Each month, we publish a new article that tells you how to work your way around the minefield of taxation.
Like everything in life these days, HMRC is moving towards making tax more accessible online. People who file their tax returns online may already know how to access this service. They may be aware that they can review the information entered on their tax return, make amendments and check their end of year tax bills etc. in an instant.
However, as the vast majority of people do not need to complete tax returns they would not necessarily be aware that they can access, view and manage their own personal tax information online, any time they choose. In 2015, HMRC introduced the Personal Tax Account (PTA), which allows you to view and manage your personal tax affairs online, in one safe place.
Here are some examples of the services that you can access and the information you can view and update in your PTA. You can:
Millions of people have already accessed their PTA, but for those that haven’t, it might be because they’ve never heard of it before, or don’t use computers, or may not feel confident enough going through the steps online to sign in on their own.
Before you get started, have your National Insurance number, mobile or landline number and email address to hand. As you will need to prove your identity, also make sure you have one of the following: your P60 end of year tax certificate from your employer or pension providers, or three recent pay-slips or your passport – your name exactly as it appears in your passport, your passport number and its expiry date. Also, have a pen and paper handy as you will be given an access code as well as a Government Gateway number if you haven’t previously used HMRC services online; it is a good idea to make a note of these as you progress.
When you are ready, use your usual internet search service such as Google, Bing or Yahoo to search for “Personal Tax Account” and the top option should lead you to HMRC’s website where you can begin the process to “sign up”. You can of course go direct to the website by clicking on or typing www.gov.uk/personal-tax-account. Once in, you will then be asked to answer a series of questions so that you can be identified correctly, and that will then get you through to your PTA.
If you don’t feel confident doing this on your own, Tax Help is running a project to help more people to access their Personal Tax Accounts by providing them with a written step-by-step guide, help over the phone, or a home visit with one of our volunteers. You can register for this help by calling us on 01308 488066 and we will ask you a few simple questions before and after you’ve accessed your PTA to see if our support has helped.
There is more information about the project elsewhere on this website.
By the time you read this, the deadline for filing your paper 2017/18 Tax Return (31st October 2018) will have passed. If you normally file on paper but for some reason have failed to do so, don’t panic - you can file online and avoid any late filing penalties.
Filing your tax return online means that you have until the 31st January 2019 to file your 2017/18 Tax Return without penalty. However, don’t leave it until the last minute as it takes at least 14 days to register for online services. Penalties start at £100, and will increase the longer you leave it - so don’t delay. The tax due for the 2017/18 tax year must be paid by 31st January 2019 whichever method of filing you use.
How do I file online?
You will need your Unique Tax Reference number (UTR); you should already have one of these if you have filed a tax return before. You will also need your National Insurance Number and/or your postcode. If this is your first time and you need a UTR, contact HMRC to register your ‘Need to file a Tax Return’. You can either complete form SA1 downloadable from www.gov.uk or call on 0300 200 3300. Once you have your UTR number you can register for online services.
Registering for online services – Visit www.gov.uk, click Money & Tax, scroll down on the right hand side of the screen until you see ‘Self-Assessment’, and click on this. Scroll down again until you see ‘Register for and file Your Self- Assessment Tax Return’, click on this and scroll down until you find 'Sign in to File your Tax Return’ and click on the green link ‘Sign In’ and follow the prompts. You will be given a User ID number and you will create a password - keep these safe. Once this stage has been completed you will be sent an activation code; follow the instructions in the accompanying letter to register the code and finally you are ready to sign in and file your Tax Return.
Tax Help is running a project to help more people file their Tax Return online. You can register for this help by calling us on 01308 488066 and we will ask you a few simple questions before and after you’ve completed your return to see if our support has helped. There is more information about the project on our website: http://www.taxvol.org.uk/online-tax-return. For those who would like help to set up their Personal Tax Account go to: http://www.taxvol.org.uk/personal-tax-account
I don’t have access to the internet - what can I do?
If you don’t have access to the internet and can’t register online you can either:
Do I have the right to appeal a penalty?
If you end up with a penalty but feel you have a valid reason for not filing your Tax Return on time you can appeal against the penalties issued to you, although you must file your Tax Return first. Reasonable excuses may include loss of a close relative or partner; loss of your tax records through theft, fire or flood and you couldn’t replace them in time; or perhaps a medical reason like being in hospital leading up to the deadline. Not receiving a paper Tax Return would not be seen as a reasonable excuse.
