MTD for ITSA delayed to April 2026 – what does this mean for you?

Making Tax Digital (MTD) has been on the cards for years now, with businesses already pushed towards dealing with their VAT this way. But plans to extend this for Income Tax Self-Assessment (ITSA) have been put on hold once again until April 6, 2026, eight years later than the original planned launch in 2018.

However, even when 2026 comes, the MTD for ITSA will be phased in rather than applying to everyone at once.

Who will have to go digital first?

The first people doing self-assessment who will need to go digital are landlords and the self-employed who are earning more than £50,000 a year. HMRC estimates that this will mean around 700,000 people are brought into the MTD regime at this point.

The next phase will kick in from April 2027, when landlords and self-employed people earning more than £30,000 a year will be expected to go digital – bringing another 900,000 people into the MTD regime according to HMRC.

What’s the plan?

Victoria Atkins, financial secretary to the Treasury, announced the delay in the House of Commons just before Christmas.

She said: “The government understands businesses and self-employed individuals are currently facing a challenging economic environment, and that the transition to MTD for ITSA represents a significant change for taxpayers, their agents, and for HMRC.

“That means it is right to take the time needed to work together to maximise those benefits of MTD for small business by implementing gradually.

“The government is therefore announcing more time to prepare, so that all businesses, self-employed individuals, and landlords within scope of MTD for Income Tax, but particularly those with the smallest incomes, can adapt to the new ways of working.”

The needs of smaller businesses are going to be put under review to see how they can be helped to “fulfil their income tax obligations” Ms Atkins said in her statement. Once this review is complete and the various stakeholders – businesses, taxpayers, and their agents among others – have been consulted, the Government will outline further plans for MTD for ITSA, said Ms Atkins.

General partnerships will not be expected to go digital in 2025 now as previously expected, but they will see these changes brought in at a later date. But anyone who wants to sign up for MTD voluntarily before they are required to, has that option.

Contact us

There may be some benefits to using MTD earlier than you need to, but there could also be drawbacks for some people and businesses. If you want to find out more about the right decision for you, then please contact us and we will give you all the help, support, and information you need.

Filing a self-assessment return for the deceased – can you do this yourself?

It is a fact of life that when we lose a loved one, the loss and grief is not all we have to deal with, even though that would be enough. Sadly, there is also a lot of administration that needs to be done by those left behind.

This can be anything from registering the death and getting multiple copies of the death certificate to provide to the various organisations that will ask for it, to rehoming pets left behind if necessary. So, dealing with the taxman at such a difficult time may not be appealing. But for some, especially where family members or close friends are also executors for the deceased’s estate, it is unavoidable.

Filing returns for the year someone died or earlier

The taxman’s reach goes beyond the grave as we know from Inheritance Tax being applied on estates after death where a liability applies, but there is also a requirement to ensure tax returns for those who have died are up-to-date including for the year in which they died.

This means relatives face collating all their loved one’s tax information for a period prior to their death, even if that information will be sent to an accountant who will deal with the ultimate filing of the return. This is a sensible option, because filing the return themselves mean there are some quirks to the usual system that need to be understood.

Can you file a return online for someone who is deceased?

HMRC will not accept online filing for anyone who is no longer alive. For security reasons, it insists that any returns relating to the deceased are filed in paper form when being dealt with by a family member or friend.

Authorised tax agents, such as your accountant, can file these returns online, including the return for the year in which they died. The tax year runs from April 6 to April 5 the following year, so the last return would need to relate to the period from April 6 in the relevant tax year to the date of their death.

Returns must be filed before January 31 the year after the end of the relevant tax year, or by the date on the ‘notice to file’ letter if one is received and that gives a different date.

However, if a repayment is due to the person’s estate from HMRC, the payment will not be made automatically. Instead, your accountant may need to call the bereavement helpline to get the ball rolling on this repayment being made.

You may need to deal with tax affairs after the person’s death too, and these are dealt with separately and in a slightly different way. You can find out more information on Gov.uk about what to do and how to tell HMRC about a person’s estate. You should also use the Tell Us Once service that the Government has, which means you tell one organisation within government about the death and all departments will be notified.

Let us help you

If you have lost a loved one recently and need help to deal with their financial affairs, then please get in touch with us and we can help you through the process.

Self-assessment late payment rates changed this month –what to expect if you miss the deadline

The taxman has been busy this month – no surprise given it is the time when self-assessment returns need to be filed. But anyone who misses the deadline of January 31 faces a new set of interest rates for penalties that were only published on December 20 last year.

The new rates for late payments

The current HMRC interest rate for late payment of tax is the Bank of England (BoE) base rate plus 2.5%. This means that as of January 6, the current rate of interest on late payments is 6%. This applies to Income Tax, National Insurance, Capital Gains Tax, Stamp Duty Land Tax, Stamp Duty Reserve Tax – from October 1, 1999 – and Corporation Tax.

However, if you are owed money by HMRC, the amount of interest you can expect to be paid on that outstanding amount is considerably lower. As of January 6, the amount HMRC will pay you in interest on money owed is 2.5%. You can find out more information about where these figures apply and historical data on Gov.uk.

When do interest rates apply on late payments?

Interest rates apply if you pay your tax later than it is due, and interest will start to accrue from February 1, 2023, if you miss the January 31 payment deadline, and you would also get a £100 late filing penalty. You would then face an additional penalty of £10 per day if your return is up to three months late, with a maximum of £900 fined. If you still have not filed within six months, then you can face a £300 fine or 5% of the amount due, whichever is higher. The same applies if you have failed to file by the time 12 months have passed.

We can help you meet your obligations

If you think you could be facing interest charges from HMRC on the late payment of tax due, then speak to your accountant now and find out what we can do to help.

Self-Assessment – now is the time to get your tax return sorted

Yes, here we are again, the Christmas tradition of dealing with your self-assessment tax return is back for another year, and you need to get everything sorted as soon as you can. The final deadline for filing your self-assessment is January 31, 2023, for the 2021/2022 tax year, and you are expected to both file the return and make any payment due by midnight on that day. The tax year runs from April 6 to April 5 the following year.

