for obtaining CIS repayments has just been announced.

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)

When is a tax return needed?

Accountants are often asked whether a SA tax return is really necessary, particularly where all the taxpayer’s income is fully taxed under PAYE. The correct answer is that a tax returnshould not be necessary for such a taxpayer, unless he also has capital gains or child benefit to declare, or his income is over £100,000.

However, HMRC insist that all company directors should register for self assessment and submit a SA tax return every year. An exception is specified for directors of charities who don’t receive pay or benefits. This reasoning is based on the guidance on gov.uk under directors’ responsibilities, but a recent tax tribunal case has shown that this guidance is does not accurate reflect what the law says.

Mr Kadhem was appointed as a director in May 2014, and HMRC apparently sent him a notice to file a SA return on April 2015. Kadhem insisted that he didn’t receive this notice, and was not aware that he was required to submit a return as all his income was taxed under PAYE. Only after a late filing penalty was issued did he submit a tax return, but he appealed against the penalty.

The tribunal squashed all the late penalties as HMRC could not prove that the notice to file was sent to the correct address. If a person does receive a notice to file a SA return, that tax return must be submitted, unless the notice to file is withdrawn. The taxpayer (or you on their behalf) can ask HMRC to withdraw a notice to file, but the call-centre operative may not agree to this request, as they can only see HMRC’s incorrect guidance on the issue.

The list of who must file a tax return has been updated for 2016/17 to include individuals who have either:

· dividends from shares of £10,000 or more;

· interest from savings or investments of £10,000 or more.

This arbitrary £10,000 threshold is odd, as someone whose personal allowance has been covered by earned income would have to pay tax on dividend income exceeding £5,000. The same taxpayer would have a tax liability in respect of interest over £6,000, if the savings rate band was available, and he was a basic rate taxpayer.

Where the taxpayer has untaxed income, you can report this to HMRC using the agent’s dedicated line, or on the general HMRC contact number: 0300 200 3300.

What’s not happening, PAYE codes, Paper tax returns

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We normally warn you about imminent changes in tax law and practice, but this week we have to tell you about several things which may not be happen, although the start date for the change has already passed. We also have news of an upheaval in PAYE codes, and provide a reminder of which SA tax returns can’t be submitted online.

Below is just an extract from last week’s tax tips email. You can register to receive future copies by following the link on the right (or below, if you’re reading this on a mobile device)

Paper tax returns

Every year there are a number of circumstances in which a taxpayer’s SA tax return will not be accepted by HMRC’s systems as valid, and so it must be submitted in paper form. These circumstances are listed by HMRC as exclusions for online filing, see link below.

This year there are more exclusions than usual because the HMRC software has not been written with the flexibility to match the tax law, and as a result a correct tax calculation performed by third party software will be rejected as incorrect by HMRC. Alternatively, if the third-party software has replicated HMRC’s errors, the SA tax return will be accepted but the tax calculation will be incorrect.

The key issue is that tax law allows the personal allowance to be allocated in any way which is beneficial to the taxpayer. Traditionally this allowance has been allocated against income in the order of; non-savings, savings and then dividend, but for 2016/17 that may not be the most advantageous allocation. For example, it may be beneficial to set the personal allowance against dividends first leaving savings income within the saving rate band.

We explained two of these new exclusions in our newsletter on 30 March 2017. There also is a third new circumstance where the HMRC systems will reject the tax return:

Where the taxpayer’s non-savings/savings/dividend income amounts to less than £11,000 plus savings rate band (£5000), but the taxpayer also has a chargeable event gain. HMRC’s software incorrectly extends the basic rate band by the SSR of £5,000, but that is actually part of the basic rate band.

If your client has an unusual mix of savings income, and very little earned income, you should check the list of exclusions for online filing to see if a paper tax return will be required.

Early tax returns, PAYE penalties and information, Deceased estates

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Last week we explained why you should not rush to submit 2016/17 tax returns, in case they are not needed. We had an update on HMRC’s position concerning PAYE penalties, and on providing pay details over the phone. Finally, we referenced an extended concession for income received by estates of deceased persons, and new probate charges to look out for.

Below is just an extract from last week’s tax tips email. You can register to receive future copies by following the link on the right (or below, if you’re reading this on a mobile device)

Early tax returns

We told you about the new HMRC power to raise a “simple assessment” in our newsletter on 3 November 2016. HMRC has still not published guidance on how to deal with such assessments, but they will shortly issue the first simple assessments for 2016/17.

The recipients are likely to be pensioners who receive a state pension which is not covered by their personal allowance, and hence have a small tax liability. Normally the only way to assess this tax is to complete an SA tax return. Completing these returns are stressful for the taxpayer, and viewed unnecessary, as HMRC should already know the level of the individual’s state pension.

For 2016/17 HMRC has issued notices to file a tax return to pensioners in this position. However, in May 2017 HMRC will issue simple assessments to pensioners who have a tax liability in respect of their state pension, and who have no other income. HMRC will write to those taxpayers informing them that they do not have to submit an SA tax return for 2016/17 after all.

