Got an HMRC nudge letter? Here’s why

HMRC has been sending out what are known as ‘nudge’ letters and follow-up texts to taxpayers who may have needed to estimate some of their calculations for the 2024/25 tax return. It has identified taxpayers that it believes have included ‘round sum’ estimates in their self-assessment return for 2024/25, and is reminding them they need to refile the correct return if they haven’t already done so.

This can happen if you don’t have all the exact information to fill in your tax return, and you need to estimate an amount so you can submit it on time. Failing to do this would lead to a late filing penalty if you filed after January 31, so it can make sense to submit what you think is correct, and then make any amendments later.

But those people who haven’t refiled their correct return yet, are being reminded that they need to by HMRC.

Don’t ignore the letter

If you have received one of these letters from HMRC, please don’t ignore it. You usually have 12 months from January 31 to refile the return with correct information. This would mean you should have until January 31, 2027, to amend the 2024/25 tax return. But HMRC is encouraging people to make their amendments sooner, and the letters may have a different deadline, said the Low Incomes Tax Reform Group (LITRG).

Similar messages will be going out to all taxpayers in an equivalent position, and are designed to encourage you to check your returns in case they need refiling. If you haven’t got a letter but know that you need to refile your return with the correct information, then now would be a good time to adjust it.

Even if the amended figures are the same as the ones you submitted originally, you should still refile the return, said the LITRG. This is because you may have ticked a box on the original return saying it contained provisional figures. If that is the case, you need to refile and remember to untick that box before you resubmit your return.

What if I think my return is correct?

If you receive one of these letters but you believe everything in your tax return is correct, then you should contact HMRC’s Self-Assessment Helpline, said the LITRG, and they should be able to give you the right guidance.

You can also speak to your accountant to make sure you’re not mistaken and do have amendments to make to your tax return. Either way, checking now will be far better than realising a mistake has been made later.

If you choose to ignore the letter, or fail to contact HMRC by the date specified in the letter, you may find HMRC opens an enquiry into your self-assessment return for 2024/25, said the LITRG. If they then find your return does contain inaccuracies, you could face a penalty, and you may have to pay late payment interest if you haven’t paid enough tax.

We can help you

If you think you may need to refile your 2024/25 self-assessment tax return because you needed to update the figures, or because you believe you have made a different mistake, then please contact us and we will do everything we can to assist you.

Making Tax Digital has arrived – here’s what you need to do

Making Tax Digital (MTD) has finally arrived, having gone live on April 6, 2026, and it is going to change the way those affected need to file their returns to HMRC.

If you are self-employed, receive property income, or both, and have total qualifying income from self-employment and property above £50,000 – remember this isn’t profit, it is income – then you are likely to be an MTD taxpayer. Your total income will include payments from multiple sources, which is especially relevant if you are a landlord with more than one property.

If you’re not sure whether you qualify for MTD, then you can always ask your accountant. In fact, even if you know you qualify, it would be best to speak to your accountant to make sure you comply with all the different changes that MTD brings. Many people think it is just a change in the way you need to file your tax returns. But there is more to it.

Choose your software

Quarterly updates are the big change for people affected by MTD, and this is facilitated by accounting software that allows you to send your quarterly updates directly to HMRC from your system. If you don’t already use accounting software that allows you to send updates directly to HMRC, then you will need to choose it quickly to make sure you don’t miss the first deadline. This will be August 7, 2026, which covers the period from April 6, 2026, to July 5, 2026, if you use standard update periods.

Once you have chosen your software, which could be FreeAgent, QuickBooks or Xero among others, then you also need to link your bank accounts to it, so your transactions are brought into your accounting software and you can reconcile all transactions in one place.

If you haven’t done any of this yet, or you’re still using spreadsheets to do your accounts, then you need to act fast. Making these changes sooner rather than later will give you the information you need, where you need it, when the time to file comes. And planning ahead is much better than trying to make these changes in a panic. Remember, you need to link all your business accounts, if you have more than one.

Why is this so important now?

If you haven’t done any of this before you need to send your first quarterly update, then you will be playing catch-up – and that can become uncomfortable. You need to make sure all the data is flowing as it should be, rather than trying to reconstruct it later.

For the same reason, you should check the data you have already included in your accounting software for your year end. You should check all your expenses are coded correctly, and that all your eligible income is included in the right place.

