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If a person does receive a notice to file a SA return, that tax return must be submitted, unless the notice to file is withdrawn.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.