Whilst Jim Harra, chief executive of HMRC, was making statements that nothing would change, as recently as December, there was a last-minute change of heart. On 25th January Harra announced that penalties would only be charged on returns received after 28th February. In the statement accompanying this announcement, he stated that HMRC can “reasonably assume most of these people will have a valid reason for filing late, caused by the pandemic”.

PICTURE: picjumbocom/pexels

At first glance this would appear to be an extension of the filing deadline. However, the actual deadline itself has not been moved. The announcement by HMRC simply means that late-filing penalties will not be applied for a month. The balancing payment for the 2019/20 tax year, plus any payment on account due, will still attract an interest charge if not paid by 31st January 2021. Other penalties for failing to file or pay on time will still apply on their normal dates.  

For late filing, the next penalties would be £10 daily penalties for filings after 30th April, continuing for up to 90 days. Further penalties accrue once a return is filed six months after the 31st January deadline. For late payment, a 5% charge of the amount due would apply on 2nd March, 30 days after the deadline. As with the late-filing penalties, additional late payment penalties apply for anything still due after six months.

There is an additional consideration for the self-employed. The Self-Employed Income Support Scheme (SEISS) claims relied on the tax returns for the previous year being filed. This is because the self-employed profits for previous tax years formed the basis of claims. For the first round of the SEISS, tardy filers were given a brief window to bring their tax affairs up to date. This is unlikely to apply for any future SEISS claims, which are likely to require returns having been filed on time. It is possible that any self-employed individuals who have not yet filed have already missed the boat, but filing as promptly as possible gives the greatest chance of meeting any leeway allowed.

If you haven’t filed and haven’t got an accountant already, early February might be the time to find one. With the announcement coming so close to the deadline, many accountants will have dealt with their existing clients as normal. Some will be looking for a well-earned rest after a year of new government schemes, but others will have spare capacity. This year more than any other has proved the value of having an advisor to support you through the ever-changing tax landscape.

If you set up in business yourself, you will be a sole trader. You will have to register with HMRC as self-employed so they know to request a tax return from you. The latest you can register as self-employed is 5th October in the tax year after you start (so anyone starting now will need to register by 5th October 2021). Late registration can lead to a fine. You can register here tinyurl.com/SEHMRC 

PICTURE: Bruce Mars/unsplash

Once you are registered as self-employed, you will need to submit a tax return for every tax year, starting with the year you register. The deadline for filing these is 31st January after the tax year end. For those starting now, the first tax return will be for the year ended 5th April 2021, due to be filed by 31st January 2022. The tax due on your income for that first tax year will be payable on the same date. 

You can set whatever accounts year-end you like for your business. For tax purposes, your period of taxable profits will be up to 5th April in the year you start. In the second and future years, your period for taxable profits will be the accounts period ending in that tax year. If you choose an accounts year end other than 31st March (accepted as 5th April for tax return purposes) this means some of your profits will be taxed twice. These double taxed profits are deducted from your profits in your last period of trading. Because of this it will usually be best to choose 31st March as your year end. 

If your total sales go over £85,000 in any year, or you expect them to go over that limit in the next 30 days, you will need to register for VAT. This will usually mean that you need to charge VAT on to your customers at the correct rate (currently 20% for standard-rated items). You will also need to submit VAT returns every 3 months. There are several different schemes for calculating the VAT you pay over to HMRC, the most common being that you simply deduct the VAT on your expenses. You can register for VAT here. tinyurl.com/VATRegister 

If you are successful enough to achieve the level of sales needed to register for VAT, you are likely to also need someone else to help you with the work. If you take on employees of your own, you may need to register as an employer. This will be the case if you take on anyone that already has another job or pay anyone above the Lower Earnings Limit for National Insurance (currently £120 per week). Once you are registered as an employer, you will need to perform calculations for PAYE tax and National Insurance contributions for all your employees. Details of these must be submitted to HMRC every time you pay your employees, along with payment of deductions made. You may also need to set up an Auto-Enrolment pension scheme. You can register as an employer here. tinyurl.com/PAYEReg 

Whilst it is possible to handle all these tasks yourself, it will generally be advisable to seek professional advice for all but the smallest businesses. 

VAT
One of the early coronavirus support schemes was an automatic deferment of VAT liabilities. This covered payments falling due in the period 1 April to 30 June 2020. VAT is normally due for payment one month and seven days after the VAT quarter end. This means that businesses with a quarter end of 31 May, due for payment on 7 July, will be the first to have to make their VAT payment as normal again. 

Income Tax
When an individual that submits a tax return showing a liability over £1,000, they will normally have to make two payments on account, each 50% of that liability, for the following year. The first payment on account for the 2019/20 tax year was due on 31 January 2020. The second payment on account would normally be due on 31 July 2020. However, under another government support scheme, this second payment on account is now not due until 31 January 2021. 

Self-Employed Grant
Claims for the first coronavirus support grant for the self-employed have to be made by 13 July 2020. Claims for the second grant will be possible from August for those still affected at 14 July 2020. 

Furlough Scheme
From 1 July 2020, furloughed employees can undertake flexible working without breaking furlough. All claims up to 30 June 2020 must be submitted no later than 31 July 2020. 

Benefits in Kind
If you supply benefits in kind to your employees, you must provide forms P11D and P11D(b) to report those benefits to HMRC no later than 6 July 2020. Copies of these forms must also be supplied to employees by that date.

Coronavirus Job Retention Scheme

This scheme allows employers who are suffering a downturn in business during the crisis to furlough employees instead of making them redundant. Furloughed employees are paid at least 80% of their normal wages (up to a maximum of £2,500 per month each). Employers are currently able to reclaim this 80% wages cost, plus the associated Employer’s National Insurance and Pension Contributions.

This scheme will continue to operate on this basis until the end of July. From that date the scheme is to be modified so that not all of the cost of furloughed employees wages will be covered. The change is to be implemented over three months as follows:

• From 1 August 2020 the scheme will cease to cover the Employer’s National Insurance and Pension Contributions. It will continue to cover the 80% wages of employees. 

• From 1 September 2020 the amount that is reclaimable under the scheme will drop to 70% of normal wages (up to a maximum of £2,187.50 per employee). Employers will still need to pay furloughed employees at least 80% of their normal wages, subject to a maximum of £2,500 each. 

• From 1 October 2020 the amount that is reclaimable under the scheme will drop to 60% of normal wages (up to a maximum of £1,875 per employee). Again employers will still need to pay their employees at least 80% of their normal wages, subject to a maximum of £2,500 each.

• From 1 November 2020, barring later announcements, the scheme will cease entirely.

This change in the scheme is accompanied by a relaxation on the rules for part-time working. Up until now, furloughed employees have not been able to do any work. From 1 July 2020, employee will be able to return to work part-time and still be eligible for furlough. Furlough wages will be due for the days not worked and reclaimable as noted above. Days worked will have to be paid at full rate and no reclaim will be possible. 

To prevent abuse of this relaxation, the scheme is to be closed to new employees from 30 June 2020. At that date all furloughed employees must have been on furlough for at least three weeks to continue to be eligible. This means the latest date they can be furloughed from is 10 June 2020.  

Self-Employed Income Support Scheme

This scheme is intended to provide support for self-employed people in a similar fashion to the Job Retention Scheme. Initially, eligible self-employed individuals could claim for three months of income, based on 80% of their average trading profits (capped at £7,500 total). This covered the period from March to May 2020 with the scheme becoming open for claims in mid-May. 

This scheme has now also been extended, with a second grant that should be claimable from August. This will be for a further three months, with the amount reclaimable being 70% of average trading profits (capped at £6,570 in total). This second grant is subject to the same eligibility criteria as the original grant.

This announcement included a deadline for claiming the original grant. Self-employed individuals will need to ensure that they claim this no later than 13 July 2020. 

As the coronavirus pandemic sweeps the globe, the UK, like many countries, has put a lockdown in place. Whilst the retail, hospitality and leisure sections have been hardest hit by this, many businesses have seen a downturn in their finances as a result. To aid businesses in this difficult time, the government has announced a variety of schemes to support the finances of the nation. Details on the most important schemes can be found below. 

The information given in this article is accurate at the time of writing. It is advised that anyone looking to take up one of these schemes should review the current guidance and seek professional help where possible. Up-to-date information on all the schemes detailed below, including more detailed links on individual initiatives, can be found here (tinyurl.com/COVIDUKSupport). 

Coronavirus Job Retention Scheme (CJRS)

With some businesses having to close entirely and others seeing a large drop in their income, many businesses were looking at redundancies. The CJRS is intended to avoid such job losses. The scheme, which is intended to run for at least three months, will provide a grant to cover 80% of employee wages, up to a maximum of £2,500 per month per employee. 

CJRS covers any employee of a business at 28 February 2020 who would otherwise be made redundant. Where businesses had already made employees redundant before the scheme was announced, they can choose to rehire those employees and claim the grant for their wages. Claims can be backdated to 1 March 2020 when employees ceased working from that date.  

Employees seeking to take advantage of CJRS need to identify which employees they are going to furlough. Affected employees must be furloughed for a minimum period of three weeks, though this can be renewed if necessary. Furloughed employees are not allowed to undertake any work for the business in that time though they are permitted to undertake voluntary work outside the business. They can also undertake training, even if this is related to the business, provided that doing so is voluntary. 

Subject to the £2,500 maximum, the gross pay for the 80% reclaim will be calculated as follows.

• Over one year of employment – The higher of the average for the last 12 months or the amount paid in the same month last year.

• Under one year of employment – The average earnings for the months worked. 

• Under one month of employment – The amount paid for their first month of employment, pro-rated up to a full month. 

Bonuses, commissions and fees are specifically excluded from the calculations. According to current guidance, overtime can still be included. Whilst the reclaim is limited to 80% of the above calculations, the employer can still pay full wages if they wish to. 

Calculations for tax, National Insurance and Auto Enrolment pension contributions will be made in the usual way on whatever wages are paid. Employers will be able to claim back the Employer’s National Insurance and minimum Employer’s Auto Enrolment pension contributions on top of the 80% wages. 

As furloughing will not historically have formed part of employment contracts, this will need to be agreed with employees as a variance to their contracts. Legal advice is recommended to avoid problems with this.

Claims will be made through an HMRC portal. The current expected delivery date for this is 21 April.

Self Employed Income Support Scheme (SEISS)

The most recent big announcement was for a scheme similar to CJRS for the self-employed. This covers individuals who are sole traders or members of partnerships. This includes members of LLPs, which are treated as ordinary partnerships for most tax purposes. 

This scheme does not cover individuals who operate their businesses through companies. Directors of small companies are considered employed for tax purposes. If a company has no income at present, directors will be eligible for the CJRS in the same way as other employees. It has been confirmed that simply undertaking the statutory duties to keep the company going will not breach the requirement that furloughed employees do no work. Posting to social media is also permitted, provided such posts do not seek to generate income. 

To qualify for the scheme, an individual must meet the following criteria

• Self-employed as a sole trader or member of a partnership

• Have been self-employed during the 2018/19 tax year and filed their return. A four-week grace period from the announcement was given for those who had not yet filed. 

• Had an ongoing trade from then that was expected to continue had the pandemic not occurred.

• Have lost income as a result of the pandemic

• Have trading profits below £50,000

• Have self-employment as more than 50% of their total income. 

The £50,000 trading profit and 50% of income tests are passed if either the 2018/19 return or the average of returns including self-employment from 2016/17 to 2018/19 meet the requirements. 

In a similar manner to the CJRS, the amount that can be claimed is 80% of average self-employed monthly profits. These will be calculated based on the profits reported on returns including self-employment for the 2016/17 to 2018/19 tax years. Current guidance is that self-employed individuals can still work while making the claim. 

Sadly, the schedule for delivering this scheme puts it as being available in early June 2020. Self-employed individuals are being encouraged to apply for Universal Credit in the interim.

Deferral of tax payments

Individuals within self-assessment who were due to make a payment on account on 31 July 2020 can now defer that payment until 31 January 2021. Right to deferral is automatic. 

VAT due between 24 March 2020 and 30 June 2020 can be deferred until 5 April 2021. Again, right to this deferral is automatic. VAT refunds should still be paid to businesses as normal. 

It should be noted that both of these are deferrals of the liability, not a cancellation of the amount due. Anyone taking advantage of either of these deferrals should, if they can, put the money in a separate account to ensure they have funds available at the deferred due dates. 