If you miss this deadline, you could be facing a fine which will increase over time if you continue to either not file the return, not pay the tax due, or both.

Who needs to file a tax return?

Not everyone needs to file a tax return, but if you are one of the people who does, then make sure you get to grips with what is required as soon as you can. Those who need to file a return, according to the Gov.uk website, include:

• Anyone self-employed as a sole trader who earned more than £1,000 before costs.
• Partners in a business partnership.
• Anyone earning more than £100,000.
• Anyone with untaxed income from tips and commission, rental income from property, income from savings, investments and dividends or foreign income.
• Anyone who received COVID-19 support payments or grants during the pandemic.
• If you need to claim income tax reliefs, which could include professional body memberships and other expenses you pay solely to do with your work, even if you pay PAYE.
• To prove your self-employment status to claim Tax-Free Childcare or Maternity Allowance.
• If you or your partner’s income (if you have a partner) exceeded £50,000 and you need to pay the High-Income Child Benefit Charge.

If you are not sure whether you need to file a return or not, you can check on the Gov.uk website, or speak to your accountant who will be able to help you.

What is the penalty for not filing a tax return on time or paying late?

If you fail to file your tax return for up to three months, you will receive a fixed penalty of £100 but it can rise if you file later than this. You will also pay a penalty for paying your tax bill late and you can also be charged interest on late payments.

If you have a reasonable excuse, such as a close relative or partner dying close to the filing deadline, a hospital stay, or a life-threatening illness, for example, then you can appeal any penalty imposed. 

Contact us

Tax returns can be complicated, especially if you are looking to maximise the tax you are reclaiming, so working with an accountant makes sense. If you need help with your self-assessment, then please contact us and we will give you all the help, support, and information you need.

Tax year end – get your accounts ready before the rush

It’s that time of year again – the shops are playing Christmas music, there are Christmas films starting to appear on the TV, and for many of us, there is a tax deadline looming, whether that is personal or for our business.

This is the busiest time of year for accountants as so many people will leave their corporate or personal tax returns until the very last minute. So, if you know your business is coming up to its accounts filing date, or you have a self-assessment tax return that needs completing and filing before January 31, you need to start thinking about it sooner rather than later.

Do what you can to help

If you are coming up to your filing deadline, then you can really help us by sending the relevant information as soon as you can. That way, if we have any queries or you find there is something you have forgotten to send, there is plenty of time to deal with any issues.

Only pay the tax you owe

The best way your accountant can help you is by ensuring you only pay the tax you owe, no more and no less. We will help you maximise any tax breaks available and help to make sure you are claiming everything you can.

We can help you meet your obligations

Speak to your accountant and ask him or her to help you get the right information together so your accounts can be prepared in good time.

Self-Assessment – it’s getting to that time again

Self-assessment is an annual event, and it is always towards the back end of the year that you need to start thinking about it. Many people will already be registered for self-assessment, but there are others who will need to register for the first time this year, either because they have set up a new business, or become self-employed for the first time.

Anyone in this position needs to get in touch with HMRC before October 5 to let the taxman know you need to do your first self-assessment tax return. For those dealing with their self-assessment on a paper return, the completed paperwork needs to be with HMRC before October 31. However, you have until January 31, 2023, to make the payment – which is also the deadline for online filing and payment.

Who needs to register?

If you are employed, you may still need to file a self-assessment return if you have income from outside of your PAYE income, for example from a property, foreign income, or you have income from dividends or savings.

Remember though, you may also need to file a self-assessment return if you need to claim money from the taxman. For example, if you are a 40% or 45% taxpayer and your employer does not claim the additional tax relief above 20% that you should receive on pension contributions up to £40,000 a year, then this can be claimed through your self-assessment form.

Claim money for expenses from your own pocket for work

If you need to pay out of your own pocket for work expenses – such as uniforms, travel and professional insurance or subscriptions, you can also claim tax relief on these via your self-assessment form.

One particularly important expense to claim if you work from home is the cost of energy used to heat the room you work in. With the average energy bill rising to £3,549 from October 1, according to the latest price cap announcement from Ofgem, this is one item that could help you deal with the rising cost-of-living expenses.

How much can you claim for your energy costs?

There is a base amount you can claim for the energy costs which is £6 per week, which in the current climate may be a lot less than it is really costing you. So, if you prefer, you can instead claim the actual amount you are having to pay for your energy while you are working from home, but you would need to keep your bills and receipts to back up your claim.

The one thing to remember though is that you cannot claim this if you choose to work from home, or if your employment contract allows you to work from home some or all of the time under HMRC rules. You can claim this if your employer does not have an office, or if your job requires you to live far away from your employer’s office.

We can help you

If you are unsure about what you can and cannot claim for expenses outside of your PAYE, speak to us and we will help you through the process, so you can claim everything you are due.

Are you claiming everything you are entitled to from the taxman?

Tax is something that is a certainty in life, as former US President Benjamin Franklin said, but there are lots of ways you can reduce the amount of tax you have to pay by claiming for expenses you may not realise you could.

Those of us who are self-employed or own businesses are more likely to claim the majority of costs and expenses against tax that we can. But what many PAYE employees do not realise is that they can also claim certain expenses if they are not covered by their employer, and they are specifically relevant to their work.

What can be claimed?

For example, let’s say you are a nurse, an engineer, a psychologist or simply an employee who happens to use their car for work purposes sometimes. In each of these cases, there are likely to be things that you are paying for that you could claim if your employer is not repaying you for them.

It could be fees you pay to be a part of a professional institution, or professional indemnity insurance, or uniforms that you need to buy yourself, shoes, books you need to study for your work, toys that you may need to use to encourage children to talk to you in the case of a child psychologist, for instance. The list would include anything and everything that you need to buy yourself that solely relates to your work.

While many of these may be relatively small amounts individually, they will soon add up, and if you consider how much they add up to over a long period of time, there is every reason to reclaim that money.

How do you claim them?

Understandably, many people are nervous about dealing with the taxman because they think automatically that it is going to end up costing them money. But that is not always the case. Reclaiming these amounts that are legitimate allowances could put a significant amount of money back into your pocket.