Not everyone has to complete a Self-Assessment tax return as most taxpayers find their income disclosures and tax payments are dealt with adequately via the automated PAYE system. However, over 10 million people have typically had some circumstance or income type requiring assessment of tax via the Self-Assessment system.
We’re now at the point where anyone needing to submit a Self-Assessment tax return for 2017/18 should be making plans for doing so. The deadline for submitting a paper Self-Assessment tax return is 31st October 2018, but there’s a later deadline of 31st January 2019 if doing it on-line. Given that, this article looks at two allowances which were new for 2017/18 – the Trading Allowance and the Property Allowance. These new allowances won’t be relevant to everyone, not even to all those with trading or property incomes, but where they apply they will be quite useful.
HMRC has said that the introduction of these allowances is intended to provide greater certainty around income tax obligations in particular circumstances. This is easiest to understand in the context of the Trading Allowance. For some years there has been debate about what might constitute “trading” (or self-employment) to the extent that the activity needs reporting to HMRC. It had been something of an urban myth that low levels of trading (or “hobbying” as some people might call an activity producing a small income) need not be disclosed to HMRC. As more and more people indulge in on-line trading via internet sites like e-bay, or sell at car boot sales, HMRC has felt that clarity around modest activity would be useful so that people wouldn’t have to decide for themselves.
The Trading Allowance establishes that trading activity in the year up to a turnover value of £1000 is now tax exempt and not reportable via Self-Assessment (but records should still be kept). This is referred to as “full relief”. Where turnover exceeds £1000, a Self-Assessment tax return will be needed and the taxpayer has the option to deduct actual allowable expenses to arrive at the profit figure for tax purposes, or deduct a flat £1000 via the Trading Allowance. In essence, therefore, anyone trading where allowable expenses are under £1000 would now sensibly deduct £1000 via the Trading Allowance to arrive at the taxable profit figure - a process referred to as “partial relief”.
The Trading Allowance clearly means that anyone trading with turnover above £1000 (remember– this is a turnover threshold, not a profit threshold) should be informing HMRC of their activity via the Self- Assessment process. This applies even if total income across all sources is low enough to mean that no tax would actually be due.
The Property Allowance follows the same basic principles but is a separate allowance for rental income. If you have rental income in the year above £1000 you must inform HMRC (usually via Self-Assessment) and you have the choice of deducting either actual allowable expenses or a flat £1000, whichever would produce the lower rental profit figure.
There are a few things to bear in mind –
Tax returns are not just for the self-employed - there are many different reasons why you may need to complete a self-assessment tax return. We’ll explain here some of the reasons why you may need to file, and what to do if you are unsure.
You will need to file a tax return if you are:
or if you receive:
You may also need to file a tax return if you:
This list is not exhaustive and HMRC may want you to complete a return for other reasons. If you are still not sure if you need to file a tax return please take a look at the www.gov.uk website or you can phone HMRC on 0300 200 3310.
If HMRC have sent you a tax return or a notice to complete one, then you must fill it in and return it by the due date, which for the 2017-18 tax year is 31st October 2018 for paper returns and 31st January 2019 for online submissions. If you do not believe that you meet any of the self-assessment criteria, you can phone HMRC and ask for the tax return to be cancelled. If HMRC agrees, this will mean that you no longer have to file a return.
You may be missing out on extra tax allowances just because you didn’t know about them. Ignorance is not always bliss! Most of you will know that we all have a tax free personal allowance of £11,850 this year, (6 April 2018 to 5 April 2019) which means that you only pay tax on the income you receive above this amount. However, there may be other allowances that can be claimed if you meet certain criteria. We would like to make you aware of three allowances that are available to so many of you but often not claimed.
That’s right, you have to ask HMRC to apply these allowances. If you don’t, you won’t get them.
If you have difficulty contacting HMRC or, if the whole idea confuses you, please contact us so that we can support or guide you to make a claim.
This allowance benefits couples who are married or in a civil partnership where at least one of the couple was born before 6 April 1935. It reduces the amount of tax you pay by up to £869 in the current tax year, which can cut your tax bill to zero.
