Income Tax

If your personal details change, you may be required to notify HMRC as this can affect your entitlement to certain tax breaks and or benefits.

For example, you need to tell HMRC if:

• you get married or form a civil partnership
• you divorce, separate or stop living with your husband, wife or partner

You can tell HMRC online if you are paid a salary or pension through PAYE. The sooner you tell HMRC the better as the change could result in you paying too much or too little tax.

If you receive tax credits or Child Benefit you also need to tell HMRC separately about changes to your relationship or family.

In the event, that your spouse or civil partner dies it is also a requirement to report the death to HMRC as well as notifying of changes to your income. For example, the death of a spouse would mean that the surviving spouse was no longer entitled to claim the Married Couple's Allowance.

If you move home, it is of course advisable to let HMRC know as soon as possible so they can update your contact details. HMRC should also be informed if you change gender, although the process is usually automatic if you apply for a Gender Recognition Certificate.

If you make Self-Assessment payments on account, you will no doubt be aware that the second instalment for 2018-19 is due on 31 July 2019. The amount due for payment is usually the same as the first payment on account made on 31 January 2019.

These payments are based on 50% of your previous year’s net Income Tax liability. If your taxable profits have increased there is no requirement to notify HMRC and the deadline to make a balancing payment for 2018-19 is 31 January 2020. If your liability for 2018-19 is lower than 2017-18, you can ask HMRC to reduce your payment on account.

There are penalties for late payment of tax due and we would advise you to ensure you meet the payment deadlines. If you do not have the necessary funds to make these payments, we recommend that you contact HMRC as soon as possible. 

Contact HMRC's Business Payment Support Service (BPSS). The BPSS was first launched in 2008 and is available to all taxpayers (not just businesses). The purpose of the service is to provide support to those experiencing a wide range of tax payment problems.

The BPSS will review the issues raised and look sympathetically at providing a practical solution. HMRC will not usually charge additional late payment surcharges in relation to specific arrangements made using the BPSS.

There are a number of reasons why a taxpayer is required to complete a self assessment return. This includes if they are self-employed, a company director, have an annual income over £100,000 and / or have income from savings, investment or property.

Taxpayers that need to complete a self assessment return for the first time should inform HMRC as soon as possible. The latest date that HMRC should be notified is by 5 October following the end of the tax year for which a self assessment return needs to be filed.

HMRC has an online tool that can help taxpayers ascertain whether they are required to submit a self assessment return.

The list of taxpayers that are likely to be required to submit a self assessment return includes:

• The self-employed;
• Taxpayers who had £2,500 or more in untaxed income;
• Those with savings or investment income of £10,000 or more before tax;
• Taxpayers who made profits from selling things like shares, a second home or other chargeable assets and need to pay Capital Gains Tax;
• Company directors – unless it was for a non-profit organisation (such as a charity) and you didn’t receive any pay or benefits, like a company car;
• Taxpayers whose income (or that of their partner’s) was over £50,000 and one of you claimed Child Benefit;
• Taxpayers who had income from abroad for which they needed to pay tax;
• Taxpayers who lived abroad and had a UK income;
• Income over £100,000.

Readers who are concerned that they should, or should not be registered for self assessment are welcome to call; we can help you decide, one way or the other.

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.

The relief only applies to the letting of furnished accommodation and is used when one bedroom is rented out in a furnished house to a lodger. The relief is being applied more widely as more people rent out rooms online. The relief also simplifies the tax and administrative burden for those with rent-a-room income up to £7,500. The limit is reduced by half if the income from letting accommodation in the same property is shared by a joint owner of the property.

The rent-a-room limit includes any amounts received for meals, goods and services provided, such as cleaning or laundry. If gross receipts are more than the limit, taxpayers can choose between paying tax on the actual profit (gross rents minus actual expenses and capital allowances) or the gross receipts (and any balancing charges) minus the allowance – with no deduction for expenses or capital allowances.

The High Income Child Benefit Charge (HICBC) was introduced in January 2013 and applies a charge to taxpayers whose income exceeds £50,000 in a tax year and who are in receipt of child benefit. The charge claws back the financial benefit of receiving child benefit either by reducing or removing the benefit entirely.

HMRC has been reviewing a significant number of cases where a failure to notify penalty was issued for the tax years 2013-14, 2014-15, and 2015-16, to taxpayers who did not register for HICBC. Under normal circumstances, HMRC would only entertain a claim for a reasonable excuse directly from a taxpayer. However, in these cases, HMRC are proactively dealing with reviews and claims.

The review has resulted in penalties being cancelled for over 6,000 families who were found to have had a reasonable excuse for not notifying their liability for the years in question. Refunds were made in 4,885 cases and totalled £1.8 million. These refunds have already been issued to those affected.

The refunds have been sent to families that claimed Child Benefit before HICBC was introduced, and where one partner’s income subsequently increased to over £50,000, and to families where the liability to HICBC arose in the 2013-14, 2014-15, and 2015-16 tax years as a result of the formation of a new partnership.

HMRC is also proactively writing to taxpayers who may have become liable to the charge to help them meet their tax obligations in time to avoid paying a penalty. HMRC is also improving Child Benefit forms, guidance and communications, setting out options to pay the charge or to claim Child Benefit, but elect not to receive payments.

If you are self-employed and running a business from your home, there are simplified arrangements available for claiming a fixed rate deduction for certain expenses where there is a mix of business and private use. The simplified expenses rules are not available to limited companies or business partnerships involving a limited company.