To claim these, you would need to do a self-assessment form. This is something many people who pay tax through PAYE would not be familiar with. You can speak to your accountant for more information if you need it, or you can ask HMRC directly about how you claim for these costs on your self-assessment.

Don’t be nervous, and go back as many years as you can

You do not need to be nervous when dealing with the tax office as you are not doing anything wrong. This is money you are owed, and you would be doing yourself a disservice by not getting this money back into your own pocket.

If you have not been claiming this money back before, then you can go back up to four previous tax years. This means you can reclaim overpaid tax from 2018/19 if you make the claim before April 5, 2023. If you had an average of £1,000 that you could have reclaimed for each of these years, then you would get a £4,000 rebate from the taxman by making the claim.

In the current economic climate, even relatively small amounts that you can reclaim will make a difference. But remember, you must have proof of the purchases you made. Usually these would need to be receipts, but if you do not have these, then you can prove any payments made using bank statements if you need to. If you bought anything online, you may have records there in your email or, say, an Amazon account.

We can help you

If you are unsure about whether you can claim some of the expenses for your work or want to know you have claimed everything that it is possible to claim, then please get in touch with us and we will help you through the process.

Deal with your tax return early and help with your cashflow

There is a tendency for many of us to leave our tax returns until the last minute. It’s human nature to want to delay dealing with something we find uncomfortable.

However, if you get your tax return for the 2021/22 tax year completed sooner rather than later, you will have some benefits that could help you through the cost-of-living crisis.

Benefits

A primary benefit to dealing with your tax return early is knowing it is out of the way. For some this may be less of an issue, but as accountants get busier as the tax payment deadlines approach, it can be difficult to give a return as much attention as we could at other times.

By getting your tax return calculations done early, not only are you helping your accountant to spread his or her workload in a more manageable way, more importantly for you, you will know exactly what your bill is going to be early in the year. This may make it possible to free up some of the money you had set aside to pay the bill if it is lower than you had expected.

For businesses, this could mean having extra cash to invest in expanding the business, paying off debt, or hiring an extra full or part-time employee to move the business forwards. For individuals, this money could help offset the current cost-of-living crisis we are in by giving you extra cash to cover rising energy or food bills.

Paying tax early

Remember, just because you have had the tax return completed, it does not mean you have to file it with HMRC straightaway. If you want your accountant to hold off on this part and file it later in the year – especially if you think there may be any changes necessary to the tax return down the line – then that is not a problem.

If you prefer to pay early and get it out of the way, then that is also fine. The big benefit to you is that you have the option. It may be that you do not have enough money put aside for your tax bill when you find out what it is. So, the extra time you have built in before the tax needs to be paid means you have time to get those funds together. It could be the difference between setting aside an extra amount each month to pay the bill while storing money for the next tax year or having to saddle your company with a loan that will cost in interest payments too.

Tax reliefs

It will also ensure your accountant can maximise any tax reliefs you or your business can benefit from. This could include pension payments or offsetting costs against tax that may otherwise be difficult to include if the information is not given to him or her in a timely manner, in the last-minute rush to get the data to the accountant.

It may also mean, depending on how your accountant works, that you could benefit from having more time to pay your accountant’s bill too. Spreading this cost will also help with cashflow.

Take your time

Overall, it will mean that tax is a much more leisurely affair than it often is and that is never a bad feeling. Stress is not good for any of us and building in time to deal with something that is – for many – inherently stressful anyway is a good plan.

Contact us

If you want us to start working on your tax return now or have a question about ways in which we can make your tax less taxing, please get in touch.

Payments on account due July 31

Some taxpayers must pay a tax more than once a year, and if this is you then you are facing a second tax bill before July 31.

Those exempt from making a payment on account in July include those who had a self-assessment tax bill of less than £1,000 for the previous tax year, or if you have paid more than 80% of your tax bill through your tax code or your bank has deducted interest from your savings.

It is easy to forget the July 31 deadline

While most of us think of the January 31 payment deadline as the main one, it is easy to forget that there is another payment due on July 31 – and now is the time to consider how much you need to have set aside to cover it.

How the payment on account works

Example:

Your bill for the 2020 to 2021 tax year is £3,000. You made two payments on account last year of £900 each (£1,800 in total).

The total tax to pay by midnight on January 31, 2022 is £2,700. This includes:

• your ‘balancing payment’ of £1,200 for the 2020 to 2021 tax year (£3,000 minus £1,800)
• the first payment on account of £1,500 (half your 2020 to 2021 tax bill) towards your 2021 to 2022 tax bill

You then make a second payment on account of £1,500 on July 31, 2022.

If your tax bill for the 2021 to 2022 tax year is more than £3,000 (the total of your two payments on account), you’ll need to make a ‘balancing payment’ by January 31, 2023.

Source: Gov.UK

We can help you meet your obligations

If you have to make a payment on account, then please get in touch with us soon so we can let you know how much it is going to be to help you ensure you have enough money set aside to make the payment.

Basis Period Reform – what it is and how it could affect you

Unincorporated businesses – including sole traders, trusts and those businesses working as partnerships, and anyone else that pays tax on trading income – face a major change that will affect the way and the time they are taxed on their profits.

The so-called Basis Period Reform will ultimately take effect from the 2024/25 tax year, but sole traders and other organisations need to start thinking about how this change could impact them sooner rather than later.

Transition

The 2023/24 tax year is going to be a transitional period, and the new rules will change the time that underlying profits or losses become subject to tax and bring forward when tax due on profits needs to be paid.

The aim of the rule change, which was set out initially in the Finance Bill 2022, is to remove complexity relating to basis periods and overlap profit, and make sure tax payments are made closer to when profits are generated.

Implementation has been delayed by a year

Originally, the changes were due to be made a year earlier, but after a consultation period the Government delayed the proposals to allow taxpayers to prepare for the transition to the new basis period.

New end-of-year account period

The change will move the taxation periods for all sole traders, partnerships and trusts from dealing with tax on an accounting-date basis ending in a tax year, to taxing profits on these businesses that arise in a tax year.

