Income Tax

The start of the 2019-20 tax year marked a fundamental change to the way Income Tax is calculated for people who live in Wales. The new Welsh rates of Income Tax (WRIT) are payable on the non-savings and non-dividend income of those defined as Welsh taxpayers. The revenue from the WRIT will go to the Welsh Government.

The UK government has reduced each of the 3 rates of Income Tax – basic, higher and additional rate – paid by Welsh taxpayers by 10p. The Welsh Government has autonomy to decide the 3 Welsh rates of Income Tax (the Welsh basic rate; the Welsh higher rate; and the Welsh additional rate), which will be added to the reduced UK rates.

In due course, this change could mean that people living in Wales will pay a different rate of Income Tax compared to people in other parts of the UK. However, for the time being, the rates of Income Tax paid by Welsh taxpayers will continue to be the same as those paid by English and Northern Irish taxpayers. This is because the Welsh Government has set the Welsh rates at the same level as in England and Northern Ireland at 10p for 2019-20. 

The definition of a Welsh taxpayer is generally focused on the question of where the taxpayer lives. If the taxpayer has one place of residence or a main residence in Wales, then they will be defined as a Welsh taxpayer.

Welsh taxpayers that pay PAYE should have received a new tax code, starting with C for Cymru. Self-employed taxpayers living in Wales will be required to note their country of residence when they file their 2019-20 tax return.

The Let Property Campaign provides landlords who have undeclared income from residential property lettings in the UK or abroad with an opportunity to regularise their affairs by disclosing any outstanding liabilities, whether due to misunderstanding the tax rules or because of deliberate tax evasion.

The campaign was launched in September 2013 and does not currently have an end date. Landlords, who do not avail of the opportunity and are targeted by HMRC, can face penalties of up to 100% of the tax due together with possible criminal prosecution. HMRC’s guidance on the scope of the campaign has been updated. The campaign is an opportunity open to all residential property landlords with undisclosed taxes. The campaign is not suitable for those letting out non-residential properties.

Taxpayers that come forward will benefit from better terms and lower penalties for making a disclosure. Landlords that make an accurate voluntary disclosure are likely to face a maximum penalty of 0%, 10% or 20% depending on the circumstance on top of the tax and interest due. There are higher penalties for offshore liabilities.

There are three main stages to taking part in the campaign, notifying HMRC that you wish to take part, preparing an actual disclosure and making a formal offer together with payment. The campaign is open to all individual landlords renting out residential property. That includes landlords with multiple properties and single rentals as well as specialist landlords with student or workforce rentals. HMRC’s guidance has recently been updated to reflect the start of the new tax year and to include an updated link to the penalties and interest calculator.

The High Income Child Benefit charge applies 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. 

If you or your partner have exceeded the £50,000 threshold for the first time during the last tax year (2018-19) then you must take action. Where both partners have an income that exceeds £50,000, the charge applies to the partner with the highest income. 

Taxpayers who continue to receive child benefit (and earn over the relevant limits) must pay any tax owed for 2018-19 on or before 31 January 2020. If the partner who needs to pay the tax charge is not currently registered to submit tax returns they must do so by 5 October 2019.

The child benefit charge is levied at the rate of 1% of the full child benefit award for each £100 of income between £50,000 and £60,000. For taxpayers with income above £60,000, the amount of the charge will equal the amount of child benefit received. 

If the High Income Child Benefit charge applies to you or your partner it is usually still worthwhile to claim Child Benefit for your child, as it can help to protect your State Pension and will make sure your child receives a National Insurance number. 

However, you still have the choice: to keep receiving child benefit and pay the tax charge, or you can elect to stop receiving child benefit and not pay the charge. 

In an agent update published earlier this year HMRC wrote that as part of EU Exit contingency planning, a change would be made to the timings for sending notification of Self Assessment penalties. The £100 penalty notices are normally issued in February but HMRC suggested that they might be delayed as late as the end of April. It has now been confirmed that HMRC began issuing penalty notices earlier this month and all penalty notices are expected to have been sent by 12 April 2019.  

Jon Stride, Co-Chair of the Association of Taxation Technician’s Technical Steering Group, said:

‘The ATT is pleased that HMRC have now started to issue penalty notices and have not delayed the exercise to the end of April, which was originally a possibility. However, it will take HMRC until 12 April 2019 to issue all the penalty letters. This gives taxpayers a little over two weeks to submit their return before the daily penalty regime commences.’

If you do not file and pay before 1 May 2019 then you will face far greater penalties. A daily penalty of £10 per day, up to a maximum of £900 (90 days) will be charged from 1 May 2019. Further penalties then apply if your return is still outstanding for more than 6 months after the 31 January 2019 filing deadline. From 1 August 2019 you will be charged a penalty of the greater of £300 or 5% of the tax due. If your return still remains outstanding one year after the filing deadline, then further penalties will be charged from 1 February 2020.

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 back 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%).

