Income Tax

A new press release by HMRC has highlighted the fact that 3,003 taxpayers took the time to file their tax return online on Christmas Day with a further 9,254 taxpayers completing their tax returns on Boxing Day. More than 11 million taxpayers are expected to complete a 2018-19 Self-Assessment tax return this year, on or before 31 January 2020.

HMRC’s Director General for Customer Services, Angela MacDonald, said:

'Whether you squeezed it in before tucking into a Christmas pudding, after the Queen’s Speech, or trying to grab a bargain during the festive sales, our online service is available for you to file your tax return at any time you wish.'

If you are filing online for the first time you should ensure that you register to use HMRC’s Self-Assessment Online service as soon as possible. Once registered, an activation code will be sent by mail. This process can take up to 10 working days.

We would encourage our readers to complete their tax return as early as possible to avoid any last-minute stress. The 31 January 2020 filing date looms. Last year, over 700,000 taxpayers didn’t make the required filing deadline.

Parents could be liable for the High Income Child Benefit tax charge if either partner's income exceeds £50,000 and you are in receipt of child benefit. The charge effectively 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 act: in particular, you may need to file a tax return. If both you and your partner have an income that exceeds £50,000, the charge will apply to the partner with the highest income.

If you continue to receive child benefit (and earn over the relevant limits), you must file a tax return and pay any tax owed for 2018-19 on or before 31 January 2020. If you were not within the Self-Assessment system then you should have notified HMRC by 5 October 2019 of your liability to the High Income Child Benefit tax charge. If you have missed the deadline or do not file your tax return by the deadline you may be charged a penalty.

The child benefit charge is charged at the rate of 1% of the full child benefit award for each £100 of income between £50,000 and £60,000. If you or your partners income exceeds £60,000, the amount of the charge will equal the amount of child benefit received.

If the High Income Child Benefit charge applies, it is usually still beneficial to claim Child Benefit for your child as this can help to protect your State Pension and will make sure your child receives a National Insurance number. However, you 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. Please let us know if you need any advice or assistance in registering with HMRC.

The 31 January 2020 is not just the final date for submission of your Self-Assessment tax return for 2018-19 but is 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 the payment date for any Capital Gains Tax due in relation to the 2018-19 tax year and the due date for the first payment on account for 2019-20.

If you do not have the necessary available funds to make these payments then you must be pro-active and deal with the issue as a matter of urgency. Pretending the problem does not exist will not make the problem go away and can only make matters worse as penalties and late payment charges may be payable.

The best way forward is for you to contact HMRC to apply for a payment plan and seek to agree a way forward. This can be done through the Payment Support Service (PSS). The PSS seeks to provide support to those experiencing a wide range of tax problems.

The services offered by the PSS 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

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

The 31 January is not just the final date for submission of your Self-Assessment tax return but also an important date for paying tax. It is the final payment deadline for any remaining tax due for the 2018-19 tax year and any payment on account due for 2019-20.

If you miss 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 2020, then you will face additional penalties and interest. A daily penalty of £10 per day, up to a maximum of £900 (90 days) will be charged from 1 May 2020. Further penalties then apply if your return is still outstanding for more than 6 months after the 31 January filing deadline. From 1 August 2020 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 2021.

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.

If you do not have the necessary funds to make payment you should be pro-active and contact HMRC as soon as possible. Pretending the problem does not exist will not make the problem go away and will likely make matters worse.

If you are entitled to the marriage allowance and have not yet applied, then you could receive a well-timed Christmas bonus of up to £1,150 from HMRC. 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 £12,500).

The marriage allowance allows the lower earning partner to transfer up to £1,250 of their personal tax-free allowance to their spouse or civil partner. The marriage 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 £12,500 to £50,000 in 2019-20. The limits are slightly different if you live in Scotland.

If you meet the eligibility requirements and have not yet claimed the allowance, then you can backdate your claim to 6 April 2015. This could result in a total tax break of up to £1,150 for 2015-16, 2016-17, 2017-18, 2018-19 as well as the 2019-20 tax year.

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.

As we are now almost three-quarters of the way through yet another tax year it can be useful to consider the benefits of basic Income Tax reliefs. This will help ensure that your tax liability is no higher than necessary. 