For the 2023/24 tax year, there will be additional tax liabilities on the additional profit to be taken into account. Any taxpayer or organisation in this position should plan ahead for these additional bills that will be coming sooner than might have been expected.

Difficult for international partnerships

There are some difficulties that remain, particularly for large international partnerships that cannot change their accounting date to match the tax year, according to the ICAEW, which is engaging with HMRC to explore the possibility of additional changes being introduced to mitigate these problems.

The details

If your business has an accounting year date ending outside of March 31 to April 5, then you need to pay attention. You will have two elements to be considered for taxable profits:

• The standard part which covers the full 12 months of trading in the transitional year based on your existing basis period.
• Plus, the transitional part of the profits which go directly from the end of the basis period end up until April 5, 2024.

Example

Source: ICAEW

If any business has overlap profits, these must be offset against the profits of the 2023/24 tax year, according to the ICAEW.

There are many other aspects to consider with this transition, including how to deal with losses in the 2023/24 tax year, and whether it will be possible to spread these transition profits across five tax years to help with cashflow, although this could impact on any credit claimed for overseas taxes.

We can help you

This is a very complex area and if you are affected by this, you should contact us so we can help you navigate this change in good time, and with the least amount of difficulty.

Taxpayers get extension to self-assessment filing dates

Millions of taxpayers who are yet to submit their completed Self-Assessment tax return which is due before January 31 are being given a grace period to file until February 28.

More than 12.2 million customers are expected to complete a tax return for the 2020/21 tax year according to HMRC, and would usually face a penalty and interest if the return and payment in full is not made by January 31.

Deadline extended but not without cost

However, HMRC has announced it will waive penalties for a month, meaning those who cannot file before January 31 will not receive a penalty if they file before February 28, and will not receive a late payment penalty if they pay their tax in full or set up a payment arrangement before April 1. But they will still face interest payments of 2.75% on outstanding balances from February 1, so where possible it is best not to delay payment.

Myrtle Lloyd, HMRC’s Director General for Customer Services, said: “We know some customers may struggle to meet the Self-Assessment deadline on 31 January which is why we have waived penalties for one month, giving them extra time to meet their obligations. And if anyone is worried about paying their tax bill, they can set up a monthly payment plan online – search ‘pay my Self-Assessment’ on GOV.UK.”

Remember to include all SEISS payments in your return

Like businesses, any self-assessment taxpayer who has benefited from COVID-19 support payments will need to ensure they are also included in their tax return. Any payments made under the Self-Employment Income Support Scheme (SEISS) or any other COVID-19 support payments must be included in a self-assessment. Taxpayers who have benefited from these payments and need to file a self-assessment can check what changes might need to be made on their tax return to ensure all these payments are correctly included as income.

Which payments must be included?

The payments that need to be included in the 2020/21 tax return if they were paid before April 5, 2021, according to HMRC are:

• Self-Employment Income Support Scheme;
• Coronavirus Job Retention Scheme;
• other COVID-19 grants and support payments such as self-isolation payments, local authority grants and those for the Eat Out to Help Out scheme.

However, anyone receiving the £500 one-off payment for working households receiving tax credits does not need to report this payment.

It is particularly important for those receiving SEISS grants to make sure they are included as they were paid directly to the individual rather than to a business, so these are not included in the accounts of a sole trader or partnership. Instead, they need to be added back in as an adjustment to profits in the self-assessment tax return.

HMRC has also said it will not charge late filing penalties for paper-based SA700s, SA970s that are received in February, or for SA800s and SA900s if these are filed online before the end of February.

There are a number of online facilities that HMRC has set up for anyone who needs support in relation to filing their tax returns. You can access live webinars or recordings on GOV.UK, and HMRC has also produced resources to help customers meet their obligations including YouTube videos and Self-Assessment guidance.

We can help you

If you would prefer to let someone else take the strain of dealing with your accounts, then please get in touch with us. We will help you make sure all of the relevant information is included and work to maximise your allowances, so you only pay the tax due, no more.

Businesses helped by COVID-19 support could face unexpected tax bills

Businesses and self-assessment taxpayers are being reminded they need to include all grants paid as part of the COVID-19 support payments in their tax returns, as some may think these were non-taxable.

Have you set money aside to deal with tax on support grants?

HMRC has highlighted that all money paid for test and trace or self-isolation payments in England, Scotland or Wales are taxable, as are Coronavirus Statutory Sick Pay Rebates. The Coronavirus Business Support Grants – also known as local authority grants or business rate grants – must also be included on tax returns as these are considered income for tax purposes.

Companies that received the Coronavirus Job Retention Scheme (CJRS) grant or a payment under the Eat Out to Help Out payment scheme will need to include both as income in their CT600 tax return and reported in the relevant boxes on their Company Tax Return.

Myrtle Lloyd, HMRC’s Director General for Customer Service, said: “We want to make sure companies are getting their tax returns right first time, including any COVID-19 support payment declarations. Support and guidance is available on GOV.UK, just search ‘file my company tax return’.”

Many companies will have been communicating with their accountants throughout the year and realise these grants are taxable. But there are concerns that those who deal with their accountant less often may not realise they should have been putting some of this money aside for tax purposes. This would leave them exposed to a bill that has not been planned for.

An outline of the costs employers could face for CJRS

While the CJRS scheme helped to reduce the number of redundancies companies may otherwise have been forced to make during COVID-19 lockdowns, there were a number of hidden costs involved with these grants. These include employer’s National Insurance contributions and employer’s pension contributions.

For example, if an employee had a normal monthly salary of £2,000 and was on full furlough, then based on 80% of their salary this would have fallen to £1,600 gross. At the rates applied in the 2020/21 tax year, the costs to the employer for this CJRS grant would be:

• £119.78 of Employer’s Class 1A National Insurance;
• £32.40 of Employer’s Pension Contributions (based on the 3% minimum under auto-enrolment);
• There is also the potential cost of accrued holiday, which is £153.80 – calculated based on 4/52 weeks (this is the maximum amount of holiday that can be carried forward into the following year) x monthly salary.