Carry back gifts to speed up tax benefits

If you have made a gift to a charity in the 2018-19 tax year, you can carry back the gift to the previous tax year as long as you do this before filing the 2018-19 return. This can accelerate repayment of any tax associated with your charitable giving. This can also be a useful strategy if you are not a higher rate tax payer in the current year, but you were in the previous 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.

The 2018-19 tax year ended on 5 April 2019 and the new 2019-20 tax year started on 6 April 2019. Many taxpayers will be tempted to delay dealing with their 2018-19 tax returns until late this year or January 2020.

The 31 January 2020 is not just the final date for submission of the 2018-19 Self Assessment tax return, but also an important date for payment of tax due. This is the final payment deadline for any remaining tax due for the 2018-19 tax year. In addition, the 31 January 2020 is also the payment date for any Capital Gains Tax due in relation to the 2018-19 tax year and the first payment on account for 2019-20.

We would recommend that you consider gathering together the information to file your return as soon as you can after 6 April 2019.

Why rush?

In this way you can calculate any payments you will need to make by 31 January 2020 and give yourself time to save the required funds to settle any taxes due. Of course, if you are due a repayment of tax then it is a useful strategy to file your tax return as soon as possible.

Your accountant will also appreciate the extra time to prepare your tax return and you will avoid the eleventh-hour rush.

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

• are self-employed and earning more than £1,000, 


• are a company director,


• have an annual income over £100,000 and / or if you have certain income from savings, investment or property.

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.

So, if you had income that necessitated you registering for Self Assessment in the 2018-19 tax year, you will need to notify HMRC by 5 October 2019.

HMRC publishes a list of taxpayers who would usually be required to submit a Self Assessment return. The list 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 get 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 that they needed to pay tax on;


• Taxpayers who lived abroad and had a UK income;


• Those whose income was over £100,000.

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

Need help registering for Self-Assessment?

If you are unsure if you need to register, or would like assistance with the formal registration process, please call.

HMRC has published a press release to remind qualifying couples to claim the Marriage Allowance. The Marriage Allowance allows lower earning couples to share part of their personal tax-free allowance.

The Marriage Allowance is available to married couples and those in a civil partnership where one partner doesn’t pay more than the basic 20% rate of Income Tax and the other party does not fully utilise their tax-free Personal Tax Allowance. The lower earning partner can currently transfer up to £1,190 of their personal tax-free allowance to a spouse or civil partner.

Whilst more than 3.5 million couples have already applied for the allowance, it is estimated that there are still a further 700,000 married and civil partnered couples, who are eligible for the allowance, but have not applied. If you are eligible and have not yet claimed the allowance you can backdate your claim as far back as 6 April 2015. This could result in a total tax refund of some £900. Qualifying couples have up to four years to claim backdated annual allowances.   

Planning note

An application for the marriage allowance can be made online or by telephone. The application must be made by the non-taxpayer who is transferring their allowance. And to recap, to benefit as a couple, the non-taxpayer needs to earn less than their partner and have an income of £11,850 or less in 2018-19.

 

Many people supplement their income by selling services online. This is often described as the ‘sharing economy’ or the ‘peer-to-peer economy’ and usually involves renting out something using specialist websites or apps. This could include renting out your house (using websites such as AirBNB) or personal equipment (such as power tools).

You can also raise income from using specialist online marketplaces to find customers to whom you can provide services as a freelancer. The income raised from these kind of ventures is usually (but not always) supplemental to someone’s main income but this is not always the case. However, HMRC is clear that in most cases this is taxable income and Income Tax is payable subject to the usual rules.

There is no Income Tax to pay if you occasionally sell personal possessions online, and there are reliefs from Capital Gains Tax for small gains (usually under £6,000) for selling personal possessions. However, there are separate rules if HMRC deems your activities a fully-fledged business.

Tax tips

There are also two £1,000 tax exemptions for sundry property and trading income. The £1,000 exemptions from tax apply to:

• Individuals who make up to £1,000 from self-employment, casual services or hiring personal equipment. This is known as the trading allowance.


• The first £1,000 of miscellaneous income for income from property. For example, from renting a driveway. This is known as the property allowance.

If you are uncertain whether your online selling may be subject to a tax charge, please call for an opinion. Better safe than sorry.

Are you among the 700,000 taxpayers that missed the 31 January 2019 filing deadline for your 2017-18 self-assessment returns? If you missed the filing deadline then you will be charged a £100 fixed penalty if your return is up to 3 months late, regardless of whether you owed tax or not.

If you do not file and pay before 1 May 2019 then you will face far greater penalties. A daily penalty of £10 per day, up to a maximum of £900 (90 days) will be charged from 1 May 2019. Further penalties then apply if your return is still outstanding for more than 6 months after the 31 January 2019 filing deadline. From 1 August 2019 you will be charged a penalty of the greater of £300 or 5% of the tax due. If your return still remains outstanding one year after the filing deadline, then further penalties will be charged from 1 February 2020.

You can appeal against any penalties that have been issued and HMRC has said that they will treat those with genuine excuses leniently. However, you need to act fast and the excuse must be genuine and HMRC can of course ask for evidence to support any claim. An appeal must usually be made within 30 days of receipt of the penalty.