If you have any personal spending that has gone through the business, you will need to identify this correctly so it isn’t included within your business accounts. You should also make sure there are no duplicated transactions in the accounts, as that can give you errors that might be difficult to unpick later. The closer you can get it to being exactly right before you start your quarterly updates, the better.

Review your accounts each month

If you want to really keep on top of things and ensure you’re doing everything right, then reviewing your accounts each month is a good idea going forwards. Take a day each month where you know you have less work to do, and use it as an admin day where you review your monthly transactions and make sure they are correctly categorised.

The latest accounting software can help you keep on top of your expenses more easily, as you can upload images of your receipts in real time. Taking a snapshot with your phone camera and uploading this will mean you don’t have to go through shoeboxes full of receipts when you get to the end of the quarter. As they can be categorised as you go, you will save yourself a lot of time when you need to send your update to HMRC.

The other important thing to do is decide what your accountant will do, and what you will do when it comes to MTD. It might be that you want to do the monthly bookkeeping, but you ask your accountant to check it for you. Or you may want your accountant to do the monthly bookkeeping, but this is likely to increase your costs. So, have a discussion now before you need to send your first quarterly update, to make sure you know who is doing what. It can save confusion later.

You can find out more about MTD on Gov.uk.

Contact us

If you would like to find out more about MTD and whether you are affected, then please get in touch with us and we will explain what you need to know.

Will it still be sensible to take income in dividends?

Increases in the dividend tax levels from April 6 are set to eat into the income of directors, who will often pay themselves in dividends, but is it still sensible to take payments this way for the coming tax year?

The dividend tax rates are set to rise by 2 percentage points from April 6. This will raise the Basic Rate from 8.75% to 10.75%, and the Higher Rate from 33.75% to 35.75%. But the Additional rate of 39.35% will remain the same.

So, does this rise create a case for paying yourself via a salary rather than dividends going forwards, or are dividends still the best way for directors to pay themselves from their companies?

Dividends still win, but a mix of salary and dividends is best

Even though the increase in dividend tax rates will reduce the benefit of paying yourself in dividends, it still makes more sense financially to take dividends than it would to pay yourself a salary alone in most cases.

By taking a salary, your company would need to pay Employer National Insurance Contributions (NICs) on your salary at 13.8% for any amounts of £9,100 or above. You would also need to pay employee NICs on your salary above £12,570 – which is the level of the personal allowance – at 8% up to £50,270, and at 2% above this level. On top of this, you also pay income tax at 20% as a basic rate taxpayer, 40% as a higher rate taxpayer, or 45% as an additional rate taxpayer.

By taking dividends, assuming your Corporation Tax has already been paid and your profits are high enough for you to do so, you would usually have more in your pocket as they are not subject to NICs like a salary. Your company would pay no NICs, and neither would you, and the dividend tax levels are also below the higher rate and additional rate income tax bands.

If you’re not earning much in dividends, you should check with your accountant whether you’re better off taking your earnings as a salary or in dividends, as there could be a point where the balance tips in favour of salary. But typically, you are still better off taking dividends, even though the benefits are narrowing.

Still, the best way to pay yourself from your company is likely to be via a mix of the two. This would mean taking a small salary, equivalent to the personal allowance of £12,570, and then taking the remainder in dividends. This means you pay some NICs, which will still qualify you for the State pension, but you will pay little or no income tax on the salary, and a salary is also deductible for Corporation Tax.

Let us help you

If you are interested in seeing how you can legitimately reduce your tax burden through dividends, then please get in touch with us and we will do what we can to help you.

£50,000 a year earners and landlords need to get MTD ready

New Making Tax Digital (MTD) rules coming into force in April mean around 850,000 landlords and self-employed people earning more than £50,000 a year, which would be declared on their 2024/25 tax return, are required to register for MTD by April 6, 2026, if they haven’t done so already.

The new rules mean taxpayers must give HMRC records of self-employment and property income and expenses every quarter, rather than once a year. But they still only pay their tax bill once a year as they do now.

The quarterly submission deadlines are August 7, November 7, February 7, and May 7, with a requirement to submit a final tax declaration by January 31 of the following year, in the same way someone would approach a self-assessment submission now.

However, this final declaration, within which any adjustments to the records can be made, will replace the annual self-assessment return for those affected.

Why doesn’t everyone have to sign up in April?