Where holiday has been carried forward to the following year, businesses that are struggling to recover from the pandemic also have to contend with up to four weeks of holiday that can be passed into the following tax year. If an employee leaves the business, this could result in the employer having to find sums potentially into the thousands of pounds to account for this in the employee’s final payslip.

HMRC said to be sympathetic to companies struggling to pay tax bills

Reports suggest that HMRC is being sympathetic in relation to any tax bills that are difficult for companies to meet, with even debt collectors looking to offer solutions to deal with the debt rather than collecting it on the spot.

The deadline for customers or agents filing company tax returns (CT600) is 12 months after the end of the accounting period it covers. The deadline to pay Corporation Tax will depend on any taxable profits and when the end of the accounting period occurs. Information on which support payments need to be reported to HMRC and any that do not is available on GOV.UK.

Contact us

If you think you will struggle to meet any of your tax liabilities this year, then please contact us as soon as possible to get advice on the best course of action.

File your 2020/21 tax return by 31 January 2022

If you need to file a self-assessment tax return for the year to 5 April 2021, you have until midnight on 31 January 2022 to file your return if you have not already done so. You must also pay any tax that you owe for 2020/21 by the same date.

Do I need to file a return?

You will normally need to file a tax return if you have income in respect of which the associated tax is not collected at source. This will be the case if you are self-employed, or if you are a partner in a partnership. You will also need to file a self-assessment tax return if you have income from property, or if you have realised capital gains in the tax year, or if you have other sources of untaxed income, such as dividends, investment income or foreign income.

You can also choose to file a self-assessment tax return if you want to claim income tax reliefs.

If you or your partner received child benefit in 2020/21, check whether you fall within the scope of the high income child benefit charge. If you do, you will also need to file a return.

New source of income

If you started trading in 2020/21 or became a landlord, you should have registered for self-assessment by 5 October 2021. If you have not done so, you should register as soon as possible so that you can file your return without delay.

COVID-19 support payments

If you received COVID-19 support payments in 2020/21, for example, grants under the Self-Employment Income Support Scheme (SEISS) or hospitality and leisure grants, you will need to report these on your 2020/21 tax return. The support payments are taxable. Grants received under the SEISS should be entered in the dedicated box in your self-assessment tax return, while any other taxable COVID-19 payments should be entered in the ‘any other business income’ box. Remember, to enter the amount that you received between 6 April 2020 and 5 April 2021, regardless of the date to which you prepare your accounts.

If you are employed and received grant payments under the Coronavirus Job Retention Scheme (CJRS), you do not need to enter these payments separately on your return – they are included in the figures on your P60.

Later deadline where notice to file received after 31 October 2021

The tax return filing deadline is the later of 31 January after the end of the tax year and three months from the date on which the notice to file a return was issued by HMRC. Where this is after 31 October 2021, the filing deadline will be later than 31 January 2022. For example, if the notice to file a return was issued on 1 December 2021, the return must be filed by 1 March 2022.

File online

The deadline for filing a paper tax return was 31 October 2021 (or three months from the date of the notice to file where this was received after 31 July 2021). If a paper return is filed after that date, even if it is filed before 31 January 2022, it will be deemed to be filed late and a late filing penalty will be charged. Consequently, if you are filing your return to meet the 31 January 2022 deadline you must file it online. Remember that you must be registered with the Government Gateway and will need your details to login – make sure that you have these available in good time.

Late returns

If you file your tax return online after midnight on 31 January 2022 (unless an extended deadline applies because the notice to file was issued after 31 October 2021) you will receive an automatic penalty of £100, even if you have no tax to pay. If you think you have a reasonable excuse for filing late, you can appeal against the penalty. However, HMRC usually take a harsh line on what they consider a reasonable excuse. Further penalties are triggered if your return remains outstanding three months, six months and 12 months after the deadline.

Contact us

If you need help in filing your 2020/21 tax return, please get in touch. However, we suggest that you do not leave it until just before the filing deadline.

File your tax return by 30 December 2021 to have underpayments coded out

The deadline for filing your 2020/21 self-assessment tax return is midnight on 31 January 2022. However, if you have underpaid tax and you are employed and would prefer HMRC to collect that underpayment through your tax code, you will need to file your return online by midnight on 30 December 2021. You can also have an underpayment coded out if you filed a paper return by 31 October 2021.

Paying tax through your tax code

If you owe tax for 2020/21, rather than paying the underpaid tax in full by 31 January 2022, you may be able to have the underpayment collected through PAYE. This is done by adjusting your 2022/23 tax code (known as ‘coding out’). The effect of this is that collection of the underpayment will be spread throughout the 2022/23 tax year and deducted from your pay or your pension.

Conditions

The option to have a tax underpayment coded out is only available if all of the following conditions are met:

• you owe less than £3,000;
• you already pay tax under PAYE (for example, as an employee or on a company pension); and
• you submitted a paper tax return by 31 October 2021 or an online tax return by 30 December 2021.

If you owe more than £3,000, coding out is unavailable; you will need to pay what you owe by 31 January 2022.

Talk to us

If you are likely to have a tax underpayment for 2020/21 and want to pay the tax that you owe through an adjustment to your tax code, talk to us about what you need to do to meet the 30 December 2021 filing deadline.

Plan ahead for increases in the dividend tax rates

As part of the Government’s funding strategy for health and social care, the dividend tax rates are to be increased from April 2022, alongside the temporary increases in National Insurance, and, from April 2023, the introduction of the Health and Social Care Levy. The increases in the dividend tax rates will affect you if you operate your business through a personal or family company and extract profits in the form of dividends. It will also affect you if you receive dividends from investments in shares.

Dividend tax rates from April 2022

The dividend tax rates are to increase by 1.25% from 6 April 2022. Once the dividend allowance (currently set at £2,000) and the personal allowance have been utilised, dividends are currently taxed at 7.5% where they fall within the basic rate band, at 32.5% to the extent that they fall within the higher rate band, and at 38.1% where they fall within the additional rate band.