HMRC has also been instructed to take a more lenient line for Time to Pay arrangements. If you have any sort of tax bill falling due shortly and you will not be able to pay, you should contact the dedicated Time to Pay line on 0800 024 1222. 

Business rates holidays and grants

As the business sectors most affected by the lockdown, those in the retail, hospitality and leisure industries are eligible for a rates holiday. This should mean that those businesses pay no rates for the 2020/21 tax year. If your rates registration shows that you are an eligible business then entitlement is automatic. Councils are already sending out amended rates bills showing the amendment. More details on which businesses are eligible can be found within the link at the top of the page. 

In addition to this, businesses in those sectors may also be eligible for cash grants. Where the property they operate from has a rateable value of up to £15,000, the grant will be £10,000. For those with rateable values from £15,001 to £51,000, a grant of up to £25,000 will be available.  Small businesse outside these sectors are also possibly eligible for grants. If your business occupies premises that are entitled to either Small Business Rate Relief or Rural Rate Relief, you should be eligible for a grant of £10,000. 

The intention was that councils would contact eligible businesses directly about paying these grants. However, there have been appreciable differences in how this has been implemented across the country. At the time of writing, Hastings Council say they have received the government funding but they are asking eligible businesses to complete a form. Details of the grant and a link to the form to apply can be found here. (tinyurl.com/HastingsCV19).

The end of the tax year, falling on 5 April 2020, is almost upon us again. Whilst there are still only a couple of weeks left, there may still be time for some planning to keep your tax bills down. Consider the following if you want to avoid paying more tax than you need to. 

Pension Contributions
Because the government considers saving for retirement something to be encouraged, making contributions to a pension scheme attracts tax relief. Relief at the basic rate of tax will usually be claimed by your pension provider. If you pay tax at higher rates then including pension contributions on your tax return will get you additional relief. 

For most people, the maximum amount that you can get tax relief on in any tax year is £40,000. This limit applies to the total amount paid into all pensions, not each pension pot you have. If you fail to use all of this allowance, then it can be carried forward, but only for a maximum of three years. Ensuring you make contributions before the end of each tax year eliminates the risk of this allowance being lost. If you are a high earner (over £150,000) or have already started drawing a pension then the allowance is reduced. You should seek professional advice if this applies to you. 

Pension contributions are also deducted for calculating Adjusted Net Income. This is the figure used for certain calculations, such as whether an individual needs to start paying back Child Benefit received (applicable when Adjusted Net Income is above £50,000). When your income is just over this limit, pension contributions can eliminate this additional charge.

Donate to charity
When you donate to charities under Gift Aid, they are able to claim tax back from HMRC. At the same time, higher earners will get a reduction in their higher rate tax based on how much of that income has been donated to charity. 

As for pension contributions, donations to charity are also deducted when calculating Adjusted Net Income.

Asset sales and purchases
For capital gains, every individual receives a tax-free allowance in addition to the personal allowance for income tax. For the current tax year this is £12,000. This allowance cannot be carried forward to future tax years. If you are planning to sell several larger assets in the near future, you should try to arrange to sell them either side of the tax year end. This would ensure that you get the benefit of two years’ worth of the allowance instead of one. 

If you run a self-employed business, then you might want to consider buying assets instead. Whilst large pieces of equipment will be used in the business for years to come, it is possible to claim the full cost immediately for tax purposes. This claim is called the Annual Investment Allowance, and currently covers purchases up to £1,000,000 (more than sufficient for the majority of businesses). The decision to invest in equipment should not solely be based on this relief. However, if you were planning to buy equipment soon anyway, doing it before the end of the tax year ensures you get relief for this expense as early as possible. 

Tax-efficient investments
The most common tax-efficient investment is the Individual Savings Account (ISA). These accounts are exempt from tax and can therefore prove a tax-efficient way of saving. At present you can invest  a maximum of £20,000 in an ISA in each tax year. If you have not yet made full use of the current year’s ISA allowance and have funds to spare, now is the time to invest. 

There are a number of other government schemes available which give tax relief. These are mainly aimed at encouraging individuals to invest in new businesses and include such arrangements as the Enterprise Investment Scheme and Venture Capital Trusts. There are strict conditions that must be met for these schemes and professional advice should be sought by anyone considering investing in one. 

If you only have a single job and that is your sole source of income, then your tax code from 5 April 2020 should be 1250L. This is the standard tax code and it means that all of your £12,500 personal allowance will be used against that job. 

PICTURE: Nick Pampoukidis/unsplash

If you have more than one job, you should get a different tax code for each. In many cases this will simply show how much of your personal allowance applies to each job (e.g. a code of 650L would mean £6,500 of your personal allowance was used for that job). Alternatively the code for a specific job may be BR or D0. BR means that HMRC think all your personal allowance is used elsewhere, so basic rate tax at 20% will be taken on all your wages. D0 means that HMRC think that both your personal allowance and basic rate band are used elsewhere, so higher rate tax at 40% will be taken.

Finally you may get a tax code that has been adjusted for other reasons. Common reasons for tax codes to be adjusted are unpaid tax from earlier years or non-cash benefits such as company cars. HMRC should send you a detailed breakdown of how they have calculated your code in this case. 

If you have a personal tax account with HMRC, you can check and ask for adjustments to your tax codes online. (gov.uk/check-income-tax-current-year) 

If you do not have a personal tax account you can contact HMRC through their general enquiry line – 0300 200 3300. 

Where you have more than one job you can ask for HMRC to change the split of your personal allowance between jobs as well as asking them to correct any errors. 

Despite the deadline being ten months after the end of the tax year, nearly one million people failed to file their tax returns on time. Those people will now be faced with a £100 late filing penalty and may face further penalties if they continue to delay their submission. 

But there will also be many people who, seeing the deadline fast approaching, threw their tax returns together at the last minute. Reviewing their work now that the deadline has passed, some will discover that they have made a mistake. Fortunately there is still a chance to rectify matters if this applies to you. You simply need to submit an amended tax return. 

The deadline for amending your tax return is twelve months from the final filing deadline. This means that you have until 31st January 2021 to fix an erroneous 2018/19 tax return. How you make the amendment will depend on how you filed your original return.

If you used software to file the return, this will usually include an option to file an amended return. You should consult your software supplier if you cannot find this option. 

If you filed online through your personal tax account then you need to login to your account and follow the steps below. 

• From ‘Your tax account’, choose ‘Self Assessment account’ (if you do not see this, skip this step).
• Choose ‘More Self Assessment details’.
• Choose ‘At a glance’ from the left-hand menu.
• Choose ‘Tax return options’.
• Choose the tax year for the return you want to amend.
• Go into the tax return, make the corrections and file it again.

If you filed on paper, you only need to send in the pages of the return that need amending. You should write “Amended” on each page you send in and ensure that your name and UTR are included with your submission. You can download a copy of the 2018/19 return from here. tinyurl.com/PaperReturn. The completed pages should be sent to: 

Self Assessment
HM Revenue & Customs
BX9 1AS

When amending a return you need to be aware of two things. HMRC normally only have twelve months from the filing deadline to enquire into a return. Where an amendment is filed, that is extended to twelve months from when the amendment was made. Also, whilst an amended return will not attract a late filing penalty, any additional tax due will be subject to interest from the normal payment due date of 31st January. 

If the tax due from your 2018/19 tax return was more than £1,000 then HMRC will be expecting you to make payments on account for the following year. On the assumption that your income will be steady, payments on account will be based on your 2018/19 tax bill. 50% of that amount will have been due on 31st January 2020, with another 50% due on 31st July 2020. These payments will be offset against the amount calculated to be due on your 2019/20 tax return, with a balance or refund due depending on the final calculation. 

If you know your income has fallen in the current tax year, you can apply to reduce these payments on account. The first opportunity to do this was on the tax return itself. If you have a personal tax account then you can update your payments on account from there. Simply sign on to your account, select your latest tax return and use the option “Reduce payments on account”. If you have an agent they should be able to make this application on your behalf. If neither of these options are available to you, you can apply by post instead. The form to make this application and details of where to send it can be found here. tinyurl.com/POAReduction 

You should be careful not to overestimate the reduction in your income. If your reduced payments on account are insufficient to cover your tax bill then interest will be due on the shortfall, capped at the original value for your payments on account. 

PICTURE: Helloquence_Unsplash

The first port of call for anyone unable to pay on time should be HMRC’s Payment Support Service. Provided you can demonstrate that you are unable to pay immediately, they will agree a payment plan to clear the amount owed. Payments under a payment plan will be treated as paid on time for the purpose of late payment penalties, though interest will still be charged. If you do agree a payment plan, you must ensure you keep up the agreed payment schedule. Failure to do so will result in HMRC reverting to their normal collection process. The Payment Support Service can be reached on 0300 200 3835.

If you do not agree a payment plan then HMRC have a variety of enforcement options open to them. These include:

• Amending your PAYE tax code to collect the amount due from wages or pension income. 

• Passing the debt to debt collection companies

• Pursuing the debt through the courts

• Making a bankruptcy petition against you.

HMRC also have a power called Direct Recovery of Debts. Provided certain criteria are met, this allows them to collect directly from taxpayers bank accounts. This is a last resort power where a taxpayer who owes at least £1,000 has refused to pay what they owe, even after a face-to-face discussion with an HMRC officer. Even after these hurdles are met, HMRC have to leave a minimum of £5,000 in the taxpayer’s accounts to enable them to cover their immediate living costs. 

These deadlines are fixed and apply to all returns. The only standard extension to this date is if HMRC have requested a return late. If you have only received a first notice to file a return recently then the deadline for that return is 3 months from the date of issue of that notice. Other extensions to the deadline will not normally be possible. 

Penalties for late filing of your return

Automatic penalties apply if your return is filed after the deadline. They apply whether you have a tax liability or not. Even filing a minute into 1 February 2020 will be enough for a return to be considered late for penalty purposes. If you delay longer than this then higher penalties are possible. The penalties for late filing are as follows:

• Missed 31 January 2020 filing deadline – Fixed penalty of £100

• 3 months late – £10 per day for up to 90 days (£900 maximum penalty)

• 6 months late – £300 or 5% of the tax due, whichever is higher

• 12 months late – £300 or 5% of the tax due, whichever is higher. Also at this point HMRC will start looking into the reasons for the failure to file. If they consider there has been a deliberate attempt to conceal tax due then additional penalties of 100% of the tax due are possible. 

These penalties are cumulative. An individual with no tax liability could still find themselves with £1,600 of penalties if they fail to file for 12 months. 

Consultation is currently underway for replacing this with a points-based system similar to that used for driving licences. 

Penalties for late payment of tax

As well as requiring the tax return to be filed by 31 January 2020, the balance of any tax due for 2018/19 is also payable on this date. Any late payments will attract interest at the official rate (currently 2.5%) but late payment penalties are also possible as follows. 

• 30 days late – 5% of tax outstanding

• 6 months late – 5% of tax outstanding

• 12 months late – 5% of tax outstanding

Late payment penalties are based on the amount still owing at the penalty date. If you have made part payment of your
tax liability by these dates, the penalties will reduce accordingly. 

Addressing a late return

Unless you were one of the few people required to file your return on paper, you still have time to meet the deadline. However, if you fail to meet the deadline anyway, there are a couple of possible ways of dealing with this. 

Cancelling your return

Firstly, it is possible that the request to complete a return has been made in error. This will usually happen if you were required to file a return in earlier years, but the reason for this has ceased (e.g. you sold a property you had previously been renting out). 

If this is the case, you can contact HMRC to ask them to withdraw the return. Contact can be made through the Self-Assessment general enquiries number, 0300 200 3310. You will be asked for details of your income in the relevant tax year to confirm no return is required. If HMRC agree then the return is cancelled and any penalty you have already incurred will also be eliminated. 

This will only be possible if no return has been submitted. Once you have submitted a return then this validates the notice to file and the return cannot be withdrawn. HMRC will also not withdraw a return if you have had self-employment within the year, no matter how short, or if you are a company director.

Reasonable excuse

If you have a good reason for the delay in filing, you may be able to appeal on that basis. Whilst not considered exhaustive, HMRC provide a list of reasonable excuses that they will consider. 

• your partner or another close relative died shortly before the tax return or payment deadline

• you had an unexpected stay in hospital that prevented you from dealing with your tax affairs

• you had a serious or life-threatening illness

• your computer or software failed just before or while you were preparing your online return

• service issues with HMRC online services

• a fire, flood or theft prevented you from completing your tax return

• postal delays that you could not have predicted

• delays related to a disability you have

By contrast, they also supply a list of what will not be accepted as a reasonable excuse.