The effect this year is the same as having an extra £4,348 tax free allowance.
HMRC will usually allocate this extra allowance to the highest earner, but you can apply to HMRC for some or all of the allowance to be transferred to your spouse using form 575(T).
You can also ask HMRC at the end of each tax year to transfer any surplus MCA if that is more beneficial.
Contact HMRC online at www.gov.uk/married-couples-allowance, by telephone on 0300 200 3300 or by post to HM Revenue and Customs. BX9 1AS.
This allowance started in the 2015/16 tax year. It allows a couple who are married or in a civil partnership to transfer a specific amount of their unused tax free allowance to their spouse or partner. So one of the couple must be a non-taxpayer and the spouse pays tax at no higher than basic rate, 20%.
The amount that can be transferred is 10% of the annual tax free allowance (currently £11,850) meaning that £1,190 can be transferred this year which will save you up to £238 in tax.
This allowance can be backdated to the 2015/16 tax year. It is important to remember that this transfer must be claimed by the spouse/partner who is giving up the allowance.
The easiest way to claim is online at www.gov.uk/marriage-allowance, by telephone on 0300 200 3300 or by post to HM Revenue and Customs. BX9 1AS.
Please note, a married couple who are old enough for the Married Couple’s Allowance cannot use the Marriage Allowance transfer as well.
This allowance is available when a tax payer is registered Severely Sight Impaired (SSI); remember, you don’t have to be completely blind. If your Ophthalmologist decides you are SSI and issues you with form CV1 you can contact your local authority to get registered with a number. You can then contact HMRC to claim the allowance, which is £2,390 for 2018/19.
If you can’t use the allowance because your income is too low you can transfer it to your spouse or civil partner, using form 575(T). Claiming BPA can save you paying £478 in tax this year.
In Scotland and Northern Ireland the process and qualifying criteria are slightly different. You need to be issued with a BP1 certificate in Scotland and an A655 in Northern Ireland.
To claim this allowance contact HMRC, online at www.gov.uk/blind-persons-allowance, by telephone on 0300 200 3300 or by post to HM Revenue and Customs. BX9 1AS.
It is believed that there are likely to be a large number of married couples across the UK that would be entitled to the transfer of Marriage Allowance, but are still unaware of its existence.
The Marriage Allowance transfer was first introduced in the 2015/16 tax year and should not be confused with the age related Married Couple’s Allowance which is for people born before 6th April 1935.
To be entitled to Marriage Allowance you need to be either married or in a civil partnership, where both partners are no more than basic rate taxpayers. The lower earner is able to transfer a fixed amount of 10% of their personal allowance to their spouse/civil partner which could either cover any tax that would have been due or reduce the amount of tax payable, depending on the level of their income.
For example: This tax year, Maria will only earn £5,200 from her part time job. She has no other income so has £6,650 left of her £11,850 tax free personal allowance. This spare allowance is going to waste, but applying for the Marriage Allowance transfer she can transfer £1,190 (rounded up to the next £10) of her allowance to her husband Richard, as long as his income isn’t taxable at the higher rate , i.e. over £46,350 (£43,430 if living in Scotland). This transfer could save Richard up to £238 for this tax year. If their circumstances were the same or similar over the last three years, then the claim can be backdated to 2015/16 when the allowance was first introduced.
There are a number of ways that you can claim the allowance; online by either completing the questions on the online application or from within your personal tax account. Alternatively by ringing HMRC on their helpline number, 0300 200 3300, or writing to them at H.M. Revenue and Customs, PAYE and Self-Assessment, BX9 1AS.
The contact needs to be from the person with the spare personal allowance as they are the one who will be making the transfer.
You can still make a transfer of Marriage Allowance to your spouse/civil partner and although it will mean you will pay some tax it could be of benefit to you as a couple, as your spouse/civil partner would pay a lesser amount than they would have done, overall saving you money.
A claim can still be made after one of the couple has passed away. You are able to backdate this to 2015/16 and any other subsequent years, where applicable.
For example: Mrs Roberts passed away in May 2018. For the years 2015/16, 2016/17 and 2017/18 Mrs Roberts was a taxpayer but Mr Roberts was a non-tax payer and if he had known, would have made a transfer to his wife to reduce her liability. For 2018/2019 due to the date she passed away and the income she received, Mrs Roberts was a non-taxpayer. However, Mr Roberts became a taxpayer for the first time in years.