Where the strategy is to extract profits in the form of a small salary plus dividends, typically little or no National Insurance is payable. To ensure that those extracting profits as dividends contribute towards the cost of social care, from 6 April 2022, the dividend tax rates are increased by 1.25%, in line with the temporary increases in National Insurance contributions and the rate of the Health and Social Care Levy. From 6 April 2022, once the dividend allowance and the personal allowance have been used up, dividends will be taxed at 8.75% where they fall within the basic rate band, at 33.75% where they fall within the higher rate band, and at 39.35% where they fall within the additional rate band.

Plan ahead for the increases

As the increases in the dividend rates of tax do not take effect until 6 April 2022, you have time to plan ahead. If you have sufficient retained profits, you may want to consider extracting further profits as dividends in 2021/22, rather than waiting until after 6 April 2022. This will enable you to take advantage of the current, lower, rates of dividend tax. This is likely to be advantageous if you have not used up all of your basic rate band for 2021/22. If you have an alphabet share structure, dividends can be tailored to take advantage of any unused dividend allowances and basic rate bands of other family shareholders.

In deciding whether to extract additional dividends in 2021/22, you will, however, need to take account of your marginal rate of tax. If taking additional dividends now means that they will be taxed at the upper dividend rate of 32.5%, but taking those dividends in 2022/23 would mean that they will fall within the basic rate band, it will be better to take them in 2022/23 despite the rate increase as they will be taxed at 8.75% rather than 32.5%.

Speak to us

We can help you formulate a tax-efficient profit extraction policy for your business. Please get in touch.

Reporting SEISS payments on your tax return

If you have received one or more grants under the Self-Employment Income Support Scheme (SEISS), it is important that you report the payments correctly on your tax return.

2020/21 self-assessment tax return

SEISS grants that were received in the 2020/21 tax year (i.e., between 6 April 2020 and 5 April 2021) should be reported on your 2020/21 self-assessment tax return, regardless of the date to which you prepare your accounts. The return must be filed online by midnight on 31 January 2022 (or by 31 October 2021 if you file a paper return). The first three grants under the scheme were paid in the 2020/21 tax year.

If you have already filed your 2020/21 tax return, HMRC may adjust your return if the information that they hold on the SEISS payments that have been made to you does not match what is shown on your return.

How to report SEISS payments

Grant payments received under the SEISS should not be included in turnover. Instead, they should be reported separately on the 2020/21 tax return in the box for Self-Employment Income Support Scheme grants. The location of the box depends on which self-assessment tax return is completed. It can be found:

• on page 2 of the ‘other tax adjustments’ section on the self-employment pages (SA103F) of the full return;
• in the ‘other tax adjustments’ section of the self-employment (short) page (SA103S);
• on page 2 of the ‘trading or professional profits’ section of the partnership return; and
• in section 3.10A of the SA200 short tax return.

HMRC corrections

HMRC will check the SEISS grants payments reported in the return against their records of the grants that have been paid to you.

If you have already submitted your 2020/21 tax return, and the amount of the SEISS payments that you reported on your return did not tally with HMRC’s records, HMRC will adjust your return to match their records and they will send you a revised tax calculation.

It is advisable that you check the figures on HMRC’s revised calculation against your records of the grants received. You can check the amounts that you have received either by logging into the SEISS claims service or against your bank statements for the account into which the payments were made.

If you do not agree with HMRC’s revised figures, you should contact their Coronavirus (COVID-19) helpline for businesses and self-employed people.

Failure to report SEISS payments

If you received one or more grants under the SEISS in 2020/21 and do not include them on your self-assessment tax return for that year, HMRC will adjust your return to reflect the payments and send you a revised tax calculation. As a result, you may find that you owe more tax than you expected, have an unexpected tax bill, or that the tax repayment you were expecting is reduced.

SEISS payments reported in the wrong box

If you included SEISS payments in your 2020/21 tax return, but did not enter the amount that you received in the designated box, for example, because you included it in turnover or entered it in one of the ‘other income’ boxes, you will need to amend your self-assessment tax return so that the grants are entered in the correct box and removed from the wrong box. If you do not do this, the grant income will be assessed twice, as HMRC will adjust the return to enter details of grants received in the correct box (but will not remove the income from elsewhere in the return). 

Failure to complete a self-employment or partnership page

To qualify for the SEISS grants for 2020/21, you had to be trading in that tax year. If you have not completed a self-assessment or partnership page, HMRC will assume that you were not trading, and therefore ineligible for the grants. Consequently, they will seek to recover any grants that were paid to you.  

If you were trading, but omitted to complete the relevant pages, you should amend your tax return to reflect this.  

Appeal if you disagree with HMRC’s adjustments

If you do not agree with the changes that HMRC have made to your tax return in respect of your SEISS grant payments, you can appeal. However, you must do this within 30 days of the date on the SA302 letter advising you of the changes that they have made to your return.

HMRC have not yet taken account of changes that were made to 2020/21 tax returns before 19 June 2021. If you corrected your return before that date, you do not need to contact HMRC as they will process the amendments separately.

Speak to us

Contact us if HMRC have adjusted the SEISS payments reported in your 2020/21 tax return. We can help you check whether the figures are correct, and take action if they are not.

Voluntary Class 2 NICs where 2019/20 tax return filed after 31 January 2021

If you are self-employed, you will pay Class 2 and Class 4 National Insurance contributions if your profits exceed the relevant thresholds. Class 2 National Insurance contributions are the mechanism by which you build up qualifying years to earn entitlement to the state pension and certain contributory benefits. If your profits are below the small profits threshold, you can opt to pay Class 2 National Insurance contributions voluntarily to maintain your National Insurance record.

Extended deadline for filing 2019/20 tax return

The normal filing deadline for the 2019/20 self-assessment tax return was 31 January 2021. However, to help taxpayers affected by the COVID-19 pandemic, HMRC waived the late filing penalty that would usually apply where a return was filed after 31 January, as long as the return was filed by midnight on 28 February 2021. This effectively extended the filing window by one month.

This had unintended consequences for self-employed taxpayers who opted to file their 2019/20 tax return in February 2021, and who chose to pay Class 2 National Insurance contributions voluntarily where their profits for 2019/20 were below the small profits threshold for that year of £6,365.