HMRC is getting people signed up to MTD over time. While landlords and self-employed people, or sole traders, earning over £50,000 of qualifying income must join from April 6, those with qualifying income of £30,000 or more will join from April 2027, and those earning £20,000 or more of qualifying income will be required to join from April 2028.

By that final date, around three million people will have to send quarterly reports to HMRC through MTD for income tax. These taxpayers will have to submit their tax information to HMRC by using compatible and approved software packages, as HMRC does not provide this software. You can find out more about approved software packages at Gov.uk.

If you don’t comply with the rules of the new regime, you will accumulate points and eventually could receive an automatic £200 fine. You will get points for late filing and/or late payment. The points will stay on your account for two years, and after this they will be removed. Any taxpayer can apply for a digital exemption if they believe they are digitally excluded.

Let us help you

If you think you might be affected by this change, then please get in touch with us and we will do what we can to help you.

Missed the January filing deadline? Here’s what to expect

Thousands of people once again took the chance to use some quiet time over the festive period to file their self-assessment tax returns, with 4,606 people even filing their return on Christmas Day.

In total, 37,435 people completed their return over the three days of festivities, Christmas Eve, Christmas Day and Boxing Day. But there are still thousands more taxpayers who are yet to file, which means they could be facing penalties for late filing after the January 31 deadline.

The penalties start as soon as you miss the deadline, whether there was any tax to pay to HMRC or not. If you are only due to file a self-assessment return to deal with the High Income Child Benefit Charge, there is a new PAYE digital service. If you had signed up to this before January 31, you could opt out of filing a self-assessment and chosen to pay back any money you owed through your tax code. But if you have missed the deadline, then for now, you still need to file a self-assessment.

How do the penalties work?

If you have to file a self-assessment tax return, you must file before January 31, 2026. If you missed this deadline, or you failed to pay your bill on time, then you will face a penalty.

You will immediately face a £100 penalty for filing late. If you still haven’t filed your return within three months, you will face additional daily penalties of £10 per day, to a maximum of £900. If you haven’t filed after six months, you will face a further penalty of 5% of the tax due, or £300, whichever is higher. If you haven’t filed within 12 months, then another 5% of the tax due is added, or an additional £300, whichever is greater.

If you’re filing your return as part of a partnership and it is filed late, then every partner will be charged a penalty. These are 5% of the tax due at 30 days, six months, and 12 months, plus interest on the amount owed.

What else do I need to know?

If you register for self-assessment after October 5, and also don’t file your return and pay your tax bill on time, you may get a ‘failure to notify’ penalty, according to HMRC. You can find more information on ‘failure to notify’ penalties on Gov.uk.

If you get a penalty, then you need to pay it within 30 days of the date on the penalty notice. You can appeal against a penalty if you disagree with it. However, if there is a good reason why you couldn’t file your self-assessment or pay your tax bill, such as being in hospital or losing a close relative, then you may be able to get the penalty waived.

If you find yourself in a situation where you are facing a tax penalty for any reason, then the best thing to do is speak to your accountant as soon as possible, and give as much information as you can to resolve the issue quickly.

We can help you meet your obligations

If you receive a penalty notice, or know you haven’t met your tax and filing obligations in good time, then please get in touch and we would be happy to give you the guidance you need.

HMRC sending letters to self-assessment payers about CGT

Self-assessment taxpayers who have submitted their 2024/25 tax return are now being sent letters by HMRC as they may not have applied the correct rate of Capital Gains Tax (CGT) on disposals after October 30, 2024.

The main rates of CGT on the disposal of assets, other than residential property and carried interest, rose from 10% to 18% for basic rate taxpayers, and 20% to 24% for higher rate taxpayers. But there is a danger they may have not paid the right CGT as the return may not have automatically calculated the CGT liability correctly.

This means they would need to adjust their return, according to the ICAEW. You can check if the amount you paid is correct by using the online calculator at Gov.uk.

What letters are being sent?

There are two letters that HMRC is sending to the taxpayers HMRC feels may have made this mistake. The first letter is for those people who included an adjustment which appeared to be incorrect. The second letter is for those where the return didn’t include the adjustment, and an incorrect rate of CGT has been used.