• you relied on someone else to send your return and they did not

• your cheque bounced or payment failed because you did not have enough money

• you found the HMRC online system too difficult to use

• you did not get a reminder from HMRC 

• you made a mistake on your tax return

Submitting an estimated return and amendment

If you are unable to compile the figures for your return in time you can submit your return with estimated figures. You will need to tick the box on page 8 of your return showing that it contains provisional figures. Tax will be due on the basis of these figures until you submit an amended return showing the accurate amounts. 

Amending returns is not restricted to those who have entered estimated figures. If you find you have made an error on your return, you have until 31 January 2021 to submit an amended return to correct that error. 

Arranging time to pay

If you are unable to pay your tax bill on time, you can contact HMRC to arrange time to pay. You will need to have submitted your return before you contact them in order to confirm the amount due. You should also aim to make contact before the payment deadline as HMRC tend to look less favourably on requests after the tax is due.

To ask for a payment arrangement, you need to contact the Business Payment Support Service on 0300 200 3835. They will ask for details of your current income and expenditure and what other ways you have tried to acquire the necessary funds to make payment on time. If they agree that you cannot pay in full on time, they will normally put a payment plan in place, requiring a direct debit for future payments. 

Providing you keep making payments on an agreed plan, then your tax payments will be treated as made on the date of the agreement for penalty purposes. Interest will still be due on late payment. If you fail to keep up a payment plan then HMRC will normally cancel the arrangement and start legal action.

If you have an account with the Government Gateway, the app will also allow you to check the following information about your tax affairs: 

• your current tax code
• your National Insurance number
• your Unique Tax Reference (UTR)
• an estimate of the tax due for the current year
• the next 12 tax credit payments due to you

You will also be able to do the following actions that would previously have required a form to be submitted by post or on a computer.

• renew tax credits
• provide updated information affecting your tax credits
• update your address
• claim any refund due
• track forms and letters sent to HMRC
• access your Help to Save account.

Finally, the app can be used to generate 6-digit access codes to increase the security of your Government Gateway login. 

It is possible to reclaim sales VAT through a mechanism known as bad debt relief. To qualify for bad debt relief you have to meet the following conditions. 

• The VAT has already been paid to HMRC. If you operate the cash accounting basis then sales VAT is only accounted for when you receive money from customers. Accordingly, businesses using cash accounting will never be eligible for bad debt relief.

• The debt must not have been assigned to anyone else, such as a factoring company. 

• You must write off the debt as bad in your accounting records. This provides evidence that you believe you will no longer receive the amount due. 

• The sales price must not be more than the usual price for the goods or services supplied.

• The debt must be at least 6 months overdue. This 6-month period runs from either the invoice due date or the date the good or services were supplied, whichever was later. 

The amount you can claim is the sales VAT on the unpaid invoices. Where your sales are all standard-rated for VAT then this will simply be one sixth of the balance written off. Where your sales have a mixture of VAT rates applied to them, you will need to check the actual VAT amounts on the invoices that you are writing off. If you later receive a payment from a customer for whom you have claimed bad debt relief, you will need to account for VAT on the amount received in a similar fashion. 

There is a matching provision when a business fails to pay its suppliers within 6 months. For this the only criteria are that the payment is 6 months overdue and that the input tax has been claimed on a VAT return. Any input VAT on unpaid purchases meeting these criteria will need to be reversed on the next VAT return. 

I am not currently working and am worried that my National Insurance record for the State Pension will have gaps in it. Is there any way of getting credits to keep my record up to date?

To get the UK State Pension you need qualifying years based on your National Insurance record. You need a minimum of 10 qualifying years to get any State Pension at all, and you will need 35 qualifying years to get the full State Pension. Qualifying years are usually obtained through paying National Insurance from working, either in employment or as a self-employed individual. If you are unsure of your current position, then you can get a State Pension forecast online. (gov.uk/check-state-pension)

However, there are several ways of getting automatic credits for National Insurance purposes even when you are not working. The following will automatically qualify for credits.

• You are looking for work and receiving Jobseeker’s Allowance

• You receive Universal Credit

• You are ill or disabled and receiving Employment and Support Allowance, Unemployability Supplement or Unemployability Allowance

• You are a parent registered for Child Benefit, even if you have elected not to receive any actual payment

• You are a carer who is either receiving Carer’s Allowance or receiving Income Support and providing regular and substantial care. 

• You are over 18 and have been sent on a government-approved training course lasting up to a year by Jobcentre Plus

There are several other situations where you may be able to apply for National Insurance credits. Details of these, along with how and where to apply, can be found here. (tinyurl.com/NICredits)

If you do not qualify for National Insurance credits, you can make voluntary payments to keep your record up to date. (tinyurl.com/VoluntaryNI).

I am approaching State Pension age but I plan to continue working. Will I still need to pay National Insurance Contributions?

If you continue in employment after State Pension age you will no longer have to pay National Insurance Contributions. If you are self-employed then the flat rate Class 2 National Insurance Contributions will also cease immediately. Self-employed people will still pay the profit-based Class 4 National Insurance Contributions in the tax year they reach State Pension age, but these will also cease in the subsequent years. 

Employed individuals will need to present their employer with proof of age, such as a birth certificate or passport. If you do not wish to show these documents to your employer, you can apply to HMRC for a letter confirming the position. You will need to write to them explaining why you do not want your employer to see these documents. The address to write to is
National Insurance and Contributions and Employers Office HM Revenue and Customs BX9 1AN

• These articles are for information only. If you need help with this or any other accounting or tax matters, please contact Steve Brown on steve@nayloraccountancy.com

I have already prepared my 2019/20 tax return and I have a small tax bill. My main source of income is employment. Can I get this additional amount collected through PAYE?

It is possible for HMRC to collect additional tax payments through your PAYE income (either salary or personal pension). The way this is achieved is by reducing your tax code for your PAYE income. This reduces the amount of your tax-free personal allowance by the amount required to cover your additional taxable income, resulting in additional tax being collected through PAYE. Many people prefer this as it spreads the cost over the following year instead of it being due as a single lump sum. 

There are some restrictions to being able to pay your tax bill through PAYE. The most obvious is that you must have employment or pension income that is sufficient to allow the tax due to be collected. The other restrictions are.

• The amount to be collected cannot be more than £3,000.

• The change would result in more than 50% of your PAYE income being taken as tax.

• The change would result in the tax taken under PAYE being more than double the amount that would have been due otherwise. 

If you submit your tax return on paper then you will need to take action soon as your return must be filed by 31 October to be eligible for this. Those who file online have until 30 December.

I have a small company where I am the sole shareholder and director. I have just been taking money out of the company as I needed it and now find I owe my company money. What are the consequences of this?

Except where it is simply repaying money invested, taking money out of a company has tax consequences. Normally the amount taken will either be as a salary taxed through PAYE or dividends paid out of profits. Where the amounts taken by director/shareholders exceed these, two rules come into effect to ensure the additional amounts are not taken as tax-free income. 

The first of these is the benefit in kind rules.  If a director/shareholder were to borrow money elsewhere they would usually have to pay interest on the loan. Where the amount borrowed from the company exceeds £10,000, then a taxable benefit is created. The value of the benefit is calculated as the interest that would be due on the amount borrowed based on the official rate of interest. This becomes taxable income for the individual and the company will also have to pay 13.8% Class 1A National Insurance as well. 

The second rule is known as the s455 charge. This is an additional corporation tax charge at 32.5% on the balance outstanding at the year-end date of the company accounts. This is due for payment on the same date as the normal corporation tax bill, 9 months and 1 day after the year-end. If the loan is cleared before that date, then there will be no additional charge to pay. Loans can be cleared by either paying money back into the company or by declaring additional dividends after the year end to cover the amount due. To prevent individuals temporarily repaying loans simply to avoid this charge, any amounts taken out within 30 days of being repaid are still subject to this charge. This 30 day rule does not apply to any loans cleared by additional dividends. 

• These articles are for information only. If you need help with this or any other accounting or tax matters, please contact Steve Brown on steve@nayloraccountancy.com

Student loans provided through the Student Loan company are collected through the UK tax system. How much, if anything, is paid is determined by the former student’s current income. When this individual is employed the repayment amount is calculated by the employer and paid with their other PAYE liabilities. 

There are two types of Student Loan for ordinary degrees, with the type determined by where a person studied and when they first applied for a loan. Repayments for both of these plans are 9% of income above the relevant income threshold. 

• Plan 1 – Applies to all students in the UK unless they have a Plan 2 loan

• Plan 2 – Applies to students in England and Wales who started studying after 1 September 2012

If an individual also undertook a postgraduate degree then they could also have postgraduate loan. Repayments on these are 6% of the income above the relevant income threshold.

If someone has more than one student loan, then repayments for all of them should be deducted from pay as appropriate.

The current income thresholds for the three loan types are as follows below.

A new employee with a student loan should tell you what type of loan they have. This information appears on both P45s from previous employers and the standard new employee starter list. If they are unsure they can also contact the Student Loan company to check. HMRC will also issue Student Start notices (form SL1 for Plan 1 and 2 loans and form PGL1 for postgraduate loans) when their records show that an individual should be subject to loan payments.

Provided the correct loan type is entered in an employee’s record, all good payroll software will calculate the amount to be deducted. 

I am taking on some additional people to deal with a seasonal rush. Do these temporary workers need to be put on my payroll?

Some industries, such as crop-picking, have busy periods at certain times of year where they require additional temporary staff. Even though such staff are only likely to be employed for short periods, all the requirements regarding permanent employees apply. You will need to get them to fill out a new starter form, deduct PAYE and NIC as appropriate and report payments to them through RTI. 

These employees will also be potentially eligible for auto enrolment in the workplace pension scheme. The usual rules apply for determining whether an employee should be enrolled in the scheme. Undertaking this exercise can seem like a waste of effort for staff that are only going to be present for a brief period of time. Fortunately there is a solution. The auto enrolment rules allow an employer to postpone this assessment by up to three months. This reduces the immediate obligations regarding giving a letter to affected employees notifying them of the postponement and their general auto enrolment rights. If you know temporary staff will be with you for three months or less then this will deal with the problem entirely.  

The first affected returns were those for periods commencing on or after 1 April 2019. Those with June and July VAT quarter ends should already have registered and those with August quarter ends need to register now. Once a business is registered for MTD it will no longer be able to submit VAT returns through the HMRC website. It is therefore important to ensure you have everything in place in good time to avoid the risk of missing the filing deadline entirely. 

Businesses that submitted through the old system despite being required to submit through MTD are already receiving letters from HMRC. The wording of these is somewhat stern, but the letter is clear that no penalty arises from this failure. This is in keeping with HMRC’s declared intention that there will be a “soft landing” with regard to penalties for the first year of MTD. However, the letter goes on to state that failing to file under MTD in future will be considered deliberately failing to comply. It would not be surprising if this was used as an excuse to raise penalties in the near future, so unregistered businesses need to take action now. 

If you have a Direct Debit in place to pay your VAT, you need to wait until the amount for your last filed return has been taken before registering. The Direct Debit should automatically be transferred over to the MTD system, but the transfer process can take up to 72 hours. Direct Debits due in that period will fail, possibly resulting in a VAT default. The consequences of VAT defaults have been covered recently on this page and the online version of that article can be found here (tinyurl.com/HIPVAT). 

If your business is VAT-registered but has annual turnover below the threshold you do not currently have to register for MTD. HMRC have still sent out letters to some businesses in this category but, as stated in those letters, these can be ignored on that basis. It is possible to register voluntarily regardless of turnover level. As MTD is likely to become mandatory for all VAT filing in the not too distant future it may be advisable to take steps now.

It is possible to get exemption from registration for MTD. However, the list of reasons for exemption that HMRC will accept is very narrowly drawn. The following are the officially accepted bases for MTD exemption.

• it’s not reasonably practicable for you to use digital tools to keep your business records or submit your VAT Returns because of age, disability, remoteness of location or for any other reason

• you or your business are subject to an insolvency procedure

• your business is run entirely by practising members of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records

If you believe these apply, you need to contact the HMRC VAT enquiries team (tinyurl.com/VATEnquiries). Otherwise details of how to register for MTD can be found here (tinyurl.com/MTDRegistration)

If a vehicle is genuinely only used for business, then VAT can be claimed in the same way as for any other business expense. Should HMRC check a return that includes such a claim, they are likely to seek evidence that a vehicle does only have business use. Mileage records showing that the distance travelled was all for business journeys and having a second vehicle available for private use will help address such queries.