We have listed some of the main reliefs below:

Pension contributions – Tax relief for contributions to pension schemes is given at your highest marginal rate of Income Tax. You can get tax relief on private pension contributions worth up to 100% of your annual earnings subject to the annual and lifetime allowances. The income and gains which arise as part of your pension savings are generally exempt from Income Tax and CGT.

Charitable donations – Donations to charity over the course of a tax year can add up and you should ensure that you keep a proper record of all donations to record on your tax return. Donations that are made through the Gift Aid scheme allow for the recipient charity to claim 25p worth of tax relief on every pound donated. Higher rate and additional rate taxpayers are eligible to claim relief on the difference between the basic rate and their highest rate of tax.

Cap on Income Tax reliefs – There is an overall cap for certain Income Tax reliefs which is set at 25% of income or £50,000, whichever is the greater. The reliefs affected by the cap include trade loss reliefs, property loss relief, post-cessation trade relief and qualifying loan interest relief.

Business tax reliefs – There are also tax reliefs that may be available on certain expenses incurred in running your own business or if you use your own money to travel or buy things for your job.

Call now to organise a planning consultation prior to the tax year end

We can help you consider the financial planning opportunities that are available to reduce your tax bill. Also, it may still be possible to reduce your tax bill for 2018-19. For example, you could make a gift to charity in the current tax year and then elect to carry back the contribution to 2018-19. A request to carry back the donation must be made before or at the same time as the 2018-19 Self-Assessment return is filed. If you would like to discuss any of the issues raised, please call.

The High Income Child Benefit tax charge could apply to you or your partner if either of your individual taxable earnings exceeds £50,000 and you are in receipt of child benefit. The charge effectively claws back the financial benefit of receiving child benefit either by reducing or removing the benefit entirely.

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

If you continue to receive child benefit (and earn over the relevant limits) you must pay any tax owed for 2018-19 on or before 31 January 2020. 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. If you or your partner's income exceeds £60,000, the amount of the charge will equal the amount of child benefit received.

Planning note

If the High Income Child Benefit charge applies, it is usually still beneficial 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 have the choice – to keep receiving child benefit and pay the tax charge or elect to stop receiving child benefit and not pay the charge.

If your income is expected to exceed £100,000 for the first time, we would like to remind you of the effects this can have on your personal allowance and marginal tax rate.

If you earn over £100,000 in any tax year, your personal allowance is gradually reduced by £1 for every £2 of adjusted net income over £100,000 irrespective of age. This means that any taxable receipt that takes your income over £100,000 will result in a reduction in personal tax allowances. Your adjusted net income is your total taxable income before any personal allowances, less certain tax reliefs such as trading losses and certain charitable donations and pension contributions.

For the current tax year if your adjusted net income is likely to fall between £100,000 and £125,000 you would pay an effective marginal rate of tax of 60%. This is because your £12,500 tax-free personal allowance is gradually withdrawn (see previous paragraph). If your income sits within this band you should consider what financial and tax planning opportunities are available to avoid this outcome.

For example, you could increase charitable donations, pension contributions or consider participating in certain tax effective investment schemes.

Tax planning tip

A higher rate or additional rate taxpayer who wanted to reduce their tax bill last year, 2018-19, could make a gift to charity in the current tax year, 2019-20, and elect to carry back the contribution to 2018-19. A request to carry back the donation must be made before or at the same time as the 2018-19 Self-Assessment return is completed and filed.

If you come to live in the UK there are basic tax considerations that you will need to observe. Most importantly, you will be required to pay tax on your income (in excess of any allowances) if you come to live in the UK. Income includes; wages, benefits, your pension and savings interest. If you’re employed your employer will deduct Income Tax from your wages. Otherwise, you will likely be required to prepare and submit a Self-Assessment tax return if you work for yourself or you have other UK income.

You will also usually be required to pay National Insurance if you work in the UK. How much you pay will depend on whether you are employed or self-employed. There are countries with whom the UK has bilateral agreements and where you may not be required to pay National Insurance for the first 52 weeks you are in the UK; as long as you meet the necessary conditions.

You will not have to pay UK tax if you only make short business trips here, for example, a training course or meeting. There is a special process that can be used if you have overpaid tax in the UK and are a foreign national.