Depending on which letter is received, HMRC is asking people to use its online tool to check the correct adjustment, and amend the return if it is incorrect. Or if the figure on the return is correct, then people are being asked to let HMRC know that by contacting it using the information in the letter. Either way, action needs to be taken within 30 days of the date of the letter.

If you are paying CGT late, then HMRC will be charging interest on it. The letter will also tell you what to do if you miss the 30-day deadline given in the letter for responding.

Let us help you

If you’re not sure whether you have paid the right amount of CGT via your self-assessment return for 2024/25, then please get in touch with us and we will do what we can to help you.

Around 600,000 HMRC penalties paid in five years by people owing no tax

Around 600,000 late-filing penalties have been paid to HMRC in the last five years by some of the lowest earners in the UK despite them not owing any tax, according to Tax Policy Associates.

Missing the filing deadline of January 31 for a self-assessment tax return will generate a £100 penalty, but if people are unaware or unable to deal with this swiftly, then the debt can snowball into thousands of pounds. One woman with severe mental-health difficulties ended up being pursued by HMRC for £10,000, while someone else was forced into bankruptcy by HMRC, according to Tax Policy Associates. HMRC makes more people bankrupt in the UK than any other organisation.

Tax Policy Associates put in a Freedom of Information request asking HMRC about the issue and for information about how much those affected by these penalties earn, and the information it received turned out to be alarming.

Why is this happening?

Failing to file your tax return on time automatically generates a £100 penalty, even if there is no tax to pay. Sadly, the people being affected most keenly by these penalties are those who are least able to pay tax as their incomes are so low.

For example, 50% of the penalties being charged on earners in the first three deciles – the lowest earners in the UK – are being paid. This amounts to around £28m over five years, and is being paid by people earning so little they don’t even pay tax. In total, 902,242 non-taxpayers were sent penalties by HMRC over this period, but 305,044 of these were successfully appealed.

Part of the problem seems to be that HMRC doesn’t make it clear in the letters sent out to notify people of the penalties that they can have the penalty reversed if they can show they shouldn’t have been penalised, or that they don’t earn enough to pay tax in the first place and should not be filing a self-assessment tax return. The current personal tax threshold is £12,570, and anyone earning less than this doesn’t have to pay tax on their income.

However, if you earn just £1,000 as a self-employed person, you are obliged to file a tax return, and if you are charged the £100 penalty and don’t file your return or pay the penalty within 12 months, then you could face a bill of as much as £1,600, according to Tax Aid.

How can this be stopped?

The easiest way to stop this happening – and something that is being called for by tax experts such as the Low Incomes Tax Reform Group, Tax Policy Associates and Tax Aid – is for HMRC to change its policy. But until that happens, it is vital that low-income earners, along with everyone else, realise exactly what their rights are if they are sent a penalty notice by HMRC.

The problem is also exacerbated because it has become more difficult to contact HMRC to get assistance, which is a wider problem affecting all taxpayers, and now even tax agents, such as accountants. Anecdotal evidence suggests these dedicated lines to HMRC are currently harder to get answered, with long waits before a call is answered.

Changes to the rules are in the pipeline, which will see penalties limited to a maximum of £200. But the timing of the implementation for all taxpayers is unclear. This change, among others, will come in as part of the Making Tax Digital regime. From April 2026, this will apply to people earning £50,000 or more. From April 2027, it will apply to those earning £30,000 or more, and to those earning £20,000 or more from April 2028.

More fundamentally though, it is important for everyone to know – not just low earners – that if you have a penalty from HMRC which you believe is incorrect, then you need to appeal it. Whether you do that yourself or with the help of an accountant will depend on your personal circumstances, but never simply pay a penalty you don’t agree with.

How do I appeal an HMRC penalty?

When you get the penalty notice, you have 30 days from the date the penalty was issued to contact HMRC to appeal it. If you file your appeal online, then HMRC will receive it immediately, so you don’t need to worry about your appeal getting lost in the post. You can appeal online at Gov.uk.

Before you begin the appeal process, you will need:

• The date the penalty was issued.
• The date you filed your Self-Assessment tax return (if you have submitted it).
• The date you paid your tax (if you have paid it).
• Details of your reasonable excuse for filing your return late or not making your payment on time.

Source: Gov.uk

You can also ask your accountant to make the appeal for you, which for many people will be easier.

Contact us

If you want to find out more about whether your HMRC penalty notification is valid or should be appealed, or whether you need to file a self-assessment return if you don’t already, then please get in touch with us and we will explain what you need to know.