In this case Mr Roberts can make a post-death claim to transfer 10% of his allowance for 2015/16, 2016/17 & 2017/18 to his wife, creating refunds for these years, and also claim 10% of Mrs Roberts’ allowance for 2018/2019 reducing his tax bill for this year.
As your letter or email box rattles with your end of year paperwork like P60s and savings/investment information, it is a good time to check you have paid the correct amount of tax for the previous year. You can also make sure that HMRC have up to date information regarding your current circumstances and income.
P60’s, P45’s and P11D’s are certificates which provide pay and tax details for sources of Pay As You Earn (PAYE) for income, like pensions or employment. If you only have one source of income this is a relatively straightforward task but nevertheless, it is still worth checking that you have paid the correct amount of tax. Mistakes happen and you want to be sure that these mistakes are not happening to you.
To check that your tax is correct you need to know what your taxable income is, the allowances you are entitled to and the tax rates that apply. There have been changes to taxation around savings and investments in recent years, so you might need to check that you have the up to date information. You can visit www.gov.uk/income-tax-rates, phone HMRC on 0300 200 3300 or contact Tax Help for Older People for help.
You will find information regarding your taxable income on P60’s, P45’s and P11D’s supplied by your employers and pension providers. Also check letters from the Department of Work and Pensions (DWP), bank and building society statements and dividend vouchers that show payments and tax details. HMRC coding notices can be useful too.
Once you have added up your total taxable income, remove your tax free allowances and apply the appropriate tax rate to see what tax is due. Be aware of the Married Couples’ Allowance (for couples born before 6th April 1935) as this is a tax reducer rather than a normal allowance.
As mentioned above, it has become more confusing so the following examples may better explain;
A pensioner has a state pension of £10,000, a private pension of £5,500 and savings interest of £2,000. Their personal allowance in 2017/18 was £11,500 and they will pay tax on £4,000 of their pension income (£15,500 pensions less £11,500 personal allowance), which at 20% would be £800. They won’t pay tax on their savings interest because £1,000 is covered by the 0% savings rate and the remaining £1,000 is covered by the Personal Savings Allowance.
It is possible for a person to receive up to £17,500 tax free, covered by the personal allowance (£11,500), the 0% savings rate (£5,000) and the personal savings allowance (£1,000).
Once a person’s non savings income is above £17,500 they are no longer eligible for the 0% Savings Rate. So, if their non-savings income is, say, £18,500 with savings interest of £2,000, they will now pay 20% tax on £7,000 of their pension income: £1,400. They can then use their £1,000 personal savings allowance, leaving £1,000 savings interest which will be taxed at 20%: £200. They should also notify HMRC of their taxable interest and ensure that HMRC tax the interest correctly.
Be aware of other allowances like the Marriage Allowance and the Blind Person’s Allowance as the figures above will change. If you are in doubt please ask for help. The rules are confusing and sometimes complex. We often see people with the wrong tax codes paying the wrong amount of tax.
Under new legislation called the ‘Requirement to Correct’, UK taxpayers have to make sure that they declare all foreign income and gains made before 6th April 2017 to HM Revenue & Customs (HMRC), where there might be UK tax to pay. To avoid larger penalties, this disclosure must be completed by 30th September 2018. From 1st October 2018 new, significantly higher, penalties will apply to UK taxpayers who have failed to pay all the UK tax due on their foreign income and gains.
If you have not always declared all of your foreign income and gains to HMRC, now is the time to act. It is often a good idea to seek professional advice before telling HMRC about income and gains that you have not previously declared, particularly if you deliberately avoided tax by not declaring them to HMRC when they arose. But, equally, you could come within the scope of the new rules even if you genuinely believed that you were not obliged to declare your foreign income or gains, and the amounts involved were small.
You are likely to be affected by the ‘Requirement to Correct’ if:
For example, if you are resident in the UK and you receive income from a property abroad or you receive interest on an offshore bank account then you may be affected. You may also be affected if you do not live in the UK, but you pay UK tax. For example, if you own a UK property that you let out or you receive interest from a UK bank or building society account. You will not be affected, however, if you do not have any UK tax to pay on any foreign income and gains that you have.