If there is personal use, then there are two ways of dealing with the VAT for that personal use. 

• Mileage records
If you keep detailed mileage records, you can determine how much of the total mileage in a vehicle is for business purposes. VAT can then be claimed based on the percentage of total mileage that relates to business activities.

• Fuel scale charge
A business can claim VAT on all motor expenses and then provide a fuel scale charge for the private use. HMRC provide a table of fuel scale charges based on the CO2 emissions of the vehicle. The table showing the current figures, which change on 1st May each year, can be found here. (tinyurl.com/y64wmcrz). These fixed amounts represent a fixed value for a VAT-inclusive ‘sale’ of the use of the vehicle for private purposes. Because these are fixed figures with no reference to the distance travelled, the amount of VAT paid back in this way can exceed the amount claimed. Before adopting this method you should check the figures to make sure that you are not actually ending up worse off as a result. 

If neither of these methods appeals, then the only other choice is to not claim VAT on fuel costs. 

• Please note that the above applies only to self-employed businesses.
The rules for vehicles in businesses run through companies are more complex and beyond the scope of this article. 

The first time you fail to pay or file on time, you will simply get a letter reminding you of your statutory duties. If your annual turnover is less than £150,000, then your second failure will generate a similar letter. If your annual turnover is higher, then the second failure will be subject to a surcharge. From the third failure onwards, all VAT registered entities will be subject to surcharges. Surcharges are a percentage of the VAT payable, with the percentages rising with each subsequent failure. You need a clean record for a full 12 months before the system resets. 

With all the different activities required to keep a business running, it is easy for matters not directly related to customer work to be given low priority. Whilst making sure VAT is not a low priority is important, there are several ways you can make it less likely you will be hit by a surcharge. 

Deregister for VAT
A business are only required to register for VAT when its annual turnover is over £85,000, though it is possible to register before then. Once a business is registered it can deregister if its annual turnover falls below £83,000. If VAT obligations are proving onerous, and your turnover is below these limits, then the simplest solution is to deregister for VAT. If you are slightly over these limits it may even be worth scaling back your business slightly to meet them. Where your customers are mostly private individuals, for whom VAT is simply part of the price, you may even end up better off by keeping your prices the same without having to pay out a proportion to HMRC.

Pay using online banking
Payments through online banking will reach HMRC the same or next day depending on when you initiate the payment. This means that you can keep the money for as long as possible whilst still meeting the deadline. You will need to allow 3 days if you make payment online using a debit card or corporate credit card or if you go into your bank and building society to make the payment. 

It is no longer possible to pay by cheque unless you have the rare exemption from online filing. While HMRC may still accept a payment by cheque, delays in the post and in processing a cheque will add an indeterminate delay to the payment being recorded.

Use the cash accounting scheme
Provided you have annual turnover below £1.35 million, which will apply to most small businesses, then you can use cash accounting for VAT. This means that you only need to account for VAT on your sales when you have actually received money from your customers. This means you are more likely to have funds available to pay your VAT bill when it falls due. You can also only claim VAT on your purchases when they are paid, so it can be worth planning to make your payments to suppliers at the end of the quarter to claim as early as possible. 

Read letters from HMRC
Those brown envelopes dropping through the door can be daunting but ignoring them is rarely wise. Appeals against an incorrect surcharge must be made promptly to get them overturned. Ignore them instead and you risk higher surcharges arising from later genuine mistakes. 

Arrange Time to Pay
If you simply don’t have the cash to pay your VAT bill on time, there is a final option to avoid being subject to a surcharge.  If you contact the HMRC Business Payment Support Service on 0300 200 3835 you might be able to arrange Time to Pay. They will ask detailed questions to confirm you are genuinely unable to pay for reasons outside your control. If they are satisfied with your answers, then they will agree a payment plan. Provided this is in place before the due date, this will be accepted as paying on time even if some of the agreed payments occur after that date. 

Conclusion
There is no substitute for planning ahead for business filings to HMRC. Putting a few of the suggestions in this article in place should help make that as easy as possible. 

Whilst the idea that high earners do not have a financial need for Child Benefit has some merit, the means of addressing the issue has left something to be desired. Many couples prefer to keep their finances separate. Because of this it can be hard to tell which is the higher earner and hence due to make any repayment. It is even possible that a high earner would not be aware their partner is receiving Child Benefit. This is further complicated by the HICBC applying regardless of any relationship between the child and the high earner. A child for whom Child Benefit is being claimed simply has to live in the same household for the HICBC to apply. A change in circumstances can also bring about a surprise bill, such as when a new job takes income over the threshold in the same tax year as Child Benefit has already been claimed. 

But by far the biggest problem has been that the HICBC can only be repaid through a self assessment tax return. Those already completing tax returns were alerted to the charge by new entries to be made on the forms. However, where someone was simply in a well-paid job, they had no historical need to complete a return. Whilst there was a reasonable amount of publicity early on, awareness has waned since, leaving many not knowing a return is required. 

As a result, many unsuspecting individuals have been hit with penalties for failure to notify HMRC of their liability to pay HICBC. Having been hit with these penalties out of the blue, many have sought to challenge their validity in the tax tribunals. After facing a number of similar cases, HMRC have now reviewed these penalties and cancelled penalties in 6,000 cases. This includes 4,885 where the penalties had been paid, resulting in refunds to the affected individuals. 

Whilst this is a welcome result, this is very much seen as a one-off exercise by HMRC. If you or your partner are a high earner, and you have children, it would be advisable to take professional advice on how this affects you. 

If you are going to appeal against a penalty, then you need to respond quickly. The penalty letter will tell you the deadline for appealing, which will be 30 days in most cases. It is possible to appeal beyond this time period, but it will be much more difficult to do so successfully. Late appeals not only have to justify why you should not have received a penalty in the first place, but also need to explain why the appeal was not sent in more promptly. 

The simplest reason you can give for an appeal is that you did not fail to meet the deadline at all. For this to be successful you will need to provide proof that you filed on or before the deadline date. If you filed a document electronically, an electronic receipt from HMRC will show when this was done. This should either be found within the software you used for filing or as an e-mail sent to you be HMRC immediately after the document was sent. If you sent a document by post then you will need to have used a tracking service showing it was delivered in time. Proof of posting is not generally accepted as proof of receipt. 

An appeal will also usually be accepted if you were not aware of an obligation to file. If HMRC believe you are required to complete a self-assessment tax return, they will issue a notice to file. If this is not received, then you may be able to say that you did not know you needed to complete one. However, this will only work if you did not have good reason to know this would be necessary. If you completed returns in prior years and still have the same income, not receiving a notice to file will not be sufficient to overturn a penalty. 

If you did file late then the task of appealing becomes more difficult. To overturn a penalty where you filed late you need to show you had a “reasonable excuse” why you were unable to meet the deadline. Whilst this term is not precisely defined in law, HMRC does provide a list of issues that they will accept give the taxpayer a reasonable excuse:

• Your partner or another close relative died shortly before the tax return or payment deadline.

• You had an unexpected stay in hospital that prevented you from dealing with your tax affairs.

• You had a serious or life-threatening illness.

• Your computer or software failed just before or while you were preparing your online return.

• Service issues with HMRC online services.

• A fire, flood or theft prevented you from completing your tax return.

• Postal delays that you couldn’t have predicted.

• Delays related to a disability you have.

In contrast, HMRC also provide a shorter list of things they will not accept as a reasonable excuse:

• Not receiving a reminder – if you have an obligation to file with HMRC, you are expected to be aware of the deadlines associated with those filings. Note that reminders are sent subsequent to the notice to file mentioned above.

• Relying on someone else – the obligation to file falls on the taxpayer and he/she is responsible for ensuring it is fulfilled.

• Making a mistake – whilst it can reduce some penalties, carelessness is not a general excuse.

Should you be registered for self-assessment?
But even if you didn’t file a return in earlier years, it is possible you will need to do so now. In order to be able to file a return, you will first need to register for self-assessment with HMRC. You will need to file a tax return for the year ended 5 April 2019 if, during that year, you met one of the following criteria:

• You worked for yourself as a sole trader and earned more than £1,000 from doing so. This £1,000 trading allowance was introduced with last year’s returns to save having those with tiny self-employments having to complete a return.

• You are a partner in a trading partnership.

• You had income above £50,000 and you claimed Child Benefit. This will also apply if your partner claimed Child Benefit and you have income over £50,000 and are the higher earner. Child Benefit is reclaimed through the tax return for those on higher incomes.

• You had income over £100,000. Above this limit, the personal allowance starts to be withdrawn (£1 is taken for every £2 over the limit). A tax return is required to correctly calculate the revised tax due from this.

• You had income from rental of property or land in excess of £2,500 after allowable expenses or more than £10,000 before expenses. Rental income is still taxable income, but smaller amounts can sometimes be dealt with outside the tax return system.

• You had income from dividends or savings and investments. Receiving amounts above £10,000 automatically requires a tax return, but it is likely a return will be required for smaller amounts if you have other income.

• You sold a valuable asset. When you sell an asset, the income from that is potentially subject to Capital Gains Tax (CGT) depending on how much the sales price exceeded the original purchase price. Such sales need to be reported on a return to see if any CGT is due. Sales of your home are exempt from this.

• You hold one of the following positions. All of these positions have specific tax rules, and specific tax return pages, associated with them.

• Religious minister
• Lloyd’s underwriter
• Examiner, exam moderator or invigilator
• Share fisherman.

• You have other potentially taxable income, such as money from a trust, non-UK income above £300, more then £2,500 in tips or charges arising from pension investments.

HMRC will also usually want returns from company directors. Whilst this is not strictly speaking required by law, most directors of their own companies will have income that requires them to complete a return in any case.

How to register for self-assessment
If you have filed returns in the past, but ceased having to do so, then the Unique Tax Reference (UTR) you used then will still be valid now. If that is the case, you will not need to re-register, but can simply send a new return using that number.

If you are registering as self-employed, either on your own or in a partnership, you will need to complete form CWF1. This can be completed via a Government Gateway account, or through a printed form. Both options can be found on the HMRC website. (tinyurl.com/CWF1forms)

To complete form CWF1 you will need the following information to hand:
• Full name
• Previous name (if changed) and the date of change
• National Insurance Number
• Date of birth
• Full residential address and the date you moved there
• Your business address if you do not operate your business from home.
• Contact telephone number and e-mail address
• The date when you either started in self-employment, or when you exceeded the £1,000 trading allowance.
• The trading name of the business if different from your own name.
• The nature of your business.

Otherwise you will need to fill out form SA1. This can either be completed for submission online or printed out to be sent by post. Both versions of this form can be found on the HMRC website. (tinyurl.com/SA1forms)

To complete form SA1, you will need the following information to hand.
• Full name
• Previous name (if changed) and the date of change
• National Insurance Number
• Date of birth
• Full residential address and the date you moved there
• Contact telephone number and e-mail address
• The date when your requirement to complete a return came into force (e.g. when you started receiving rental income)

Once submitted, you should receive a letter from HMRC within 10 working days. This will confirm your registration for self-assessment and provide you with the 10-digit UTR you need for submitting tax returns.

Tax codes are part of the PAYE system. Their purpose is to try to ensure that the correct amount of tax is collected through PAYE each year. For most people the code will be 1250L, indicating they are getting the full benefit of the £12,500 tax-free personal allowance for the current tax year.

If your code is anything other than this, HMRC should already have sent you a letter telling you what your code will be. This letter will include a breakdown of why the code is different. This breakdown shows the full personal allowance, and the individual adjustments that have been made to reach your final code. 

Where there is still some personal allowance left after adjustments, the tax code will be the amount left with the last digit removed, followed by the letter L. For example, if £6,950 of your personal allowance is left after adjustments, your code will be 695L. 

If the adjustments exceed your personal allowance, your code will actually add an amount on top of your cash wages for the purpose of calculating tax. These codes start with K, followed by a figure showing the excess amount, excluding the last digit as for L codes. For example, if the adjustments were £15,000, £2,500 more than your personal allowance, then your code would be K250.

Common reasons for your tax code being adjusted are:

Second employment
If you have two jobs, your personal allowance will be split between them. For example, if your main job had a salary of £9,000 a year, then that would take up £9,000 of your personal allowance. That would leave £3,500 available to use in your second job. The two jobs should get codes 900L and 350L respectively to reflect that split. If your personal allowance is entirely used up in one job then the other will have a code BR (all taxed at 20% basic rate) or, if the income from your first job is high enough, D0 (all income taxed at 40% higher rate). Because HMRC cannot be certain how much you will receive from each job, the split is rarely perfectly balanced. You can ask HMRC to amend your tax codes to make better use of your personal allowance if you wish to.