Less than half of self-employed workers use simplified mileage rates

Less than half of self-employed workers who use their vehicle for work purposes are aware of HMRC’s simplified mileage rates, according to its own research. The flat rate deduction is 45p per mile for the first 10,000 miles and 25p for every mile after this, and these can be used to claim for car usage that is solely related to work.

HMRC undertook the research to get a better understanding of travel expenses associated with the self-employed, and to find out why some people don’t use the simplified mileage rates, and whether they might use them in future. The survey of 1,000 people covered the self-employed or those who are partners in a business partnership.

It found that just 43% of self-employed people were aware of the simplified mileage rates, with car users (49%) more likely to know about them than van users (27%). Even sole traders (44%) were more aware than those in partnerships (31%). Where they had heard of them, most had been advised about them by their accountant or tax agent, with less than one in 10 hearing about them from another source.

Who is using the simplified mileage rates?

The widest adoption of these rates among those who had heard about them came from smaller organisations with a turnover of less than £20,000 (74%) or those with revenue of between £20,000 and £49,999 (64%). Larger businesses with higher revenues were less likely to use them, according to the research.

For those people who knew about them but were not using these rates, the most likely explanation was because they preferred to keep exact records (23%). Around 20% calculated they would be worse off if they used them, while 14% felt the rates were too low compared to the real cost of using their vehicle for work.

That said, vehicle users were more than twice as likely to agree (45%) than disagree (20%) that these rates would be sufficient to cover their vehicle expenses associated with their business. Yet more than a fifth said these rates didn’t cover their vehicle expenses.

Most people still rely on manual record keeping for their travel expenses, but those who use simplified mileage rates were considerably more likely to use a digital recording method, HMRC found.

Whichever way you deal with your travel expenses, you should speak to your accountant to ensure you are claiming everything you should for travel expenses, and other work expenses you may not realise you can claim for.

Let us help you

If you want help to make sure you are claiming your full allowance for any work-related travel, or any other business expenses, please get in touch with us and we will do what we can to maximise your tax relief.

Record number of self-assessments sent in first week of tax year

Just under 300,000 self-assessment tax returns were filed in the first week of the 2025/26 tax year, according to HMRC, way ahead of the deadline of January 31, 2026.

A total of 299,419 tax returns were filed between April 6 and April 12 – 28,503 more than the same period last year. Some 57,815 people filed on the opening day, a Sunday, which was slightly down on the 67,870 who filed on the first day last year. But the figures were impressive during that week as you can see in the table below.

*weekend days

Source: HMRC

Who needs to file a self-assessment return?

There are many different scenarios that might result in you needing to file a self-assessment tax return, including people who:

• Are newly self-employed with a total income of over £1,000.
• Are self-employed and earn below £1,000 and wish to pay Class 2 National Insurance contributions (NICs) voluntarily to protect their entitlement to state pension and certain benefits.
• Have received any untaxed income over £2,500.
• Are renting out one or more properties.
• Claim Child Benefit and they or their partner have an income above £60,000.
• Are a partner in a business partnership.
• Have taxable income earned from savings and investments more than £10,000.
• Have dividend income of more than £10,000.
• Have Capital Gains Tax to pay on assets that were sold for a profit above the Capital Gains threshold.

A full list of who needs to complete a tax return is available on GOV.UK.

Myrtle Lloyd, HMRC’s Director General for Customer Services, said: “Filing your self-assessment early means you can spend more time growing your business and doing the things you love, rather than worrying about your tax return.

“You too can join the thousands of customers who have already done their tax return for the 2024 to 2025 tax year by searching ‘self-assessment’ on GOV.UK and get started today.”

Filing early can help with financial budgeting and spreading the cost of the tax bill over the year if you prefer. You can also set up a budget payment plan to make either weekly or monthly direct debit payments towards your self-assessment tax bill, which will save you from facing a big bill at the end of January, just after the Christmas expense.

If you have overpaid tax, you can claim a refund as soon as the return is processed. If you use the HMRC app, you can check if you’re due a refund. Filing early also means your accountant will have more time to help you make sure your tax return is accurate, resulting in fewer mistakes and potential penalties.

HMRC has updated guidance on filing tax returns early and help around paying tax bills on Gov.uk. Remember, you shouldn’t share your HMRC sign-in details, as someone could use them to steal from you, or claim benefits or a refund in your name.

