Category: Income Tax

HMRC has published a news release to remind taxpayers that there is now less than 100 days to file their 2019-20, Self-Assessment tax return. Last year over 11 million taxpayers were required to complete a tax return, but over 958,000 taxpayers missed the deadline. If you are filing online for the first time you should ensure you register to use HMRC’s Self-Assessment online service as soon as possible.

The deadline for submitting your 2019-20 Self-Assessment tax returns online is 31 January 2021. You should also be aware that payment of any tax due should also be made by this date. This includes the payment of any balance of Self-Assessment liability for 2019-20 plus the first payment on account due for the current 2020-21 tax year.

Have a look at our Personal Tax Services.

The following types of individuals should file a Self Assessment return if they:

• have earned more than £2,500 from renting out property
• have received, or their partner has received, Child Benefit and either of them had an annual income of more than £50,000
• have received more than £2,500 in other untaxed income, for example from tips or commission
• are a self-employed sole trader whose annual turnover is over £1,000
• are an employee claiming expenses in excess of £2,500
• have an annual income of over £100,000
• have earned income from abroad that they need to pay tax on.

The second payment on account for 2019-20 was due on 31 July 2020 but there was an option to defer this as part of the government support measures during the coronavirus outbreak. There are also other options to defer payments due on 31 January 2021 for up to 12 months. This includes a self-serve Time to Pay facility online for debts up to £30,000 or by making an arrangement with HMRC. Taxpayers will be required to pay interest on the tax owed on any outstanding balance from 1 February 2021.

HMRC is encouraging taxpayers to complete their tax return as early as possible as the filing date looms. In fact, last year over 3,000 taxpayers submitted their tax returns on Christmas Day with a further 9,254 taxpayers completing their tax returns on Boxing Day.

HMRC’s Interim Director General of Customer Services, Karl Khan, said:

‘The vast majority of Self-Assessment customers complete their tax return by the 31 January deadline, but you don’t need to wait until January; you can send it back now and get it out of the way.

HMRC is determined to help customers during this difficult time. We know many customers will have been adversely affected by the coronavirus pandemic or will need help to spread the cost of their tax bill. That’s why we’ve made it quick and simple to set up a payment plan to spread the costs and help people get back on their feet. It’s easy to do online and there’s no need to call us to set it up.’

Less than 100 days

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Anti Avoidance for Capital Gains Tax

Capital gains tax is levied on gains made by an individual but there are situations where instead of Capital Gains Tax (CGT), Income Tax may be charged.

For this to happened ALL of the following conditions must all met:

1. The main object, or one of the main objects, of the transactions or arrangements must be the avoidance or reduction of liability to Income Tax.
2. The individual must be carrying on an occupation wholly or partly in the UK.
3. Transactions or arrangements must have been effected putting some other person in a position to exploit the earnings capacity of that individual.
4. A ‘capital amount’ must have been obtained by the individual or for some other person, as part of, or in connection with, or in consequence of the transactions or arrangements.

Please see our Capital gains tax page to know more.

The charge to Income Tax will take place in the tax year or years in which the capital amount becomes receivable or the sale or realization occurs.

There are anti-avoidance provisions that are aimed at arrangements where an individual gives up the prospect of future income but, either he or some other person, receives instead a ‘capital amount’. https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14325

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Tax Relief On Charitable Donations

The UK tax system is designed to give basic rate taxpayers automatic relief for charitable gifts made under the Gift Aid Scheme. The system then enables the recipient charity to reclaim the basic rate tax already paid by the donor.

https://www.gov.uk/income-tax-reliefs/charity-donations-tax-relief

Charities and community amateur sports clubs (CASCs) can register with HM Revenue and Customs (HMRC) to be part of the Gift Aid scheme. When they’re registered, they can claim back the tax you’ve already paid on your donation.

If you pay Income Tax at the basic rate no additional relief is due on your charitable donations. However, if you are a higher rate or additional rate taxpayer then you can claim tax relief on the difference between the basic rate and your highest rate of tax. This relief is given by increasing your basic rate and higher rate band by the grossed-up amount of your gifts. Click here to know more about our Tax services

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 2020-21 tax year that ends on 5 April 2021, 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 can submit a claim using HMRC’s P810 form.