Benefits in kind
Benefits in kind are things other than money that you receive from your employer. For example, they may pay directly for health insurance or provide a company car for you to use. The value of these benefits is taxable in a similar way to your cash wages. In order to collect the tax on these benefits, your tax code will be reduced to reflect the benefit received.

Unpaid tax from earlier years
If you have not paid all the tax due in previous years, it can be collected through PAYE. If you complete a self-assessment tax return, you can ask for the tax calculated from this to be collected in this way. To qualify you have to meet these three conditions:

• You have income subject to PAYE
• Your tax bill is less than £3,000
• Your return is submitted no later than 31 October after the tax year end if on paper or 31 December after the tax year end if online.

The adjustment will be based on the tax rate expected to apply to your PAYE income. For example, if you owe £200 and are expected to pay basic rate tax at 20%, the adjustment will be £1,000.

Expected other income
If you are reporting regular other income, such as from dividends or rental, each year then HMRC can provide for an estimate of these in your code. Some people will prefer tax on this income to be taken through their PAYE, as it spreads the payment and saves them having to remember to set money aside. However, there is no requirement for tax on other income to be collected in this way and you can ask for such adjustments to be removed. 

How do I get a tax code amended?
If you want to amend your code, either for one of the reasons above, or because it is simply incorrect, you can contact HMRC on the Income Tax helpline (0300 200 3300). If you have an agent, you can also ask them to request such changes on your behalf.  

Unlike most voluntary disclosure campaigns from HMRC, which normally run for a short period of time, the Let Property campaign is still ongoing. It was first introduced in late 2013, as an opportunity to voluntarily disclose rental income, and reduce the penalties arising. At the time it was only envisaged to last for 18 months. However, this offer has not yet been rescinded, with the tax advantages from the scheme still being available to this day.

Part of the reason for this continuation is that becoming a taxable landlord is an easy position to fall into be accident. Many property owners, struggling to sell in a depressed market, have resorted to renting as a temporary measure. As the property market does not show any show signs of recovery, the number of these ‘accidental’ landlords will continue to rise. It is therefore welcome that HMRC appear to have recognised this phenomenon, leaving this campaign open so those who have made an innocent mistake can rectify their error relatively cheaply.

As HMRC has access to the records at the Land Registry, and thus can identify who owns individual properties, they continue to issue letters to landlords they believe have undeclared rental income. Those who are receiving such income, but who ignore the opportunity to come clean under the Let Property Campaign, will find themselves facing much higher penalties. Failing to take advantage of the Let Property Campaign is likely to be considered deliberate tax avoidance, which can attract penalties of up to 100% of the tax due on top of the liability itself. Disclosure under the campaign will, at most, attract penalties under the much more generous voluntary disclosure provisions. 

Who is eligible to make a disclosure under the Let Property Campaign?The following are eligible for making disclosure under the Let Property Campaign.
• Landlords with single or multiple property rentals
• Specialist landlords with student or workforce rentals
• Holiday lettings. These will be subject to tax, even if you personally use the property as a holiday home for part of the year. 
• Renting out a room in your main home for more than the Rent a Room Scheme threshold. The Rent a Room Scheme threshold is the amount you can receive for renting out a room in your home tax-free. The threshold is currently £7,500 a year (£3,750 each if jointly owned with a spouse).
• Those who actually live abroad, or who intend to live abroad, for a period of more than 6 months and who rent out a property in the UK during this time.

By Emma Harwood

Hastings Pier owner Sheikh Abid Gulzar was fined thousands of pounds last week for breaching tax regulations along with two of his companies which had been ‘trading illegally’, according to HMRC’s Fraud Investigation Service.

The Eastbourne-based hotelier pleaded guilty at Hastings Magistrates Court on Wednesday 27th February to failing to pay £61,873 up front in security bonds for Albany Lions Hotel Ltd and Mansion Lions Hotel Ltd.

HMRC had issued a notice of requirement in March 2017 demanding that both companies, which were incorporated in December 2015 and registered with PAYE in early 2017, pay £39,686 in PAYE and £22,187 in National Insurance contributions in advance, because previous and existing companies owned by Mr Gulzar had run up six-figure debts under this heading.

The 73-year-old businessman’s appeal against this notice was dismissed by a tribunal last July 2018.  

Hastings Magistrates Court heard that Mr Gulzar had not paid any of the sum owed so far. 

He was fined £8,000 as sole director of both companies, while each company was also fined £4,000. He was given until 13th March to pay the total of £16,680 imposed in fines, court costs and victim surcharges on top of the debts due.

During the hearing speaking for the Crown Prosecution Service, Elizabeth Green told magistrates that “the seriousness” of Mr Gulzar’s offences was that, as director, he had previously taken the national insurance and PAYE out of employees’ pay packets and not handed it over to HMRC. “The money not paid was money which did not belong to Mr Gulzar or his companies.”

“It was money which he had taken to pay on behalf of these employees, so it affects these employees in respect of their national insurance contributions, she said.

Looking uncharacteristically dishevelled and wearing a long dark overcoat, Mr Gulzar was flanked by his adviser Manasdeeph Singh. He was repeatedly asked by magistrate Peter Dass to explain why he still had not paid the bonds ahead of trading, as required by law. 

Mr Gulzar stressed that he wanted to pay the minimum fine required within 24 hours, and that he had lived and worked in the country since the age of 19.  He said that he had been in touch with Amber Rudd MP because he was not receiving a state pension. Mr Dass asked him to keep to the point. 

Mr Singh was also asked to explain why the money had not been paid. He replied that he and Mr Gulzar had taken legal advice and been advised on Monday that they should pay the bonds. “Why didn’t you pay on Monday then?” asked Mr Dass.

In handing out the fines, Mr Dass said he had taken into consideration Mr Gulzar’s guilty plea but that the court took a serious view of the offences. 

“You have taken money from employees and you have not given it to HMRC who it belonged to.” 

“You made things worse because you delayed for a lengthy period of time,” he added.

Richard Wilkinson, Assistant Director of HMRC’s Fraud Investigation Service, said: “HMRC made numerous attempts to engage with Gulzar, who was trading illegally as he failed to pay the security bonds and then tried to thwart the prosecution. It’s only right that we tackle those businesses who fail to play by the rules.”

A history of tax liabilities 
HMRC issued its notice of requirement in March 2017 demanding the upfront payments because two companies, Boship Farm Hotel Limited and Albany Lions Hotels Ltd had taken over from predecessor businesses which owed combined sums totalling over £144,000 in PAYE, NIC and VAT. Mansion Lions Hotels Ltd had meanwhile taken over from its predecessor, Lions Hotels Ltd which went into liquidation in January 2017 with a PAYE and NIC debt of £260,013.05.

At the time the notice was issued, other businesses in the ownership or under the control or influence of Mr Gulzar also owed tens of thousands to HMRC: Lions Cub Nursery which owed £16,534.68 PAYE and NIC, Lions Pier Ltd,  owed £46,565.81, while Chatsworth Hotels Ltd, went into liquidation in January 2017 with a PAYE debt of £39,217.98.

HMRC can require new companies to pay a deposit, or security, where there is a serious risk the tax will not be paid, based on their history. The amounts required by HMRC were calculated as four months average NIC and PAYE payments from predecessor businesses.

 It is understood that another of Mr Gulzar’s companies, Boship Lions Farm Hotel Ltd, also incorporated in 2015, may be subject to separate prosecution.

It is not clear whether his most recent company Hastings Lions Pier Ltd, which was incorporated in 2018 shortly before Mr Gulzar bought Hastings pier and has been the operating company for trading purposes there, has also been required to produce security bonds up front as protection against further defaults in NIC and PAYE contributions. 

Meanwhile a further company Lions Cub Nursery Limited has applied to be dissolved, but the initial striking off from the companies register was suspended in January this year after an objection was raised. The normal reason for such an objection is that a creditor, which may or may not be HMRC, seeks payment of a debt that would
not be collectable following dissolution.

More Company Debts, Another Court Reverse
Three of Sheikh Gulzar’s companies, Lions Pier Limited, Albany Lions Hotel Limited and Boship Farm Hotel Limited, were back in Hastings County Court on Monday, purporting to dispute debts – not owed to HMRC this time but to their gas suppliers Opal Gas.  

Combined judgments totalling £11,372 in respect of unpaid debts had been entered by Opal in separate amounts against the three companies in December, and they were making applications to set each aside. However Judge Venn gave the applications short shrift, pointing out to the companies’ advocate that the paperwork presented to her failed to submit any admissible evidence as to why the debts were not correctly calculated. After some legal argument the applications were withdrawn, and a costs order of £1,500 made against the companies to add to the existing debts.

The companies were given a maximum of seven days to submit fresh applications if Mr Gulzar, who is the sole director of each, chose to do so.

Whilst not as valuable as the Married Couple’s Allowance, which requires at least one partner to have been born before 6th April 1935, the Marriage Allowance can still provide a tax saving. Its main application is for couples where one partner has little or no taxable income. They can transfer some of their personal allowance (currently £1,090) to their partner.

To qualify for the allowance, the following must all be true for the couple for the entirety of any tax year (6th April to following 5th April) you are claiming for.

• Neither are higher or additional rate taxpayers
• Both UK resident and domiciled
• Married or in a civil partnership with each other
• Both born on or after April 1935 (i.e. not eligible for the more valuable Married Couple’s Allowance).

If you can qualify, you can register through HMRC’s website. They will send an e-mail confirming your application. It is also possible to backdate the claim. The earliest year you can backdate to is year ended 5th April 2015, and you must meet the above criteria in each year claimed.

Whilst HMRC state that, while nearly all VAT returns are now filed online, a majority are still entering the figures manually through the Government Gateway rather than filing directly from their accounts software. Under MTD this option will no longer be possible and businesses will be required to use MTD compliant software to submit the figures directly instead. There are spreadsheet-based options available, but these currently require fixed templates and bridging software to submit figures. Those currently using spreadsheets or manual systems will therefore need to change how they keep their records. 

Most major accounting software suppliers already have a direct filing facility that is compliant with the MTD requirements. If you are unsure whether your existing software is compliant, a list of programs that HMRC recognise as ready for MTD can be found on their website. (tinyurl.com/ydbwuv3v).

HMRC’s position is that making tax digital will improve business record-keeping and tax position throughout the financial year. The main aspect of this is that your personal and business tax affairs will all be compiled in one place. Other stated advantages are

• You can ensure the details HMRC hold about you are accurate
New digital tax accounts should make it easier to check the information HMRC retains about an individual and their business is 100% correct.

• It will eliminate human error
MTD-compliant tax reporting software will enable HMRC to review your tax information almost immediately. They believe that this will result in a drastic reduction in human error from data input.

• will provide better clarity over your tax liabilities
As the information is updated throughout the year, the digital tax account will give a better idea of the tax liability likely from activity to date.

• It will make contact with HMRC easier
Your new digital tax account should be designed in a way that will enable you to liaise with HMRC easily online via secure messaging and webchats.

Whatever the final result, if you fall within the affected group you should take action now. At the very least, you need to make sure you have MTD-compliant software and know how to use it. Having been aware of MTD for some time, most accountants should be in a position to help you if required. 

Immediate effect
Any overdue return, even if it was submitted mere minutes after the deadline, will be subject to an automatic penalty of £100. This will be the case even if you do not owe a penny in tax or are due a refund. There are plans to change this to a points-based system, similar to that used for driving licences, under Making Tax Digital (see elsewhere on this page) but that is not yet in place.

Cancelling a return
If you have not yet submitted a return, the first thing that you need to consider is whether one was due in the first place. 

If all your income in that year was taxed at source (e.g. under PAYE) then a return is unlikely to have been required. However, HMRC may still have issued you with a return in the belief one was due. A common reason for this is income in previous tax years, such as through self-employment, that ceased prior to 2017/18. 

If you think this is the case you should contact HMRC on 0300 2003310. They will ask for your UTR (on all HMRC correspondence) or National Insurance Number along with your name and address to identify your record. They will then ask for general details of your income for the relevant year (sources and approximate value). If they agree that you did not need to complete a return, then it will be cancelled. This will also cancel any associated penalties. Please note, if you submitted a return late anyway, then this cannot be cancelled and the penalties will stand. This is why you should check first if a return was required. 