HMRC can go back to 2013/14 in most cases, or 2011/12 where the failure to disclose was careless. Where you have deliberately avoided tax, or if you have failed to notify HMRC of your chargeability to tax, HMRC may be able to go back 20 years.
What do I need to do?
The main route to let HMRC know about previously undeclared tax on foreign income or gains is the Worldwide Disclosure Facility. Go to;
If you are confident that your tax affairs are in order, then you do not need to worry. If you are unsure, you should seek advice from a professional tax adviser or agent. If you are on a low income, you may be eligible to seek assistance from one of the tax charities, TaxAid or Tax Help for Older People.
What about foreign income and gains in tax years 2017/18 onwards?
You must declare your foreign income and gains, on which UK tax is due, to HMRC. If you have foreign income to declare for 2017/18, you should contact HMRC by 5th October 2018 and register for self assessment. The deadline for filing your online 2017/18 self assessment is 31st January 2019 but if you are using paper it is sooner, 31st October 2018. Any tax due must be paid by 31st January 2019.
This article is by Tax Help for Older People (operated by registered charity no 1102276/Scotland no SC045819), offering free tax advice to older people on incomes below £20,000 a year. The Helpline number is 0845 601 3321 or geographical 01308 488066
Last month we explained the details of flexibly accessing a pension pot. We will now explain how it works when you take up this option and, most importantly, how much tax will be deducted at source.
Taking all of your Pension Pot - If you choose to take all your money from your pension pot an “emergency” tax code will be used to deduct the tax. The first 25% of the value of your pot will be tax free and the balance left will be the taxable amount. The emergency code will tax the first £988 @ 0%, the next £2,875 @ 20% and the next £9,625 @ 40%. If your taxable lump sum exceeds £13,487 any further tax will be deducted @ 45%.
Let’s look at some examples for the 2018/19 tax year:
At this point you will probably be thinking that surely the tax man shouldn’t take so much tax out of my hard earned pension and will need to sit down for a cup of tea, if not something stronger! But please keep in mind, the vast majority of people who access their pension pots in this way will have paid too much tax.
Tax is overpaid because the emergency code works on 1/12th of your annual allowances and assumes you will get this inflated income each month. However, when you calculate it annually, income between £11,851 and £34,500 is taxable at 20%, the next £115,500 at 40% and over this at 45%.
The actual tax due depends on the amount you take out of your pot and what your other taxable income is in the tax year concerned.
Claiming the Tax Back - The good news is this: you can claim it back immediately by completing form P53Z. It can be downloaded from HMRC’s website. There are options to complete the form online or to print off a paper copy and post. You can also call HMRC to request a paper form. Your pension provider will have sent you a P45; HMRC will need this but take a copy first.
Please note: If you are in receipt of the marriage allowance and taking the lump sum puts you into the higher rate tax band then this allowance no longer applies. It is only given if both parties are basic rate tax payers.
Taking Part of your Pension Pot – Some people choose to take regular or ad hoc withdrawals rather than taking everything in one go. With this option there is also a choice as to how the 25% tax free element is taken. It is possible to withdraw all of the 25% element in one go or to take 25% of each withdrawal tax free. The first time the pot is accessed emergency code is used as explained above. If a tax refund is due and there is no intention to access the pot again during the tax year, form P55 can be completed and sent to HMRC. If the pot is to be accessed again during the same tax year, the provider will inform HMRC and a tax code will be issued for future withdrawals; you may get any refund via these payments or at the end of the tax year. It might be worth contacting Tax Help to check that it is all working correctly.
Does this mean spending your pension on exercise classes? No of course not!
From April 2015 new rules were brought in to allow you to access your pension pot[s] with much greater freedom than previously. The new rules only apply to ‘defined contribution’ pensions and not to ‘defined benefits’ pensions [defined benefit pensions are often known as final salary schemes]. If you are not sure which you have, ask your pension provider. They will also be able to explain what options they are offering.
With the new rules, people can still save into a pension scheme and then use it to buy an annuity, but if you are 55 or over you can now choose to take the money in other ways:-
The three main choices are:
And choices for the way you take your 25% tax free cash:
This sounds wonderful, but are there any pitfalls?