If you are looking to know more about this relief; feel free to book a no obligation contact us.

Lower Tax On Savings Income

Due to the Personal Allowance most people can benefit from paying no tax on interest on their savings. There is also a Starting Rate for Savings for those on low income.

In the current tax year, anyone with taxable income of less than £17,500 will have no tax to pay on their savings income – interest received. This figure is calculated by adding the £5,000 starting rate limit for savings (where 0% of the interest is taxable) to the current £12,500 personal allowance. However, this £5,000 starting rate limit for savings will be reduced by £1 for every £1 of non-savings income in excess of £12,500. Accordingly, when non-savings income amounts to £17,500 all savings income will be taxable.

https://www.gov.uk/apply-tax-free-interest-on-savings

There is also a Personal Savings Allowance (PSA) which means that for basic-rate taxpayers the first £1,000 interest on savings income is tax-free. For higher-rate taxpayers the tax-free personal savings allowance is £500. Anyone earning over £150,000 does not benefit from the PSA.

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Interest from savings products such as ISA’s and premium bond wins do not count towards the limit. Taxpayers with tax-free accounts and higher savings can continue to benefit from the relevant PSA limits.

Banks and building societies no longer deduct tax from your account interest as a matter of course. Taxpayers who still need to pay tax on savings income will need to declare this as part of their annual Self-Assessment tax return.

Taxpayers that have overpaid tax on savings interest can submit a claim to have the tax repaid. Claims can be backdated for up to four years after the end of the current tax year. The deadline for making claims for the 2016-17 tax year is 5 April 2021.

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One of the measures announced by HMRC to support businesses during coronavirus pandemic was the introduction of service of Time To Pay for those affected by COVID-19.

https://www.gov.uk/government/news/self-assessment-customers-to-benefit-from-enhanced-payment-plans

Businesses and self-employed people in financial distress and with outstanding tax liabilities may be eligible to receive support with their tax affairs by accessing this service.

An online payment plan was available to set up installment arrangements for paying tax liabilities up to £10,000. This limit has now been increased to £30,000 from 1 October 2020.

HMRC estimates around 95% of Self-Assessment customers who are due to make payments on 31 January 2021 could qualify to implement a Time To Pay arrangement using the self-serve, online Time To Pay facility, without needing to speak to an HMRC adviser.

Taxpayers that want to use the online option must meet the following requirements:

• Have no outstanding tax returns
• No other tax debts
• No other HMRC payment plans set up.

The debt needs to be between £32 and £30,000, and the payment plan needs to be set up no later than 60 days after the due date of a debt.

Taxpayers using self-serve Time To Pay will be required to pay any interest on the tax owed. Interest will be applied to any outstanding balance from 1 February 2021.

Taxpayers with Self-Assessment Tax payments of over £30,000, or who need longer than 12 months to pay in full, may still be able to set up a Time To Pay service arrangement by calling the Self-Assessment payment helpline.

If you are looking for more information; book a call with us.

Deadline For Paper Self-Assessment Filing

For the taxpayers who file their personal tax return on paper, the deadline for paper Self-Assessment returns submitting is 31 October 2020. Due to the impact of coronavirus, HMRC allowed taxpayers were to delay their second payment on account for the 2019-20 tax year (due on 31 July 2020) until 31 January 2021.

It has also been announced that most the taxpayers will be able to benefit from a separate the additional 12-month extension from the HMRC on the “Time to Pay” self-service facility for this payment on account and also for other payments due in January 2021 extending the deadline until January 2022. https://www.gov.uk/self-assessment-tax-returns/deadlines

If you are still submitting paper tax returns, we would recommend that you consider the benefits of submitting the returns electronically. This includes gaining an additional three months (until 31 January 2021) in which to submit your return. You will also receive instant confirmation that a return has been filed and not need to rely on postal service.

Late submission of a Self-Assessment return will become liable to a £100 late filing penalty. The penalty usually applies even if there is no liability or if any tax due is paid by the relevant deadline.

If you received a letter informing you to submit a paper return after 30 July 2020, then you have an extended deadline which runs for three months from the date you received the letter in order to submit a paper return.