Let us help you

If you want to file your self-assessment early, then please get in touch and we will do whatever we can to help you maximise the benefits of filing early.

1.1m missed the January 31 deadline – can you appeal a penalty?

Around 1.1m of us missed the January 31 deadline to file our self-assessment tax returns for the 2023/24 tax year. For each person, this means at least a £100 penalty and potentially additional charges if the return continues to not be filed or the tax due paid for a longer period.

The £100 penalty is levied whether there was any tax to pay or not. It is simply for missing the deadline for filing the self-assessment return itself. If you had tax to pay though, you could also face interest charges if you also haven’t paid the bill on time.

Sole traders and partners in a partnership who contacted HMRC for help with the Basis Reform Period before December 31, 2024, should not receive a penalty as this change will make calculating their tax due more complex.

The ICAEW has been advised by HMRC that anyone in this position would have until February 28 to file their return using provisional figures without incurring a penalty. But the return should be updated when they have the correct figure and any tax due originally by January 31 that remains unpaid would face interest charges from February 1.

What other reasons would HMRC accept for late filing?

If you have a genuine reason for missing the deadline, then you should appeal any penalty. For example, if someone close to you has died – perhaps a partner or parent – then you would benefit from some leniency.

Other reasonable excuses would include:

• You had an unexpected stay in hospital that prevented you from dealing with your tax affairs.
• You had a serious or life-threatening illness.
• Your computer or software failed while you were preparing your online return.
• Issues with HM Revenue and Customs (HMRC) online services.
• A fire, flood or theft prevented you from completing your tax return.
• Postal delays that you could not have predicted.
• Delays related to a disability or mental illness you have.
• You were unaware of or misunderstood your legal obligation.
• You relied on someone elseto send your return, and they did not.

Source: Gov.uk

However, these wouldn’t be considered reasonable excuses, and you wouldn’t be able to challenge the penalty if:

• Your cheque bounced or payment failed because you did not have enough money.
• You found the HMRC online system too difficult to use.
• You did not get a reminder from HMRC.
• You made a mistake on your tax return.

Source: Gov.uk

Let us help you

If you’ve missed the deadline for filing your self-assessment and have received a penalty, then please get in touch as soon as possible and we will do everything we can to help you.

25,000 people filed tax returns on New Year’s Day

While most of us were ringing in the New Year with a chorus of Auld Lang Syne or nursing a hangover from the revelries, nearly 25,000 people filed their tax return on January 1, 2025, according to HMRC figures. Most people – 2,603 – filed their returns between 14:00 and 14:59. A further 38,260 people filed on New Year’s Eve, with the highest number of returns filed between 12:00 and 12:59, by 4,331 people.

At that stage, 5.4m people still needed to file their return, and anyone who misses the January 31 deadline can expect to pay a penalty and could face interest payments on top if they persist in not filing.

Myrtle Lloyd, HMRC’s Director General for Customer Services, said: “We know completing your tax return isn’t the most exciting item on your New Year to-do list, but it’s important to file and pay on time to avoid penalties or being charged interest.

“The quickest and easiest way to complete your tax return and pay any tax owed is to use HMRC’s online services… Some 97% of customers now file online and one benefit is that they don’t have to complete it all in one go – they can save what they have done and pick it up again later.”

What happens if I miss the deadline?

Anyone who misses the January 31 deadline could face an immediate £100 penalty for late filing, even if there is no tax to pay or any tax due is paid on time. They should file as soon as they can after this to avoid additional penalties racking up.

If the return is still not filed three months later, then additional penalties of £10 per day up to a maximum of £900 could be charged. After six months, a further penalty of £300 or 5% of the tax due, whichever is greater, could be charged. If the return still hasn’t been filed after 12 months, then another £300 or 5% of the tax due, whichever is higher, will be charged.

Extra penalties of 5% of the unpaid tax at 30 days, six months and 12 months will also be applied, and you will face interest payments on any unpaid tax in addition to these penalties. Anyone who is yet to file their tax return can do so online, via gov.uk, or contact your accountant for help.

Let us help you

If you’ve missed the deadline for filing your self-assessment then please get in touch as soon as possible and we will do everything we can to help you.

