Category: Income Tax

If you think that you have paid too much tax to HMRC you can usually claim back any overpaid tax. The exact method for making a claim depends on a number of factors including whether or not you complete a Self-Assessment return and the length of time that has passed since the tax was overpaid.

Claims can usually be backdated for up to four years after the end of the relevant tax year. This means that claims can still be made for tax refunds dating back as far as the 2017-18 tax year (which ended on 5 April 2018). The deadline for making claims for the 2017-18 tax year is 5 April 2022.

According to HMRC you may be able to claim a refund if you have paid too much tax on:

• pay from your current or previous job
• pension payments
• income from a life or pension annuity
• a redundancy payment
• a Self-Assessment tax return
• interest from savings or PPI
• foreign income
• UK income if you live abroad
• fuel costs or work clothing for your job.

HMRC is currently undertaking the annual reconciliation of PAYE for the tax year 2020-21. HMRC use salary and pension information to calculate if the correct amount of tax has been paid. Where the incorrect amount of tax has been paid, HMRC use the P800 form to inform taxpayers. HMRC expects to send all P800 forms by the end of November 2021. The P800 will notify you if you have overpaid or underpaid tax.

If you need any assistance in understanding and checking a P800 form or making a claim for overpaid tax, we are here to help.

As children have returned to school, HMRC is reminding parents that they may be eligible for Tax-Free Childcare (TFC) to help pay for breakfast and after school clubs.

The TFC scheme can help parents of children aged up to 11 years old (17 for those with certain disabilities). The TFC scheme helps support working families with their childcare costs. There are many registered childcare providers including childminders, breakfast and after school clubs and approved play schemes signed up across the UK. Parents can pay into their account regularly and save up their TFC allowance to use during school holidays. 

The TFC scheme provides for a government top-up on parental contributions. For every £8 contributed by parents an additional £2 top up payment will be funded by Government up to a maximum total of £10,000 per child per year. This will give parents an annual savings of up to £2,000 per child (and up to £4,000 for disabled children until the age of 17) in childcare costs. 

The TFC scheme is open to all qualifying parents including the self-employed and those on a minimum wage. The scheme is also available to parents on paid sick leave as well as those on paid and unpaid statutory maternity, paternity and adoption leave. In order to be eligible to use the scheme parents will have to be in work at least 16 hours per week and earn at least the National Minimum Wage or Living Wage. If either parent earns more than £100,000, both parents are unable to use the scheme.

HMRC’s Director General for Customer Services, said:

'As your children head back to school this autumn, don’t miss out on the opportunity to receive your 20% top-up to help pay for their childcare. It is quick and easy to sign up, just search ‘tax-free childcare’ on GOV.UK.'

If you are a higher rate or additional rate taxpayer, you are eligible to claim relief on the difference between the basic rate and your highest rate of tax. The charity you donate to can reclaim the basic rate of tax from donations made by taxpayers.

For example:

If you donated £5,000 to charity, the total value of the donation to the charity is £6,250. You can claim additional tax back of:

• £1,250 if you pay tax at the higher rate of 40% (£6,250 × 20%),
• £1,562.50 if you pay tax at the additional rate of 45% (£6,250 × 20%) plus (£6,250 × 5%).

If you are a higher rate or additional rate taxpayer you have the option to carry back your charitable donations to the previous tax year. A request to carry back the donation must be made before or at the same time as your previous year’s Self-Assessment return is completed.

This means that if you made a gift to charity in the current 2021-22 tax year that ends on 5 April 2022, you can accelerate repayment of any tax associated with your charitable giving. This can be a useful strategy to maximise tax relief if you will not pay higher rate tax in the current tax year but did in the previous tax year.

You can only claim if your donations qualify for gift aid. This means that your donations from both tax years together must not be more than 4 times what you paid in tax in the previous year. If you do not complete a tax return you need to use a P810 form to make a claim.

HMRC has confirmed that almost 1.8m couples across the UK have benefitted from the marriage allowance and are saving up to £252 a year. The marriage allowance is available to qualifying married couples and those in a civil partnership where a spouse or civil partner is a non-taxpayer i.e., has an income below their personal allowance (currently £12,570).

The marriage allowance allows the lower earning partner to transfer up to £1,260 of their personal tax-free allowance to their spouse or civil partner. The allowance can only be used when the recipient of the transfer (the higher earning partner) doesn’t pay more than the basic 20% rate of Income Tax. This would usually mean that their income is between £12,570 to £50,270 in 2021-22. The limits are slightly different if you live in Scotland.

If you are entitled to the marriage allowance and have not yet applied you could receive a payment of up to £1,220 from HMRC. HMRC is using the summer wedding season to remind couples to make a claim. It is estimated that whilst almost 1.8m couples have already claimed the Marriage Allowance, there are still in the region of 2 million eligible couples that have not made a claim.

If you meet the eligibility requirements and have not yet claimed the allowance you can backdate your claim to 6 April 2017. This could result in a total tax break of up to £1,220 for 2017-18, 2018-19, 2019-20, 2020-21 as well as the current 2021-22 tax year.

If you are a landlord, it is important that you are aware of expenses you can and cannot claim from your rental income. As a rule, these expenses must be wholly and exclusively for the purposes of renting out the property in question. In some circumstances part expenses can be claimed where a proportion of expenses incurred relate to your property business.