Reasonable excuse
If you were still required to submit a return, but were unavoidably delayed in doing so, you may be able to claim reasonable excuse. If you have such an excuse, then you can appeal the penalty on that basis. HMRC list examples of things that they will accept as a reasonable excuse on their website. These include:
• your partner or another close relative died shortly before the tax return or payment deadline
• issues with HM Revenue and Customs (HMRC) online services
• a fire, flood or theft prevented you from completing your tax return

HMRC also provide a list of things that will definitely not be accepted as a reasonable excuse.
• you relied on someone else to send your return and they didn’t
• you found the HMRC online system too difficult to use
• you didn’t get a reminder from HMRC
• you made a mistake on your return

Where you do claim a reasonable excuse with a limited duration, then you may need to demonstrate you took action to rectify matters promptly after it ended (i.e. filing once the problem had been dealt with). A successful appeal will cancel existing penalties, but will not prevent the imposition of future penalties if you continue to fail to file.  

Rectify matters now
Further penalties will arise the longer the return is delayed. Even if you have an excuse for this initial delay, you should seek to file any overdue return as soon as possible to avoid further issues. 

Though most complete their tax returns honestly and on time,  every year HM Revenue and Customs (HMRC) receives some outlandish excuses.

Some of the most bizarre excuses HMRC received from those who missed the Self Assessment deadline show a large amount of creativity, if not a great deal of common sense. Here are some of the strangest from the past year:
• My mother-in-law is a witch and put a curse on me
• I’m too short to reach the post box
• I was just too busy – my first maid left, my second maid stole from me, and my third maid was very slow to learn
• Our junior member of staff registered our client in Self Assessment by mistake because they were not wearing their glasses
• My boiler had broken and my fingers were too cold to type

Creativity is not just limited to late filing excuses. Expense claims can prove equally intriguing, such as the following.
•A carpenter claiming £900 for a 55-inch TV and sound bar to help him price his jobs
• £40 on extra woolly underwear, for 5 years
• £756 for “my pet dog insurance”
• A music subscription “so I can listen to music while I work”
• A family holiday to Nigeria

All these excuses and expense claims were unsuccessful.

Angela MacDonald, HMRC Director General of Customer Services, said:
“We want to make it as simple as possible for our customers to do their tax returns and the majority make the effort to do theirs right and on time. But each year we still come across some poor excuses and expenses which range from problems with maids to televisions.

Help will always be provided for those who have a genuine excuse for not submitting their return on time but it’s unfair to the majority of honest taxpayers when others make bogus claims.”

I complete my own VAT returns for my business. Reviewing my records for my tax return, I realise I have made some mistakes. How do I go about correcting these and will I be liable to penalties and interest?

Most errors can simply be adjusted on your next VAT return. To qualify for this treatment, the errors must meet the following three criteria. 
• They are below the reporting threshold
• They were not deliberate 
• They relate to a period less than 4 years ago.

As it is possible for errors to both increase and decrease your liability, you need to determine the net value of the errors (the final increase or decrease in liability once all have been corrected). This is the figure you use to determine if you are over the reporting threshold. You meet the reporting threshold requirement if the net value of errors is
• less than £10,000 or
• if above £10,000, less than 1% of your box 6 figure (sales excluding VAT) up to a maximum of £50,000.

If legitimately adjusted on a later return, such errors will not attract penalties or interest. 

If you do not meet these criteria, you will need to disclose the errors separately using from VAT652.  On this form you will need to list each error individually. The details you need to include for each are the return affected, the effect on each entry on that return and the reason for the error. You can find form VAT652 on the HMRC website (tinyurl.com/jmtcprt), though the form itself will need to be printed for posting to HMRC. Once they have reviewed the form, HMRC will send you a notice confirming if they agree your calculation and the amount of VAT and interest you owe. They will also apply a penalty between 10% and 30% of the amount due if they consider the errors arose from carelessness on your part.

Regardless of how you correct your errors, you should keep a detailed record of them. This will not only help you in keeping track of your own records, it will also be useful for dealing with any queries arising from a later VAT inspection by HMRC.

I am employed, but I am also a member of a professional body with an annual subscription fee. Is there any way of getting tax relief on these payments?

You can only claim for the cost of being a member of a professional body if said body is related to your employment. The professional body must also be on HMRC’s list of approved professional bodies. The list of professional bodies HMRC will accept can be found here. (tinyurl.com/lzaagut)

Note that this only applies to the normal annual fees you pay. Life membership subscriptions do not qualify as a claimable expense. For obvious reasons, you also cannot make a claim for fees paid by someone else, such as your employer. 

If you already complete a tax return, then these expenses can be reclaimed through the employment pages of said return. Otherwise you can make the using from P87 (either online or by post using a printed form) or by telephone. Details of how to make the claim, along with links to the relevant forms, can be found here. (tinyurl.com/y8ovfkqn)

I have submitted my 2017/18 tax return in advance of the 31st January 2019 deadline, but now realise I have made a mistake. Is there any way I can amend it?

You have 12 months from the filing deadline for a return to make any corrections. Assuming your return was issued normally, that means that you have until 31st January 2020 to correct your error. If your return was issued late then the time limit will be extended dependent on how late the return was issued. Regardless, you should always seek to make corrections as soon as you discover them to minimise any additional costs arising. 

If you submitted your return electronically, then you can submit an amended return using the same route. If you submitted your return on paper, then you only need to send corrected versions of any affected pages, not the entire return. Each page you send should be marked “Amended” to show they are replacing the original pages. 

If the change results in more tax being due, you should make sure you pay this in good time with any other liability. Depending on the nature of the correction, you may also be liable to an additional penalty. If this is the case, HMRC will notify you. Submitting a corrected return in this way is seen as voluntary unprompted disclosure, so any penalties that do arise should be minimised. 

If the change results in tax being due back to you, your amended return should include details of how you wish the refund to be paid. 

Even if you have already filed your return, there is still one thing that you are likely to need to do. That is pay the your tax and National Insurance bill. The due date for payment is also 31st January 2019. If you fail to pay by that date, then interest will start to accrue on the outstanding balance until you do so. After 30 days, you would also incur a penalty of 5% of the tax outstanding at that date. Additional penalties at the same rate apply after 6 months and 12 months. 

To avoid interest and penalties you should plan your payment now. Bear in mind that some payment methods are not instant, so you should factor in any delay to ensure you meet the deadline.

Payments methods that are no longer available
You can no longer pay your tax bill at the Post Office. HMRC will also no longer accept payment by personal credit cards. 

Direct TransfersThere are three main ways of making direct transfers to HMRC. These are:
• Faster Payments Accessed through online or telephone banking, this will usually result in the payment being made the same or next day. This even applies if you make the payment on a bank holiday or weekend.
• Clearing House Automated Payments System (CHAPS) This will normally only be needed if you have a tax bill higher than the limit for Faster Payments (from £10,000 to £100,000 depending on your bank). The payment will normally go through the same working day. It will not go through until the next working day if triggered after 5:00pm or at a weekend or bank holiday. CHAPS payments cost £25 to £30.
• BACS This system is more commonly used for regular payments, such as monthly wages. Payments by BACS can take up to three days to process. The advantage BACS payments have over Faster Payments is that they are tied into the Direct Debit system, giving similar protections if there is a problem.

The bank account details for making these payments are shown below. Payment slips from HMRC will usually specify which of the two accounts you should use. If you do not know which account to use, you should use the details for HMRC Cumbernauld. See table below.

Payments made by any of these methods should include your 11 character payment reference. This is your 10-digit Unique Tax Reference (UTR) followed by the letter K. Your UTR will appear on your HMRC online account, and any correspondence they have sent to you. Failure to include the reference will result in your payment going into a suspense account, delaying it being matched to your account. 

By debit or credit card online
You can pay by debit or credit card online. As noted above, you cannot pay your tax bill with a personal credit card, but corporate credit cards (e.g. in the name of your personal limited company) can still be used. If a credit card is used, then an additional non-refundable fee will be charged.

Payments by card can be made here (tax.service.gov.uk/pay-online/self-assessment). Your UTR will be requested as part of the process of making a payment. Any payment made by card will be treated as received on the date you process the payment, regardless of when the money is actually transferred by your card provider. 

Paying at your bank or building society
You can pay at your bank or building society only if you have an official paying-in slip from HMRC. If you have opted out of receiving paper statements, you will not be able to use this method. 

Payments at your bank or building society can be made by cash or cheque. Cheques must be made payable to “HM Revenue and Customs only” and should also have your UTR shown on them. As for paying by card online, these payments will be accounted for by HMRC on the day you make them, not when the money reaches HMRC.

Cheque by post
Cheques will need to be completed with the same details noted above. You will also need to send a payslip with the cheque. If you do not have an official payslip, you can generate one for this purpose only here (hmrc.gov.uk/gds/payinghmrc/payslip-sa1.htm). This payslip cannot be used for making payment at your bank or building society. 

Cheques and accompanying payslips should be sent to:

HMRC
Direct
BX5 5BD

You should allow an additional three to five working days (ignoring bank holidays and weekends) for your payment to reach HMRC if you use this method. 

With the changes to the tax law that came in for the tax year ended 5th April 2017, significant changes were required to the tax return. Unfortunately not all of these changes could be implemented in HMRC’s tax calculation software, meaning certain taxpayers would not have their tax calculated correctly. Those returns including the affected changes, referred to as exclusions, should have been rejected by online filing systems. As a result, a paper return should have been submitted instead. Despite this, approximately 30,000 returns affected by these exclusions have been filed.

From 19th November 2018, HMRC began reviewing the affected returns to see if the calculations were incorrect. Those in which they found an error should have attracted an amended tax calculation (SA302) from HMRC showing the figures they consider to be correct.

Any affected taxpayers should have received this notice by now. Due to the potentially complex nature of the exclusions it will be advisable for most to engage the services of a professional to review this. Regardless of whether you take advice or not, anyone receiving one of these amended tax calculations should act as soon as possible.

If you believe the amendment to be incorrect, then you need to lodge notice of appeal with HMRC within 30 days of the date of the notice.  Otherwise, you should pay any additional tax due as soon as possible. This tax will not be subject to interest from the original due date for that tax year (31st January 2018) but will become subject to interest from 28 days of the date of the notice.

No doubt most people are making plans for Christmas at present. However, if you are self-employed, there is something else you need to be planning for. The deadline for filing tax returns for the year ended 5th April 2018 falls on 31st January 2019, so time is running out. If you haven’t filed already, getting your tax return completed before Christmas should set you up for a happy new year.

It is estimated that around 11 million people will have been required to submit a tax return this year, in line with the level of returns in the previous year. Approximately 93.5% of returns were filed by the deadline of 31st January 2018 avoiding fines. However, many of those were filed on the final day, with a height of 60,596 returns an hour at one point. With this potential rush, the chances of the filing website being overwhelmed, preventing last minute filing by some, increase dramatically. Those finding that they need help are also likely to find the HMRC support lines are jammed, resulting in long hold times. Even those making a belated decision to engage an accountant could find themselves out of luck, as many will be dealing with existing clients who have brought in their records late.

Having a last minute issue with filing will not be considered a valid excuse by HMRC. If you fail to submit on time due to lack of planning, you could face the following penalties.

• Immediate – £100. This is a flat rate penalty that will apply simply for missing the deadline. It is not reduced if little or no tax is due.
• After 3 months – £10 per day until the return is filed – up to a maximum of £900
• After 6 months – 5% of the tax still due or £300 – whichever is greater
• After 12 months – A further 5% of the tax due or £300 – whichever is greater.

These penalties are cumulative, so simply failing to file a return can be costly. There are additional penalties arising for failure to pay tax on time as well as interest accruing on late tax payments.
All in all, not sorting things out could make 2019 a nightmare for the self-employed. Give yourself
an early Christmas present, and get it done now.

In a brief period of unemployment, I did a little bit of self-employed freelance work. I now have another full-time job. Do I need to report this income?
If your total income from self-employment was less than £1,000, then you should be eligible for the Trading Allowance. It should be noted that this is the amount before deduction of any expenses, not your profit from the business. If the income is below this amount, and does not fall under any of the exclusions below, you do not have to report the income or pay any tax.

The exclusions to this allowance are
• Income from partnership trades
• Income which attracts rent a room relief (rental of space in your home)
• Any amounts received from
• An employer, or a spouse/ civil partner’s employer.
• A partnership in which they (or a connected party) are a partner; or
• A close company in which they (or an associate) are a participator.