Making Tax Digital (MTD) for Income Tax is coming up in near future. Making Tax Digital (MTD) will fundamentally change the way businesses, the self-employed and landlords interact with HMRC. 

Making Tax Digital rules apply to the following:

• A UK resident;
• One who is registered for Self Assessment and their returns and payments are up to date;
• One who is sole trader with income from one business only or a landlord who rents out UK property (or both).

The regime started in April 2019 for VAT purposes but only for VAT registered businesses with a turnover above the VAT threshold. The further rollout of MTD will start in April 2022 when MTD will be extended to all VAT registered businesses with turnover below the VAT threshold of £85,000. https://www.gov.uk/government/collections/MTD-for-vat

This will be followed one year later, from 6 April 2023, when MTD for Income Tax is introduced. The rules will apply to taxpayers who file income tax self-assessment tax returns for business or property income over £10,000 annually.

https://www.gov.uk/government/collections/MTD-for-income-tax

Some businesses and agents are already keeping digital records and providing updates to HMRC as part of a live pilot to test and develop the MTD service for Income Tax. Under the pilot, qualifying landlords and sole traders (or their agents) can use software to keep digital records and send Income Tax updates instead of filing a Self-Assessment tax return.

Every 3 months users will electronically send a summary of their business income and expenses to HMRC. At the end of their accounting period, users will need to finalise their business income and expenses and submit a final declaration (replacing the Self-Assessment tax return). This is where you will also be able to submit information about any personal income and claim reliefs.

The cash basis scheme helps landlords, sole traders and other unincorporated businesses to benefit from a simpler way of managing their financial affairs for their property business. The scheme is not open to limited companies and limited liability partnerships. The entry threshold for the cash basis scheme is £150,000 and qualifying businesses can stay in the scheme until their business turnover reaches £300,000. 

Since the 2017-18 tax year, it has been the default basis for most property businesses that are run by individuals or partnerships with income for the tax year of £150,000 or less. A landlord can elect to opt out of the scheme in which case they can continue to use generally accepted accounting practice (GAAP) to calculate their taxable profits. 

HMRC’s property income manual lists the following list of circumstances when the cash basis is not available to a property business. 

• A: The property business is run by a company, limited liability partnership (LLP), trustees or a corporate firm (a partnership with at least one non-individual member).
• B: Receipts that would be brought into account under the cash basis for the tax year exceed £150,000. This amount must be proportionally reduced if the property business is only carried out for part of the tax year.
• C: If the property business is being carried on jointly with a spouse or civil partner, the same basis must be used by both individuals, unless they make a declaration under S837/ITA 2007 that they are beneficially entitled to the income in unequal shares.
• D: Business premises renovation allowance has been claimed, and a balancing event in the tax year gives rise to a balancing adjustment.
• E: An election is made to use GAAP because the person believes that traditional accounting is more appropriate. The election must be made within one year of the filing date for that tax year.

https://www.gov.uk/government/publications/calculation-of-profits-of-property-businesses/income-tax-simplified-cash-basis-for-unincorporated-property-businesses

As a general rule, the fall-back position for couples who live together with their spouse or civil partners is that property income – where the property is owned in joint the names – is divided 50:50. This is the regardless of the actual ownership structure. However, where there is unequal ownership and the couple wants the income taxed on that basis a notification must be sent to HMRC together with proof that the beneficial interests in the property are unequal. This is done using Form 17 published by HMRC.

A Form 17 declaration can only be made by spouses or civil partners that are living together and own property in unequal shares with the income being allocated in proportion to those shares. Couples that are separated or in some other type of union cannot make a Form 17 declaration. The declaration is only valid if both partners agree. If one spouse/partner does not agree then the income will continue to be treated on a 50:50 basis even if the ownership structure is different.

A Form 17 declaration stays in place until there is either a change in the status of the couple i.e. separation or divorce or a change in the ownership structure. If either of these occurs the 50:50 income split will reapply.

There are a number of scenarios where a form 17 cannot be used, such as where a husband and wife or civil partners own property as the beneficial joint tenants, for commercial letting of furnished holiday accommodation, and for partnership income.

Where property is held in an unequal split, making a form 17 declaration can have a tax advantage where, for example, the majority owner of the property pays tax at a lower marginal rate than their partner.