If you receive a means tested benefit [Pension Credit and Housing Benefit are typical examples] check whether your lump sum will affect that payment. The Department for Work and Pensions (DWP) use what they call the ‘deprivation rule’ if you spend, transfer or give away any money that you take out of a pension pot, to decide if you have deliberately deprived yourself of that money. If they decide you have, you will be treated as still having that money and it will be taken into account when they work out your benefit entitlement.
You may also need to consider your financial future, because if you take the whole pension pot, there will be no regular pension payments for your retirement. From April 2017 there is a Pension Advice Allowance. This allows you to take out £500 tax free from your pension pot to pay for professional pension advice. You can use this allowance three times in three separate years so advice can be paid for at different stages to suit your financial needs. The pension provider pays this allowance directly to the professional adviser.
Will you want to save into a pension plan again?
If yes, you need to be aware of the money purchase annual allowance rules (MPAA). Put simply this means that once you have accessed a pension pot, the amount you can save in a pension plan and gain tax relief is reduced from that date onwards. For 2018/19 the figure is £4,000, quite easy to exceed if you are still working. These rules basically stop people using pension flexibility as a way to gain more tax relief than is intended by moving money around. As always the rules can be quite complex so, if you think you might be affected we recommend that you seek professional advice.
And for the big question – How much TAX will I pay on the taxable part of my pension lump sum and will this affect my other income and how it is taxed?
This can be quite complicated to understand, so next month we will explain the way the pension provider will tax your taxable lump sum[s] and how this is treated by Her Majesty’s Revenue & Customs.
For free pension advice you can contact Pension Wise, a government organisation on 0300 330 1001. You will either be offered a telephone appointment with The Pension Advisory Service or possibly a face to face appointment at a participating CAB.
The 5th April marks the end of one tax year and the 6th April marks the beginning of the next. This means that new tax codes will be issued soon. HMRC start posting them in January, but not everyone will get one in the post; you may have agreed to use your Personal Tax Account so you might just get a message to log into your account to view them. Tax codes are the mechanism HMRC use to collect tax so it’s very important that you understand what your tax codes mean to you - will they collect the right amount of tax? Checking them is vital.
Check your allowances for 2018/19
Check your deductions, these are usually taxable incomes that cannot be taxed at source
The code is then calculated by taking your deductions away from your allowances leaving you with the most important bit, your actual ‘tax free allowance’. The system removes the last digit, replaces it with a letter and sends it to your employer or pension provider to use. If your deductions are larger than your allowances it means you have used up your tax free allowances and need to pay tax on the negative figure it creates. HMRC put a K at the start of the code so that the provider is aware. The tax is collected by adding this amount to your income source before taxing it.
Finally – Check that the pension providers and employments listed are correct.
The letters that follow are just instructions to the employer/pension provider:
Self-assessment late filing penalties are issued when a tax return is filed after the official deadlines. For the 2016/17 tax year the deadlines are 31st October 2017 if you file on paper and 31st January 2018 if you file online. Filing after these dates will mean an immediate late filing penalty of £100 being issued.
And it doesn’t stop there! For tax returns filed over:
So, these penalties soon mount up to £1,600! You need to act quickly to stop them. The first thing you need to do, if you haven’t already, is to get your tax return completed and filed. If you need help to do this, either contact HMRC on 0300 200 3310, a tax adviser or a tax charity. HMRC should help you to complete your return and in some circumstances may even provide a face to face appointment.
Contact HMRC immediately if:
If you have a genuine reason for not filing your tax return on time you can appeal to HMRC for the penalties to be cancelled. If you received your penalty letter by post, use the appeal form that came with it or follow the instructions in the letter. If you received your penalty notice by email, you can either fill in form SA370 (downloadable from www.gov.uk) or write to HMRC, giving your reasons for appealing. Their address is: Self Assessment, HM Revenue and Customs, BX9 1AS.
The following list is an example of what HMRC consider to be a ‘reasonable excuse’; it is not exhaustive, and neither does it mean that your penalties are guaranteed to be cancelled. More information can be found online by visiting: www.gov.uk/check-if-you-need-a-tax-return or by calling HMRC.
This article is by Tax Help for Older People (operated by registered charity no 1102276/Scotland no SC045819), offering free tax advice to older people on incomes below £20,000 a year. The Helpline number is 0845 601 3321 or geographical 01308 488066