Our advice is to hold-off completing the SA tax returns for pensioners with simple tax affairs until the end of May, and tell those clients to look out for further letters from HMRC.

What to do if you missed the tax return filing deadline

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The Tax Advice Network is warning taxpayers that they will need a ‘reasonable excuse’ to avoid penalties and interest charges if they missed the 31st January filing deadline for personal self-assessment tax returns.

You are legally obliged to file a tax return if you received an official notice to complete one. You are also obliged to tell the taxman if you had any untaxed income or capital gains that are subject to tax.  The deadline of 31st January 2017 was the filing deadline for tax returns in respect of the tax year that started on 6 April 2015 and ended on 5 April 2016.  If you have had untaxed income or capital gains since then you will need to report these on a tax return for the current tax year that ends on 5 April 2017.

The minimum penalty for filing late is £100 even if you do not have to pay any tax. The penalties increase over time and interest will be charged on any late paid tax.

Chairman of the Network, Mark Lee, explains that “Whatever your reason for missing the deadline, the taxman’s computer will charge the penalty and you will need to pay this unless HMRC later accept that you have a ‘reasonable excuse’.  HMRC are known to have very strict rules as to what they will accept is ‘reasonable’ in this context.”

HMRC’s guidance means they do not accept the following excuses for late filed tax returns:

  • you found the HMRC online system too difficult to use or you left it to the last minute and couldn’t quite work it all out under pressure
  • you didn’t get a reminder from HMRC
  • you made a mistake on your tax return which means you need to correct things after the filing deadline

Excuses that ‘may’ be accepted tend only to be where something outside of your control prevented you from filing ahead of the deadline. For example:

  • your partner or another close relative died shortly before the tax return or payment deadline
  • you had an unexpected stay in hospital that prevented you from dealing with your tax affairs
  • you had a serious or life-threatening illness
  • your computer or software failed just before or while you were preparing your online return
  • you had provable service issues with HMRC’s online services
  • a fire, flood or theft prevented you from completing your tax return

Mark Lee warns that before accepting your excuse, “HMRC will require two things:

1 – Proof or evidence that your excuse is true and not made up.  This might include confirmation from doctors or hospitals re medical issues, and technical reports from IT consultants re computer issues.

2 – Proof or evidence that you made every effort to file your tax return asap after the deadline.”

What to do now?

Whether or not you have a ‘reasonable excuse’, you should aim to file your tax return as soon as you can.

If you need help and can afford to pay for any accountant or tax adviser to help you, you can choose from any of the 100 members of the Tax Advice Network – which is spread across the UK. Members of the Network can also advise you as to the merits of your ‘excuse’ and give you advice to ensure that you don’t pay too much tax. Simply use the search facility on the home page here >>>

Alternatively if you do not want to pay for help and advice you can talk to HMRC by calling their Self Assessment Helpline on 0300 200 3310 (open 8am-8pm Monday to Friday and 8am-4pm Saturdays).  Make sure you have your Unique Taxpayer Reference (UTR) number to hand.

 

 

Don’t rush to file your tax return before 31st January this year

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The UK’s 9-year-old Tax Advice Network has controversial advice for anyone rushing to complete self-assessment tax returns this weekend. “It’s better to file right and late than on time and wrong”. This advice follows the release of figures via an FOI request that HMRC fined almost 30,000 people for filing incorrect tax returns last year.

Chairman of the Tax Advice Network, Mark Lee, explains “As the annual self-assessment tax return filing date looms so does the pressure to file your return before the deadline. But it is rarely a good idea to rush things.  If you beat the 31st January deadline and it later transpires that your tax return was wrong you could be liable to a sizeable penalty. If you file a complete and correct tax return at the start of February you will only be charged £100.”

Last year over a million tax returns were filed over the final weekend before the 31 January deadline and 8% of self-assessment tax returns were filed late.

Hundreds of accountants talk of new clients asking for help in January so that they can avoid the late filing penalty. Other accountants are doing their best to complete the tax returns for long-standing clients who leave things to the last minute.

Lee continues: “A good accountant will do their best to help you but they are not miracle workers. It takes time to collate all relevant data, check for inconsistencies, clarify issues and complete a tax return so as to keep tax bills to the legal minimum.”

If HMRC considers you were careless they will charge a penalty of upto 30% of the extra tax even when a tax return is filed ahead of the 31 January deadline . The penalty can be upto 70% of the tax at stake if HMRC determines that you have deliberately underestimated your tax. Much better therefore to pay the £100 and to take the extra time to ensure that your tax return is correct when you file it a little late.

Separate to these fines is the interest that HMRC charges on late paid tax. Lee advises: “Pay an estimate of the tax you will owe before 31st January. This will reduce the interest you will pay on any late paid tax. You can do this even if your tax return is not ready to file by the deadline”.

If you need help to prepare or finalise your tax return; or if you want advice on what you can do to reduce your tax bill, use the Tax Advice Network website to find a local tax specialist or accountant to help you. You may even find someone who will help you beat the deadline!