Nature of the problem

HMRC’s systems were unable to deal with the payment of voluntary Class 2 contributions where the 2019/20 tax return was filed after 31 January 2021. They did not have time to implement alternative procedures either.

The normal deadline for paying Class 2 National Insurance contributions for 2019/20 was 31 January 2021.

If you opted to pay Class 2 National Insurance Contributions voluntarily and paid by this date but before the return was filed, they could not be processed as HMRC were unaware of what the payment related to. This may be the case if you made the payment before the 31 January 2021 deadline, but filed your tax return in February 2021.

If you filed your return in February 2021 and paid your voluntary Class 2 National Insurance contributions when you filed your return, the contributions were paid late as they were paid after 31 January 2021. In this situation, HMRC corrected your return to remove the voluntary contributions.

Payments made in respect of voluntary Class 2 contributions in these circumstances were allocated elsewhere, held on account or refunded.

The solution

If you have been affected by this issue, you should contact HMRC on 0300 200 3500 as soon as you become aware that this is the case, for example, when you receive a refund, or see from your personal tax account that your contributions have been allocated against another payment.

If you have already received a refund, HMRC will let you know how you can pay Class 2 contributions voluntarily. If you have not already received a refund, they will ensure that the payment is correctly recorded as Class 2 National Insurance contributions.

Check your National Insurance record

It is advisable to check your National Insurance record to see if you have any gaps. Failure to contact HMRC if you have been affected by the above issue may mean that you do not receive a credit for 2019/20, resulting in a gap in your contributions record.

Contact us

Contact us if you paid voluntary Class 2 National Insurance for 2019/20 and filed your return in February 2021 to check that your contributions have been credited to your account.

Self-assessment late payment penalty

HMRC announced in January that they would not charge a late filing penalty if your 2019/20 tax return was not filed by midnight on 31 January 2021, as long as the return was filed by 28 February 2021. Any tax due by 31 January 2021 should still have been paid by that date, unless a time-to-pay arrangement had been agreed.

Where tax is paid late, interest is charged from the due date (31 January) until the date of payment. Penalties may also be charged. However, this year, a late payment penalty will not be charged as long as the tax is paid by 1 April 2021, or a time to pay agreement set up by that date.

Interest on late paid tax

Interest is charged from 1 February 2021 on any amounts unpaid at that date. This is the case regardless of whether or not a time-to-pay arrangement is in place.

Late payment penalty waived

The first late payment penalty – set at 5% of the unpaid tax – is normally charged where the tax remains unpaid after 30 days. However, HMRC have announced that the late payment penalty will be waived as long as the tax is paid, or a time-to-pay arrangement is agreed, by 1 April 2021.

You can set up a time-to-pay arrangement online.

Speak to us

Speak to us if you have unpaid tax and you need help in setting up a time-to-pay arrangement.

Gift Aid warning

If you are a taxpayer and you make a Gift Aid declaration when making a donation to a charity, the charity can reclaim basic rate tax on your donation.

Tax relief on the donation

A donation made under Gift Aid is treated as being made net of the basic rate of tax, currently 20%. The charity can reclaim 25% of the amount donated. For example, if you donate £100, the charity can reclaim £25 (25% of £100), bringing the total donation up to £125. Your donation of £100 is 80% of the total donation, with the charity reclaiming the remaining 20%, i.e., £25.

If you are a higher rate taxpayer or an additional rate taxpayer, you can claim relief through your self-assessment tax return for the difference between the highest rate at which you pay tax and the basic rate relief received at source – a further 20% of the gross donation for higher rate taxpayers and a further 25% for additional rate taxpayers.

Have you paid enough tax?

The tax that is reclaimed by the charity on the donation is funded by the tax that the taxpayer has paid. As long as you pay more tax than the charity reclaims on your Gift Aided donations, all is well. However, problems can arise if your income falls and you have not paid enough tax to cover that reclaimed on your Gift Aid donations. If this is the case, HMRC will look to you to make up the shortfall.

Review your Gift Aid donations

If your income has fallen for 2020/21, either as a result of the COVID-19 pandemic or otherwise, you may wish to review your regular Gift Aid donations to ensure that you have paid sufficient tax to cover the basic rate relief given at source. If your income has fallen below the level of the personal allowance, set at £12,500 for 2020/21 and rising to £12,570 for 2021/22, you should cancel any existing Gift Aid declarations so that you do not have to repay the tax claimed on those donations back to HMRC.

When making one-off donations, consider your tax position before completing the Gift Aid declaration.

Contact us

If you would like to review the tax effectiveness of your charitable donations, please contact us.

File your tax return by 28 February

The normal deadline for filing the 2019/20 tax return is 31 January 2021. However, HMRC announced in a press release issued on 25 January 2021 that they would not issue a late filing penalty as long as the 2019/20 tax return is filed online by 28 February 2021. However, any tax due by 31 January 2021 must still be paid on time.

Extended deadline

Jim Harra, Chief Executive of HMRC, confirmed that taxpayers will not receive a penalty for the late filing of their 2019/20 tax return, as long as the return is received online by 28 February 2021. HMRC have previously resisted attempts to extend the deadline due to the pressures imposed by the COVID-19 pandemic. The change of heart came late in the day as HMRC accepted that it had become increasingly clear that people were struggling to meet the 31 January deadline. The extension will provide taxpayers with breathing space to complete their returns.

Normally, a penalty of £100 is issued automatically if the return is filed after midnight on 31 January.

No change to tax payment deadline

Despite the relaxation to the filing deadline, any tax due by 31 January 2021 must still be paid by this date. This will include any remaining tax due for 2019/20, including the July 2020 payment on account where this was delayed, and also the first payment on account for 2020/21. Interest will run from 1 February 2021 on any tax paid late

Taxpayers struggling to pay their tax in full and on time can set up a Time to Pay arrangement and pay what they owe in instalments. You can do this online if the tax that you owe is £30,000 or less. However, you will need to file your return before you can set up an instalment plan.

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Speak to us if you need help filing your 2019/20 tax return or setting up a Time to Pay arrangement.