The use of the flat rate expenses for business work carried out from your home will eliminate tedious calculations based on the proportion of personal to business use for household bills.

Instead a monthly deduction is allowable. The current monthly rates are based on the amount of business use of the home as follows:

• 25 or more hours worked per month can claim  £10.00
• 51 or more hours worked per month can claim  £18.00
• 101 or more hours worked per month can claim  £26.00

There is no issue if the amount of hours worked varies from month to month as different amounts can be claimed for each month. The flat rate doesn’t include telephone or internet expenses. You can claim the business proportion of these bills by working out the actual costs and business use.

There are a number of reasons why you may need to register with HMRC to submit a tax return. This could include:

• if you are self-employed and earning more than £1,000 per year from the self-employed activity,
• if you are a company director,
• if you have an annual income over £100,000 and / or if you have certain income from savings, investment or property.

And see HMRC's list of criteria to file set out below.

If you need to complete a tax return for the first time you should inform HMRC as soon as possible. The latest date that HMRC should be notified is by 5 October following the end of the tax year for which a return needs to be filed. For example, if you had income that necessitated you registering for Self Assessment in the 2018-19 tax year, you need to notify HMRC by 5 October 2019.

HMRC has published a check list of reasons that you may be required to submit a Self Assessment return. The list includes the following:

• If you are self-employed;
• If you had £2,500 or more in untaxed income;
• Have savings or investment income of £10,000 or more before tax;
• If you have made profits from selling things like shares, a second home or other chargeable assets and need to pay Capital Gains Tax;
• If you are a company director – unless it was for a non-profit organisation (such as a charity) and you didn’t get any pay or benefits, like a company car;
• If your income (or that of your partner’s) was over £50,000 and one of you claimed Child Benefit;
• If you had taxable income from abroad;
• If you lived abroad and had a UK income; or
• If your income was over £100,000.

In certain limited circumstances HMRC can also ask you to complete tax returns for other reasons.

Uncertain if you need to register?

Please call with details of your various income sources in the UK if you would like help to decide, if you do need to register for Self-Assessment and/or with the completion and filing of your return.

Student Loans are part of the government’s financial support package for students in higher education in the UK. They are available to help students meet their expenses while they are studying, and it is HMRC’s responsibility to collect repayments where the borrower is working in the UK. The Student Loans Company (SLC) is responsible for collecting the loans of borrowers outside the UK tax system.

Whilst many ex-students are happy to continue paying back their loans at the lowest level possible, it is of course an option to pay-off you student loan in full. This might be done for a number of different reasons that could include peace of mind by removing an ongoing debt repayment and reducing your monthly debt repayments. It is important to note that the interest rate payable on student loans varies and typically those started before 01 September 2012 pay lower rates.

Unlike many other debts, there are no penalties for clearing your student loan early so if you have other debts with significant penalties for making early repayments, this may be a good one to tackle first. However, if you have other debt with higher interest rates and no early repayment penalties then it might be more beneficial to tackle those debts first.

If you want to pay off your student loan you must first call the SLS to get an up-to-date settlement figure. If you have been making student loan repayments through your salary, then you should have your last P60 and all your payslips for the current financial year to hand when you call. This will allow the SLC to calculate an accurate figure for you.

The Gift Aid scheme is available to all UK taxpayers. The charity or Community Amateur Sports Clubs (CASC) concerned can take a taxpayer’s donation and provided all the qualifying conditions are met, can reclaim the basic rate tax allowing for an extra 25p of tax relief on every pound donated to charity.

Higher rate and additional rate taxpayers are eligible to claim tax relief on the difference between the basic rate and their highest rate of tax. This can be actioned through their Self Assessment tax return or by asking HMRC to amend their tax code.

For example:

If a taxpayer donates £500 to charity, the total value of the donation to the charity is £625. The taxpayer can claim additional tax back of:

• £125 if they pay tax at 40% (£625 × 20%),
• £156.25 if they pay tax at 45% (£625 × 20%) plus (£625 × 5%).

Beware this potential tax trap

However, an awkward situation can arise if you gift too much to charity as one of the conditions of gaining tax relief is that you must have paid enough tax (or any tax) in the relevant tax year. The rules state that your donations will qualify for tax relief as long as they are not more than four times what you have paid in tax in that tax year. If you have claimed more tax relief than you are entitled to you will need to notify the charity and pay back any excess tax relief to HMRC.

Are you self-employed?

HMRC’s guidance says that you are probably self-employed if you:

• run your business for yourself and take responsibility for its success or failure;
• have several customers at the same time;
• can decide how, where and when you do your work;
• can hire other people at your own expense to help you or to do the work for you;
• provide the main items of equipment to do your work;
• are responsible for finishing any unsatisfactory work in your own time;
• charge an agreed fixed price for your work;
• sell goods or services to make a profit (including through websites or apps).

Your legal obligations if you become self-employed

You will need to register as self-employed if you earned more than £1,000 from self-employment between 6 April 2018 and 5 April 2019. If this is the first time that you are required to submit a tax return, you must register by the 5 October in your business’s second tax year. This is not a deadline to ignore as there are penalties for late notification.

The newly self-employed must also register:

• to pay Class 2 & Class 4 National Insurance contributions (NICs) if applicable, and
• you should monitor your turnover as registration for VAT will be necessary if sales exceed £85,000 over the preceeding twelve months or if you expect it to exceed this limit in the next three months.

If you are concerned that you may need to register as self-employed, and are uncertain what to do, please call, we can take care of the formalities for you.