Types of deductible revenue expenditure commonly paid for by a landlord include:

• General maintenance and repairs to the property (but not improvements).
• Water rates, council tax, gas and electricity.
• Insurance costs.
• Letting agent and management fees.
• Qualifying legal and accountancy fees.
• Direct costs such as phone calls, stationery and advertising for new tenants.

The tax relief on mortgage costs for residential landlords has been restricted to the basic rate of tax since April 2020. The Replacement of Domestic Item Relief allows landlords the ability to claim tax relief when they actually replace furniture, furnishings, appliances and kitchenware in a rented property. There are a number of conditions that must be met to claim the relief.

You should also ensure that you keep a record of any capital expenditure which has been incurred on an investment property. These expenses cannot be claimed as revenue expenditure against property income but can usually be offset against any Capital Gains Tax when selling a property.

We would of course be happy to help you ensure that all relevant expenses associated with your rental properties are properly accounted for.

The rent-a-room scheme is a set of special rules designed to help homeowners who rent-a-room in their home. The current tax-free threshold of £7,500 per year has been in place since 6 April 2016. Homeowners using this scheme should ensure that rents received from lodgers during the tax year do not exceed £7,500.

The tax exemption is automatic if you earn less than £7,500 from qualifying rentals. The relief applies only to the letting of furnished accommodation and applies when a bedroom is rented out to a lodger.

HMRC issues specific guidance for individuals who seek to use rent-a-room relief where rooms in private homes are let as office accommodation. HMRC is clear that such claims do not qualify for rent-a-room relief and should be refused.

This does not apply to genuine lodgers such as students who are provided with study facilities in their lodgings. In such cases, HMRC would not want to deny relief. For example, where a lodger is provided with a desk which he or she uses for work or study.

Income Tax is generally payable on taxable income received by individuals including earnings from employment, earnings from self-employment, pensions income, interest on most savings, dividend income, rental income and trust income. The tax rules for foreign income can be complex. However, if you are resident in the UK you will need to pay UK Income Tax on your foreign income, such as:

• wages if you work abroad
• foreign investments and savings interest
• rental income on overseas property
• income from pensions held overseas

Foreign income is defined as any income from outside England, Scotland, Wales and Northern Ireland. The Channel Islands and the Isle of Man are classed as foreign.

If you are a UK resident, you will usually need to complete a Self-Assessment tax return for foreign income or capital gains. The main exception is if your only foreign income is dividends and if your total dividends – including UK dividends – are less than the £2,000 dividend allowance or you have no other income to report.

As the school holidays fast approach, many parents face having to organise extra school holiday childcare over the summer months. 

HMRC is reminding working families that the Tax-Free Childcare (TFC) scheme can help if you have children aged up to 11 years old (17 for those with certain disabilities). The TFC scheme helps support working families with their childcare costs and can be used to pay for accredited holiday clubs, childminders or sports activities during the school holidays. There are many registered childcare providers including school, football, art and tennis clubs signed up across the UK. Parents can pay into their account regularly and save up their TFC allowance to use during school holidays. 

The TFC scheme provides for a government top-up on parental contributions. For every £8 contributed by parents an additional £2 top up payment will be funded by Government up to a maximum total of £10,000 per child per year. This will give parents an annual savings of up to £2,000 per child (and up to £4,000 for disabled children until the age of 17) in childcare costs. 

The TFC scheme is open to all qualifying parents including the self-employed and those on a minimum wage. The scheme is also available to parents on paid sick leave as well as those on paid and unpaid statutory maternity, paternity and adoption leave. To be eligible to use the scheme parents will have to be in work at least 16 hours per week and earn at least the National Minimum Wage or Living Wage. If either parent earns more than £100,000, both parents are unable to use the scheme.

HMRC’s Director General for Customer Services, said:

‘We want to help kids stay active this summer, whether they are going to summer holiday clubs or a childminder. A childcare top-up will go a long way towards helping parents plan and pay for summer activities to keep their kids happy and healthy.’

The replacement of domestic items relief has been in place since April 2016. The relief allows landlords to claim tax relief when they replace movable furniture, furnishings, appliances and kitchenware in a rental property. The allowance is available for the cost of domestic items such as free- standing wardrobes, curtains, carpets, televisions, fridges and crockery.

The amount of the deduction is based on:

• the cost of the new replacement item, limited to the cost of an equivalent item if it represents an improvement on the old item (beyond the reasonable modern equivalent); plus
• the incidental costs of disposing of the old item or acquiring the replacement;
• less any amounts received on disposal of the old item.

There is an important distinction when deciding if a new item represents a replacement or an improvement. Where the new item is an improvement on the old item the allowable deduction is limited to the cost of purchasing an equivalent of the original item.

HMRC’s guidance provides the example of replacing a sofa with a sofa bed and is clear that if a new sofa would have cost you £400 but a sofa bed cost you £550, you could only claim the £400 as a deduction and no relief is available for the £150 difference as this is an 'improvement'.

However, if a replacement item is for a reasonable modern equivalent for example a new energy efficient fridge replacing an old fridge this is not considered an improvement and the full cost of the new item is eligible for relief.