Income Tax

Have you missed the 31 January 2019 deadline for paying your tax bill? The 31 January was not just the final date for submission of your Self Assessment tax return but also an important date for payment of other tax due. This included the payment of any Capital Gains Tax due in relation to the 2017-18 tax year, and also the due date for your first payment on account for 2018-19.

If you were unable to pay some or all of the monies due to HMRC, you need to be pro-active and contact HMRC as soon as possible. Avoiding the issue and hoping the problem will go away is only making things worse. You can contact HMRC to apply to make a payment plan and seek to agree a way forward. We can also help deal with this on your behalf and seek to negotiate the most favourable repayment terms possible.

Requests for time to pay or other arrangements are usually handled by the Business Payment Support Service (BPSS). The BPSS is available to all taxpayers (not just businesses).

The services offered by the BPSS depend on individual circumstances but can include:

• agreeing instalment arrangements
• suspending any debt collection proceedings
• reviewing penalties for missing statutory deadlines
• reducing any payments on account
• agreeing to defer payments due to short-term cash flow difficulties

Need help negotiating with HMRC?

If you have missed the 31 January payment date and have received a payment demand, like a tax bill or a letter threatening you with legal action, then you need to take immediate action. Call the HMRC payment support service as soon as you can, their contact numbers are on the GOV.UK website. If you need help considering your options please call our offices.

The introduction of Making Tax Digital (MTD) will fundamentally change the way businesses, the self-employed and landlords interact with HMRC. The new regime will require businesses and individuals to register, file, pay and update their information using a new online tax account.

The new regime is due to start in April 2019, for VAT purposes only, when some 1 million businesses with a turnover above the VAT threshold will be required to keep their records digitally and provide their VAT return information to HMRC using MTD compatible software.

HMRC is also allowing a number of taxpayers and agents to use software to make Income Tax updates. This is part of a live pilot to test and develop the MTD service for Income Tax. As part of the MTD pilot the self-employed can join the MTD pilot for Income Tax. Those using the pilot including self-employed businesses and landlords, can voluntarily keep their records digitally and send Income Tax updates to HMRC instead of filing a Self Assessment tax return. If they have income from other sources they may still be required to report it using a Self Assessment tax return.

The introduction of MTD was first announced as part of the March 2015 Budget measures and will ultimately see HMRC move to a fully digital tax system. An official launch date for the MTD service for Income Tax has yet to be announced.

According to HMRC, individuals pay Scottish Income Tax if they live in Scotland. Care should be taken when considering the phrase "live in Scotland". In particular, you may also pay Scottish Income Tax if you:

– move to or from Scotland,
– live in a home in Scotland and one elsewhere in the UK, for example for work,
– don’t have a home and stay in Scotland regularly, for example you stay offshore or in hotels.

If an individual moves to or from Scotland, they will pay Scottish Income Tax if they move to Scotland and live there for more than half the tax year.

There is also a requirement that taxpayers advise HMRC of a change of address if they move to or from Scotland.

Planning note

Clearly, taxpayers may suffer varying rates of Income Tax depending on which side of the border they live. This is yet another factor that needs to be considered when advising affected clients on Income Tax planning matters.

This week we pass the filing deadline (31 January 2019) for the 2017-18 Self Assessment tax returns. A surprising number of taxpayers are still content to deal with this annual chore at the last minute. This article sets out a few compelling reasons for preparing your tax return as soon as you can after the end of each tax year.

1. Until you prepare your return and calculate your liability for a tax year, you can have no certainty about the level of any tax payments that you may have to fund in the January and July of the year following the tax year end. So for 2018-19, payments possibly due January and July 2020. By crunching the numbers as soon as you can you will maximise the time you have available to save for any taxes due.
2. If your return is prepared before the end of July 2019, there may be a possibility to reduce the second payment on account for 2018-19 (due 31 July 2019) if your liability for 2018-19 is lower than that of 2017-18.
3. By preparing your return early in the tax year there are a number of tax planning opportunities that you will have time to consider before you formally file your return. For example, you could make charitable contributions in the year following the year of the return and carry them back to the previous year.
4. You will be your tax advisor’s best friend as early-birds will increase the time available for consideration of tax planning options.

Tax saving opportunities

You will note that we use the expression "prepare" rather than "file" in our notes above. The deadline for filing a return is the 31 January following the relevant tax year end. By preparing the return as soon as possible after the tax year end date, we can ascertain what tax liabilities are expected and what opportunities there are to save tax by adopting any tax planning options.

A recent press release by HMRC revealed some of the oddest excuses for submitting a late tax return. The excuses ranged from the sublime to the ridiculous and included:

1. My mother-in-law is a witch and put a curse on me.
2. I’m too short to reach the post box.
3. I was just too busy – my first maid left, my second maid stole from me, and my third maid was very slow to learn.
4. Our junior member of staff registered our client in self assessment by mistake because they were not wearing their glasses.
5. My boiler had broken and my fingers were too cold to type.

HMRC also revealed that some taxpayers have tried to make expense claims for such random items as a family holiday to Nigeria, a carpenter claiming for a new TV and £756 for pet dog insurance.

When are the 2017-18 self-assessment due to be filed and any tax paid?

The deadline for submitting your 2017-18 self assessment tax return is 31 January 2019. This is also the date that certain payments of tax are due. This includes the payment of any balance of self assessment liability for the 2017-18, plus any payment on account due for the current 2018-19 tax year.

What if I have a reasonable excuse for late filing?

Whilst HMRC will consider reasonable excuses these are limited to exceptional circumstances. If you need support with late filing appeals please contact us to see how we can help.

Two changes to the way Private Residence Relief works are due to come into effect from April 2020. These changes could reduce the amount of CGT relief available on the sale of a private residence. The changes are:

1. Home owners that let all or part of their house may not benefit from the full Private Residence Relief, but can benefit from letting relief of up to £40,000 (£80,000 for a couple). The relief is not available on a ‘buy to let’ property in which a taxpayer never lived. From April 2020, lettings relief will be reformed. This change means that lettings relief will only be available to those property owners who are in shared occupancy with a tenant.
2. Currently, if a property has been occupied at any time as an individual’s private residence, the last 18 months of ownership are disregarded for CGT purposes. This relief applies even if the individual was not living in the property when it was sold. From April 2020, this final exempt period will be reduced from 18 months to 9 months. There will be no change to the 36 months exempt period available for those that are disabled or moving into care homes.

Planning opportunity

Clients that may be adversely affected by the above changes might benefit from a disposal in 2019-20, before the reductions in relief apply.

The Welsh Government has confirmed that the proposed Welsh Government Budget has been ratified and that the new Welsh rates of Income Tax (WRIT) will be set at 10p for 2019-20. This means that the rates of Income Tax paid by Welsh taxpayers will continue to be the same as those paid by English and Northern Irish taxpayers when the WRIT is introduced.

The WRIT will be payable on the non-savings and non-dividend income of those defined as Welsh taxpayers and WRIT taxpayers will receive a new tax code, starting with C for Cymru. Revenue from the Welsh rates of Income Tax will go to the Welsh Government.

To effect this change the UK government will reduce each of the 3 rates of Income Tax – basic, higher and additional rate – paid by Welsh taxpayers by 10p from next April. Each year, the Welsh Government will then 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. The combination of reduced UK rates plus the Welsh rates determines the overall rate of Income Tax paid by Welsh taxpayers. The WRIT will be administered by HMRC on behalf of the Welsh Government.

Clarification of who is a Welsh taxpayer:

The definition of a Welsh taxpayer is generally decided by where a 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.