If your income is above £1,000, or it falls under one of the exclusions, then it will need to be reported to HMRC, and tax and national insurance will be due. As you have only been self-employed for a short period, it may be possible to arrange for this to be taken through your tax code. This would mean that, instead of paying a lump sum, the amount owed would be spread throughout the tax year as an additional deduction from your wages. You can arrange this by calling them on 0300 200 3310. Otherwise you will need to register for self assessment and complete a tax return.

I started a new business earlier this year, but I have not yet registered with HMRC. Is there a time limit to do this?
Unless you are already registered for self assessment, you need to register to complete a tax return. The time limit for registering is 5 October after the tax year in which you started. If you started your business on 5 April 2018 or earlier, you should already have registered to complete a return. If you started after this date then you have until next year to register, though it is advisable to do it now to ensure it is not forgotten.

If you should have already registered, then you are already potentially subject to a late registration penalty. However, if you rectify this error as soon as possible, and file the relevant return on time (by 31 October 2018 for paper returns or by 31 January 2019 if filed online) then it is more likely that this penalty will not be imposed. This is because your delay in registering will not have delayed your accounting for tax. Do not delay, as the longer you do so the more likely it is that HMRC will discover your failure themselves. Penalties are more likely, and tend to be higher, when a taxpayer is prompted by HMRC to correct an error.

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If you have left it too late, then you might try to avoid penalties by coming up with a reasonable excuse. Unfortunately, as shown by a recent list issued by Companies House, some people have the strangest ideas of what sounds “reasonable”. Excuses received included:

• “goats ate my accounts”
• “I found my wife in the bath with my accountant”
• “pirates stole my accounts”
• “we delivered the accounts to the betting office next door to Companies House”
• “a volcano erupted and prevented me from filing”
• “slugs ate my accounts”
• “it was Valentine’s Day”
• “my company was more successful than I thought it would be, so I was too busy to file”

Unsurprisingly, none of these appeals succeeded, and all the companies involved received penalties. Late filing penalties are dependent on the status of the company,  how late the accounts were filed and whether they were late in the previous year.

Whilst these excuses were ignored, Companies House do accept that there will sometimes be a valid reason for late filing. In exceptional circumstances they will extend the deadline accordingly. However, you need to contact Companies House before you reach the original deadline. They can be reached by e-mail at enquiries@companieshouse.gov.uk or by telephone on 0303 1234 500. The hours for their call centre are 8.30am to 6.00pm, Monday to Friday.

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For HM Revenue and Customs (HMRC) undeclared rental income has always been one of the easier fields of tax-evasion to investigate.

As they have access to the ownership details recorded at the Land Registry, they are able to identify when an individual owns more than one property. By matching address information, they can also spot those who own a single property, but do not live there. Based on this information, they then issue letters to the landlord concerned, stating that they believe they have failed to declare rental income properly. Such letters have been sent out regularly for some years now. They have also recently started sending statutory notices to letting agents asking for details of rentals received on their clients’ behalf. These notices have legal force, with penalties for agents that fail to comply.

The slowing down of the property market has resulted in this area becoming larger in recent years. When moving, whether for a job relocation or a growing family, many have found themselves unable to sell their old property. With ongoing costs, many in this situation choose to rent as an obvious means to defray those expenses. Having not planned to become a landlord, many in this situation are ill-prepared for the role. Some think that, as it was not intentional, they do not have to declare anything. Others think that receiving rents closely matching mortgage payments exempts them from declaration, which is not the case. Sadly, whilst potentially reducing the level of penalties arising, ignorance of the legal position does not leave such unfortunates free and clear.

However, there is a way to sort matters out whilst minimising the penalties that are due. The Let Property Campaign is one of HMRC’s longest running disclosure campaigns. Disclosure campaigns offer a reduced level of penalties for any taxpayers who voluntarily provide the information necessary to bring their tax affairs up to date. The first thing that you need to do is notify HMRC that you intend to make a disclosure. It is best to do this as soon as possible, as the opportunity will be lost if HMRC are able to identify the failure first. You then have 90 days to compile the necessary information and submit it to HMRC along with payment.

This Campaign is open to all UK landlords renting residential property. This includes UK residents who rent out property abroad, or non-residents with UK property rentals. It also covers more specialised areas of property rental, such as student letting or holiday accommodation. Commercial property rental is not covered by this campaign.

Details of the Let Property Campaign can be found here (tinyurl.com/y9xqnm4n), with the online disclosure forms available here (tinyurl.com/gqs3yr6). The taxpayer does not have to make the disclosure themself, but can engage an agent to do so on their behalf. This will usually be advisable, as they will be able to tell you what you are allowed to claim and so help minimise any liabilities arising.

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Whilst the “Making Tax Digital” plan proposes more frequent deadlines, the tax return deadline is currently still the same as it has been for years. Tax returns for the year ended 5th April 2018 are due for filing no later than 31st January 2019 (31st October 2018 if filing on paper). This may seem a long time away, so you may feel no urgency. However, with so many other things to occupy our attention, it is easy to let that time slip away. Last time around, 2.6 million taxpayers had still not filed their return two days before the deadline. Get it done now and you will not only have peace of mind, but you might find it helpful in other ways too.

Record Keeping
Ideally you should be keeping your records in order as you go along. However, when you are busy actually making sales and doing work, it is easy for this to get left behind. But, if you leave it until the last minute, you may find it a lot harder to get things in order.

Documents do go missing, and the longer you take filing them, the more likely this is. Putting your records together early reduces this risk. It also allows you to identify any items that have gone missing at an early stage. Provided they don’t have to dig into their own archives, many suppliers will be willing to provide copy invoices. Bank statements are also easier to order, or download from online banking, if they are recent. You may also find you have a few payments on your statements where you don’t have an invoice at all. The sooner you get the records in order, the greater the chance you will recall what a payment was for.

Whilst full documentation is not strictly required to claim an expense, the more you do have, the easier it will be to convince HMRC if they do enquire.

No accelerated payment
Filing your return early does not change the date on which the tax is due. Getting your return in early means you know in advance the bill you are expecting to pay. This will give you time to set money aside so you are ready to pay when it does fall due. If your tax bill proves lower than expected, you may even be able to free up saved funds for other purposes.

Claiming a refund
Unlike payments, refunds are brought forward by filing a return early. If you are in a position where you pay a lot of tax up front, such as having full-time employment or subcontracting under CIS, you may well have a refund due. The earlier you get your return in, the sooner that money is in your bank account instead of HMRC’s. Leave it until the last minute and you may find your refund further delayed by the sheer volume of claims HMRC have to deal with at that time.

Reduce HMRC’s time to enquire
HMRC have power to enquire into any return that they wish to. However, this power is not completely unlimited in nature. To open an enquiry into a return, they must deliver notice to the taxpayer no later than twelve months after the return is filed. The earlier you file your return, the earlier this enquiry window closes.

Once this twelve month period has expired, HMRC can only look at a return under discovery. This means that information has come into their possession after the deadline expired that would have caused them to enquire into the return earlier. The barrier for discovery to be used is quite high, so having an early enquiry deadline should provide security.

Avoiding penalties
HMRC have a wide range of powers to apply penalties to taxpayers, and they are not reticent about using them. By far the simplest penalties for them to apply are those for filing tax returns late. Simply missing the deadline, even by as little as a day, automatically generates a £100 penalty. Once it is more than three months late, further daily penalties of £10 per day apply for the next 90 days. After six months a further penalty of £300 (or 5% of tax due if greater) falls due, with another similar penalty after twelve months. It is therefore possible to rack up fines of £1,600 or more from simply not filing a return.

At one time these penalties would have been waived if there was no tax due, but this is no longer the case. It is possible to appeal these penalties, but you need to provide a “reasonable excuse” why you were unable to file on time. HMRC are very strict on what constitutes a reasonable excuse, so these penalties can be very hard to overturn once you have received them.

There are also penalties for paying tax late. These are 5% of the outstanding tax, and apply at one month, six months and twelve months. If you have not planned ahead and set money aside, you could end up paying a lot more than you should.

Getting advice
If you feel uncomfortable doing your own return, it is still advisable to act now. Due to the number of late filers, accountants tend to get quite busy near the deadline. Leave it too late, and you may find that no-one is able to help you in time.

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Sheikh Abid Gulzar, recent controversial buyer of Hastings Pier, told HIP in an interview which we published last month (Issue 106) that he was spending his own ‘good hard-earned money’. When our interviewer pointed out that two of the  companies of which he was sole director had gone into liquidation in January 2017 owing hundreds of thousands of pounds to creditors, he excused himself by stating that he had also lost a substantial amount of personal money. ‘If I show profit, that means I’m not investing’, he boasted.

What Mr Gulzar did not reveal is that Her Majesty’s Revenue & Customs have been taking a less generous attitude to over £144,000 worth of tax debts incurred by him while trading as unincorporated sole proprietor of Eastbourne hotels Boship Lions and Albany Lions and to similar debts of over £260,000 run up by a company Lions Hotels Limited of which he was sole director prior to its liquidation in January 2017.

These debts did not arise from a failure of Mr Gulzar to meet his own income tax or other personal tax liabilities. They represented deductions which he either made or should have made, by way of PAYE and National Insurance contributions (NIC) from wages paid to staff, but failed to hand over to HMRC ; and, in the case of VAT, presumably from failure to account to HMRC for tax charged to and paid by the hotels’ customers.

Powers of HMRC
Businessmen like Mr Gulzar may sometimes consider that the tax man should be kept at the back of the queue when cash is in short supply. But, unsurprisingly, HMRC take the opposite view – and they have powers which poor unsecured creditors do not. Where there has been what they regard as ‘serious non-compliance’ in handing tax over, and there appears to be a serious risk of future non-payment, they get tough. On 1 March 2017 they served Mr Gulzar with a notice requiring him to give security in respect of his ongoing businesses: the two companies Boship Farm Hotel Limited and Albany Lions Hotel Limited, which had taken over the respective unincorporated businesses since the debts had been incurred, plus Mansion Lions Hotels Limited, another company of which he was sole director which had taken over the business of Lions Hotel Limited.

Mr Gulzar also by that time owed over £16,500 in PAYE and NIC as sole proprietor of the Lions Cub Nursery, and over £135,000 in VAT (including interest and penalties for non-payment) as partner of the Lions Group Shop. Another company of his, Chatsworth Hotels Limited, had gone into liquidation owing over £39,000 in PAYE, while another existing company Lions Pier Limited owed over £46,000.

It is difficult to imagine a clearer case to justify HMRC taking protective action to secure collection of future tax revenue, and they duly demanded advance payments representing four months average PAYE and NIC payments for each ongoing business. However it didn’t suit Mr Gulzar to pay up. He appealed against HMRC’s rulings to the First-tier Tribunal Tax Chamber.

Court Hearing
The case was eventually listed before Judge Philip Gillett at a hearing in Brighton on 24 May this year. Mr Gulzar, who must at that point have been in serious negotiation with the administrators of Hastings Pier Charity for prospective purchase of the pier, clearly wasn’t keen to have it determined then.  According to the Judge’s Decision, which was released only two months later on 23 July, Mr Gulzar contacted the court in advance to request an adjournment on the grounds that – ‘(1) he had six broken ribs; (2) he thought a member of his office was attending; and (3) he thought the hearing was the following week.’

The judge proceeded to hear the appeal in his absence and dismissed it.

It is not clear what sums are now owed personally by Mr Gulzar, what by his companies, and how quickly HMRC will move to enforce payment.  In his appeal document dated June 2017 he argued that payments in excess of £216,000 had already been paid towards the personal tax debts and that his existing companies were not in any arrears. The court did not investigate whether these claims were true, since it was essentially only concerned with the position as at 1 March 2017. However time may tell quite quickly: HMRC don’t usually hang about when they’ve established that there is tax revenue due to them in PAYE, NIC or VAT.

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Time Limit for Enquiry
HMRC do not have an open-ended right to raise an enquiry. Taxpayers who have done no wrong have a statutory right to consider their tax affairs are settled after a certain period of time. As such, HMRC can only enquire into a tax return within 12 months of receiving it. If a return has been amended for any reason, the deadline becomes 12 months after the last amendment. Please note that the taxpayer should receive notice of the enquiry by this deadline. If such notice is received after the deadline has passed, even if the letter is dated before, then it is not a valid enquiry.