31 January self-assessment deadline approaching

There are a number of key tasks that you need complete by midnight on 31 January 2021. These include filing the self-assessment tax return for 2019/20, paying any remaining tax due for 2019/20 and, where applicable, calculating and paying the first payment on account for 2020/21.

Filing deadline

The deadline for filing the 2019/20 tax return online is midnight on 31 January 2021. If you received a notice to file a return which was issued after 31 October 2020, a later deadline applies, and you have three months from the date of that notice in which to file your return. The deadline for filing paper returns (31 October 2020) has already passed. While any paper returns filed after that date (or more than three months from the date of notice to file a return, if later) will attract a late filing penalty, the penalty can be avoided by filing your return online by midnight on 31 January 2021.

If you miss the filing deadline, you will receive an automatic late filing penalty of £100. This is the case regardless of whether you have any tax to pay. Further late filing penalties are charged where the return remains outstanding after three months, six months and 12 months.

Do I need to file a return?

You will need to file a tax return if HMRC have sent you a notice requiring you to file one. You will also need to register for self-assessment if you have not already done so and file a tax return for 2019/20 if in that year you had taxable income that was not taxed at source. This might include:

• income from self-employment of more than £1,000;
• money received from renting out a property;
• savings income, such as interest or dividends;
• foreign income; or
• capital gains.

You might also need to fill in a tax return if you have income tax reliefs that you wish to claim, although this will not always be the case as some, for example, relief for employment expenses, can be claimed online.

Paying tax

You must pay any tax owing for 2019/20 plus the first payment on account for 2020/21 by 31 January 2021. As a result of the COVID-19 pandemic, you may find that your bill is higher than normal this year if you opted to delay making the second payment on account for 2019/20. If you are struggling to pay your bill, you may be able to pay in instalments.

If you filed your tax return by 30 December 2020, have PAYE income and owe £3,000 or less, the tax that you owe can be collected through PAYE by adjusting your 2021/22 tax code.

Tax due for 2019/20

Unless you have agreed a Time-to-Pay arrangement with HMRC, you will need to pay any tax that you owe for 2019/20 by 31 January 2021. Remember, to take off any payments that you have already made when working out what you need to pay – the HMRC tax calculation does not do this automatically. If you are unsure what payments have been made, you can check this by looking at your personal tax account.

If you opted to delay your second payment on account for 2019/20 (which would have normally been due by 31 July 2020), you will need to pay this by 31 January 2021, along with any balance that remains outstanding. As long as you pay the delayed payment by this date, there will be no interest to pay.

First payment on account for 2020/21

You will need to make payments on account of your 2020/21 self-assessment liability if your tax and Class 4 National Insurance bill for 2019/20 was at least £1,000, unless at least 80% of your tax is collected at source, for example, under PAYE. Each payment on account for 2020/21 is 50% of the tax and Class 4 National Insurance liability for 2019/20. You must make the payments by 31 January 2021 and 31 July 2021.

However, because of the impact of the COVID-19 pandemic, your liability for 2020/21 may be considerably lower than that for 2019/20. The payments on account for 2020/21 are based on pre-pandemic profits of 2019/20; where your income has fallen significantly, you may wish to reduce your 2020/21 payments on account to more realistic levels. However, when working out your estimated liability for 2020/21, remember to include any COVID-19 support payments as these are taxable. You can opt to reduce your payments on account by completing the relevant section of your self-assessment tax return or via your personal tax account.

Payment difficulties

If you are struggling to pay the tax that you owe by 31 January 2021, you may be able to set up an arrangement to spread the cost and pay your tax in instalments. You can do this online if you owe £30,000 or less and have no other payment plans or debts with HMRC; otherwise, you will need to contact HMRC to agree a payment plan.

Interest and penalties

If you pay any tax owing for 2019/20 after 31 January or make your 2020/21 payments on account late or reduce your payments on account by too much, you will be charged interest. Interest is also charged where payments are made in instalments. In the absence of an instalment plan, you will also be charged penalties at the rate of 5% of the unpaid tax where it remains unpaid after 30 days, six months and 12 months.

Contact us

Please let us know if you would like us to file your return on your behalf or if you need help working out what tax you need to pay and by when.

File your tax return by 30 December 2020

Although the deadline by which your 2019/20 self-assessment tax return must be filed online is 31 January 2021, an earlier deadline of 30 December 2020 applies if you want any tax that you owe for 2019/20 to be collected through PAYE. This can be advantageous as you can spread the cost across the tax year, rather than paying it in a single instalment.

Conditions

You can pay your self-assessment bill through PAYE if all of the following apply:

• the amount that you owe is £3,000 or less;
• you already pay tax through PAYE (for example, because you are an employee or you receive a company pension); and
• you either submitted a paper tax return for 2019/20 by 31 October 2020 or filed your return online by 30 December 2020.

You should note that if you meet all of these conditions, HMRC will collect any tax that you owe through the PAYE system. If you file your self-assessment return by 30 December 2020 and owe less than £3,000 and do not want to pay it in this way, you will need let HMRC know. You can do this on your tax return. If you choose this route, you will need to pay the tax you owe for 2019/20 by 31 January 2021 (unless you have agreed a Time to Pay arrangement with HMRC).

You will not be able to pay any tax that you owe via PAYE if:

• you do not have sufficient PAYE income to cover the tax that you owe;
• collecting tax in this way would mean that you would pay more than 50% of your PAYE income in tax; or
• if you would end up paying twice as much tax as you would do otherwise.

Collection through your tax code

Your tax code will be adjusted to facilitate the collection of the tax that you owe through the PAYE system. The adjustment will reflect the amount that you owe and the rate at which you pay tax.

Underpayments for 2019/20 will be collected by adjusting the 2021/22 tax code. Adjusting the tax code will have the effect of collecting the underpaid tax in 12 equal instalments over the 2021/22 tax year. Interest is not charged, meaning this is an interest-free way of paying any tax that you owe in instalments.

Speak to us

If you have a tax underpayment of £3,000 or less and would like it to be collected via an adjustment to your 2021/22 tax code, please let us know so that we can ensure that your 2019/20 tax return is filed by the 30 December 2020 deadline.