Beyond this 12 month limit, HMRC do not strictly speaking have the power to raise an enquiry. However, they do have a power to call attention after the enquiry deadline has passed. They can raise queries to assist in this, but these can only be to clarify information they already have. They cannot simply raise speculative queries in the hope of finding something.

“Reasonably Required”
HMRC will often ask for a  wide range of information and documentation to be sent to them. From their point of view, the more they have the more likely they will discover something to make the enquiry worthwhile. However, you are only legally required to disclose business affairs, then HMRC have no automatic right to see your private bank statements. To be entitled to these they would need to demonstrate good cause to believe that business transactions had passed through your private accounts. For this reason it is advisable to keep a separate bank account for business purposes, even if you are not a company.

If you cannot see why information is being requested, you can enquire of HMRC the reason they consider it reasonably required.

Face-to-face meeting
For business enquiries, HMRC will more often than not request an early face-to-face meeting with the business owners. The reasons stated for having this meeting are based around them getting a better understanding of the business. This includes the day-to-day activities, the way records are kept, and how it ties into the owners’ personal finances.

Whilst an enquiry officer may sometimes imply otherwise, there is no statutory requirement to have such a meeting. It also cannot be considered being obstructive to the enquiry to not agree to such a meeting.

However, depending on the nature and complexity of the business, such a meeting may actually be beneficial for the business owners as well. If they do not have a decent understanding of the business, HMRC will tend to raise more extensive queries to ensure they cover all relevant aspects of the business. A face-to-face meeting can deal with some of these issues quickly, saving lengthy and protracted correspondence later. If you do not feel comfortable holding such a meeting yourself, this initial meeting can be held with an adviser familiar with the business instead.

Accounting records for a business
HMRC are legally allowed to see all records kept for a business. Where applicable, this can include computerised records for the business if these have been kept. For smaller enquiries it may be practical to send records to HMRC for review. This may be the case if they simply want to verify an individual figure in the accounts rather than the accounts as a whole. For larger enquiries, it will usually be better to arrange for the records to be available for inspection at an agreed time and date instead. This can be at your own offices, or those of an adviser. As noted above, requests for information that goes beyond the scope of the enquiry should be queried.

Enquiry results
If an inspection raises no issues of concern, you should simply receive a letter confirming that the enquiry is closed. If issues have been found, but no further information is needed to determine the effect, they will send a letter showing the adjustments required. A taxpayer has 30 days to appeal against this if they think it is incorrect.

Sometimes when an inspection of records raises concerns the HMRC officer will send a letter detailing those concerns. This may also ask for additional information and clarification if required. It is likely that a further meeting may be requested at this point. As with the initial meeting, the benefit to the business owners should be considered. You should make sure you have full details of everything that HMRC wish to discuss in advance. This will allow you to gather all the relevant information in preparation for the meeting. Should the discussion subsequently stray into areas you are unsure of, you should avoid making off-the-cuff responses. You should simply state that you will need to check and that you will provide a response in writing once you have done so.

Closing an enquiry
HMRC will only close an enquiry when they are satisfied that there are no adjustments required from their investigations. If they discover an error in one return, and it seems likely that it will have been in other returns, then they can seek to adjust those other returns as well. It is then up to the taxpayer to provide evidence to contradict this assertion. How far they are allowed to go back in these adjustments will depend on the nature of the issue discovered.

However, this does not mean that they can simply keep an enquiry open as long as they like. If HMRC fail to respond to correspondence, or keep making further unwarranted requests for information, the taxpayer can apply to have the enquiry closed. This will normally give HMRC 30 days to close the enquiry. A downloadable form for this can be found here. (tinyurl.com/yb99klfu)

Payments on account are due on 31st January and 31st July each year. These are payments towards the tax year ending between these dates. (So payments on account on 31st January 2018 and 31st July 2018 go towards the tax liability for the year ended 5th April 2018)

Why do I need to make a payment on account?
The trigger to making payments on account is the submission of a tax return, with the amount of tax due determining the position. This is not simply the total amount of tax due on your income for the year, but the balance still payable after accounting for tax deducted at source. For most people, this would be PAYE tax taken from wages income, though there may be other reasons. If more than 80% of your total tax bill is deducted at source, you will not need to make payments on account regardless of how high the balancing amount is. If not, then a balancing amount of over £1,000 will result in payments on account being due.

Payments on account are based on the assumption that your taxable income is relatively steady year on year. Accordingly, each payment is 50% of your balancing liability, in the belief that this will closely match the amount due the following year. As generally a one-off tax bill rather than a recurring one, tax arising from Capital Gains is not included in this figure.

But my income isn’t steady!
Unsurprisingly payments on account rarely, if ever, match the tax due for the following year. If the tax for the following year is higher, then the balance is due the following 31st January. If the tax for the following year is lower, then the excess amount paid will be refunded.

If you know that your income for the following year is going to be lower, then you can reduce your payments on account accordingly. This can either be done through the tax return when it is submitted, or through a later separate application to HMRC. In either case, you will need to supply a reason why you are reducing payments on account, and the revised figure to be paid. The reason does not have to be detailed, and can be as simple as a general reduction in self-employed income.

However, before you rush to reduce your payments on account, you need to consider carefully. If the final tax bill is actually higher than your reduced payments on account, then you will be charged interest on the difference. This will run from the date the payments on account were due (31st January and 31st July) to whenever the balance is cleared.

If your income is higher in the following year, there is no requirement to increase payments on account to match. You will also not be charged interest on any additional amount due.

Setting money aside
It is important to make sure you have funds available to pay your tax liability when it falls due. This is especially true in the first year of completing a return. As you will not have made payments on account before, you could find yourself having to pay 100% of the tax for your first return plus 50% for the following year at the same time. This can easily catch out those new to filling in returns. 

If possible, setting aside approximately a quarter of your profits should ensure that you have sufficient funds available. If your income is high enough to go into higher rate tax, then you should increase this to about a third.

I have a tax credit renewal form to complete, but I haven’t got around to doing my tax return yet. Is this a problem?
Ideally a tax credit renewal form should include up to date figures on it. This ensures that the subsequent award is accurate.

However, as the tax credit renewal date of 31st July 2018 is well in advance of the tax return filing deadline of 31st January 2019, it is entirely possible you won’t have the figures ready to hand. In this case, it is possible to submit the form using estimated figures instead. Failure to submit any figures before the renewal deadline could result in your tax credits being stopped entirely.

You should try to make your estimates as accurate as possible. If your estimate is too high, you risk missing out on tax credits you were entitled to. If it is too low, you risk having the tax credits you have received being clawed back at a later date.

Whenever you compile the actual figures, these need to be submitted to the Tax Credits Office as soon as possible. This should be done no later than the tax return filing deadline of 31st January 2019.

Having had benefits in kind to report in previous years, I told HMRC through RTI that I would be sending P11Ds to report them this year as well. Having reviewed my files,
I note we no longer have benefits in kind. Can I ignore the end of year expenses and benefits form P11D(b) HMRC have sent me?

You cannot simply ignore this form. As HMRC are now expecting a report from you, failure to make a submission will result in them viewing you as in breach and subject to late filing penalties.

You will need to take action before the normal filing deadline of 6th July. Fortunately this matter can be resolved in two fairly simple ways. If you have an HMRC online account you can login and complete a form to tell them nothing is due. Alternatively you can tick the similar option on the paper form you have been sent and send that back instead. If you take the latter route, ensure you post the form in plenty of time to meet the deadline.

Historically, I have taken a small salary and steady dividends from my company. This year, having had a successful period of trade, I decided to treat myself and took a large extra amount out. Will there be any tax consequences to this?

If the company already owed you more than this amount, perhaps due to cash invested
into it, there is nothing to worry about. Otherwise the assumption is that the extra amount you have taken out has simply been treated as a loan to you, rather than additional dividends. If the amount was treated as dividends, there will be additional income tax due as normal.

Taking a loan out from a personal company has two possible tax consequences.

The first depends on whether the loan exceeds £10,000 at any point during the year. If it does, and you do not pay interest on the loan at the official rate (currently 2.5%) or higher then the loan is considered a benefit in kind. This will result in you having a personal tax liability and the company will also have to pay Class 1A NIC on the value of the benefit. HMRC provide a form for working out this value. (tinyurl.com/y8tbgrj5)

The second takes effect no matter what the value of the loan. As part of its corporation tax charge, a company is required to pay 32.5% of the balance of any such loan at the company year end. If the loan is repaid within 9 months of the year end, then this tax charge can be avoided. However, this effect of repayment is cancelled for any amounts loaned out again within 30 days of repayment. Any tax paid under this rule is reclaimable in the year the loan is repaid.

• For assistance with these, or any other tax or accounting matters, call Steve Brown at Coleman Webb on 01424 211800 to arrange a free, no-obligation appointment to discuss your needs.

Disclaimer: Advice shared in this article is intended to inform rather than advise. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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That is because HMRC now have a right to demand lettings agents disclose details of rents received on behalf of private landlords. The first year for which they are able to receive this information is the year ended 5th April 2018. Once a letting agent has been issued with a statutory notice, they have 60 days to supply the information. As is so often the case when dealing with HMRC, failure to comply can result in a hefty fine. An initial fine of £300 applies to those agents failing to meet the initial deadline, with a potential further fine of £60 per day for ongoing failure. Agents will also need to be careful to ensure that the information they hand over is correct. Providing incomplete or inaccurate information, whether through carelessness or deliberate choice, can lead to a further
£3,000 penalty.

HMRC’s campaign against landlords
It was estimated in 2013 that there are 1.4 million landlords in the UK. That being the case, HMRC would expect to receive that many returns each year. However, their figures show only 500,000 registered as declaring income. This means there are a potential 900,000 landlords who are not currently declaring their income from lettings.

Unsurprisingly, HMRC saw this as a potentially significant loss of tax revenue. Accordingly they launched the Let Property Campaign back in 2013. This offered landlords the chance to voluntarily come clean about their undeclared rental income. As an incentive, those using the scheme are offered much lower penalties than they would pay if HMRC identified the omission first. Based on figures they released on 31st March 2017, this campaign has resulted in more than £135m being paid over by landlords. Excluding the Offshore Disclosure Facilities, which look for undeclared income from other countries, this makes it the most successful campaign HMRC have run.

What determines the need to report property income?
Your reporting obligations are determined by the amount you receive from renting out property.

If your income is £1,000 or less, this is tax-free as a property allowance and no report is required. If your income is between £1,000 and £2,500 you need to notify HMRC you are receiving the income. They may then decide that you need to complete a return. If your income is above £2,500 after deducting allowable expenses or above £10,000 before deducting allowable expenses, then you must report your income on a tax return. If not registered to complete a return already, you must notify HMRC no later than 5th October after the end of the first tax year in which you received the income (5th October 2018 for income received in the year ended 5th April 2018). Notifying late may result in a late notification penalty.

If you make losses from renting property, it may be worth completing a tax return anyway. This is because those losses can then be carried forward to set against future profits from property rental.

Who can use the Let Property Campaign?
The Let Property Campaign can be used by any individual renting residential property within the UK, whether single or multiple units. This includes holiday lettings, rental of space in your own
home which exceeds the £7,500 Rent a Room Relief limit (£3,750 if shared) and non-UK residents who rent property in the UK. Where property is held jointly, all individuals are eligible to use the scheme.

The Campaign cannot be used by trusts or companies that rent out property of any kind. It is also not available to individuals where the property rented out is commercial instead of residential. HMRC provide an online questionnaire for those unsure if they qualify. (tinyurl.com/yb7w3nda)

Should I use the Let Property Campaign?
If you have undeclared property income, disclosure via the Let Property Campaign will be considerably cheaper than having HMRC discover it themselves. Their new power to query lettings agents makes such discovery much more likely. Even if you don’t use a lettings agent, HMRC also use Land Registry records to identify potential undeclared rentals. In certain cases, HMRC also have the ability to publish details of those they determine have deliberately evaded tax, so it is not just financial penalties you need to consider.

Disclosure is advisable whether you have deliberately not declared or simply not understood the
need to do so. The terms of the campaign, with reductions for voluntary disclosure, are a relatively cheap way of putting things right. You will have three months from the date of your voluntary disclosure to calculate and pay what you owe. If the sum due is too much for you to pay at once, HMRC can be willing to accept payment terms instead.

We hope you have enjoyed reading this article from Hastings Independent. The future of this volunteer led, non-profit publication would be far more secure with the aid of a small donation. It only takes a minute and we would be very grateful.