Scammers hit Self-Assessments – here’s what to look for

HMRC is warning people who are filing Self-Assessment returns to be on the look out for fraudsters, after customers referred nearly 150,000 frauds to the taxman in the last year. As the January 31, 2025, deadline looms, the scammers are targeting people with tax refund offers or demanding customers make tax payments, so these criminals can get hold of your personal and banking details.

Around half (71,832) of all frauds reported in the last year were associated with fake tax rebate claims, but these are not the only things for self-assessment filers to look out for. Plus, the number of frauds being perpetrated are on the rise. There was a 16.7% rise in the number of scams referred to HMRC between November 2023 and October 2024.

How can I tell if it really is HMRC contacting me?

If you are contacted by someone claiming to be HMRC, where you are being asked for your personal information or being offered a tax rebate, then you can look for advice on GOV.UK to help you identify if you are dealing with a scammer. HMRC won’t leave you voicemails threatening legal action or to arrest you, and you won’t get a text from HMRC asking you for your personal or financial information. If you receive any of these, you can assume you are being targeted by a criminal.

Kelly Paterson, Chief Security Officer at HMRC, said: “With millions of people filing their Self-Assessment return before January’s deadline, we’re warning everyone to be wary of emails promising tax refunds.

“Being vigilant helps you spot potential scams. And reporting anything suspicious helps us stop criminal activity and to protect you and others who could have received similar bogus communication.

“Our advice remains unchanged. Don’t rush into anything, take your time and check ‘HMRC scams advice’ on GOV.UK.”

What should I do if I think I have been targeted?

If you think you have been targeted by fraudsters claiming to be HMRC, you can get in touch with the relevant departments in various ways. For example, if you have been contacted by email, a criminal activity known as ‘phishing’ then you can forward the emails to phishing@hmrc.gov.uk.

If you have received a phone call that you think is from a fraudster, you can report this on GOV.UK, and if you have any suspicious texts that claim to be from HMRC, you can forward them to 60599.

You won’t be contacted by email, text or phone by HMRC to let you know you are due a refund, or to ask you to request one. Any refund due can be claimed via your online HMRC account or through the HMRC app which is secure and free to download.

If you think you have had money stolen, then you should contact your bank as soon as you realise, and you can also report it to Action Fraud. In Scotland, contact the police on 101. The more each of us reports suspicious and potentially fraudulent activity, the more likely it is that you can prevent someone else becoming a victim. You can find out more information about stopping fraud at www.gov.uk/stopthinkfraud.

We can help you

If you think you may have been targeted by criminals or have been a victim of fraud, then once you have taken the immediate measures above, please contact us and we will do everything we can to assist you.

HMRC’s new Basis Period Reform could bring higher tax bills this January

A change in the way HMRC is calculating when tax is due to be paid on profits arising for the self-employed or members of a Limited Liability Partnership (LLP) mean they could be facing higher bills in January than they are expecting.

The new Basis Period Reform, which has been introduced as a way to standardise when non-incorporated businesses pay tax, will affect anyone who is self-employed or in an LLP with a tax year end outside of March 31 or April 5 each year. They will be expected to pay the tax due on the actual year of their trading rather than their chosen accounting period, which could increase the amount they need to pay in January 2025.

Does this mean paying more tax overall?

Those affected won’t be paying more tax than they otherwise would, but they may need to pay more than they expect in January, as they will need to bring themselves up to date for the 2023/24 tax year. This bill will need to be paid by January 31, 2025, so the main issue for those affected will most likely be cashflow.

However, given 2023/24 is a transitional year, it is possible to spread the transitional profits over a period of five years, which should improve cashflow by reducing the payment due in January. You may also be able to benefit from overlap profit relief if it is relevant. But reducing any liability for January 2025 would mean acting sooner rather than later and speaking to your accountant ASAP.

Critics claim there hasn’t been enough publicity surrounding this change, which could leave many self-employed people and LLP members in the dark about what their liabilities will be in January 2025, with little time to find the extra cash if they have not prepared correctly. You can find more information on the Basis Period Reform on Gov.uk.

Let us help you

If you’re going to be affected by this change, then please get in touch as soon as possible and we will do everything we can to help you prepare.

Do you need to pay a Simple Assessment tax bill this January?

Most of us have heard about the Self-Assessment tax regime, especially those who are self-employed or who need to declare income outside of their main PAYE job. But some people will have received Simple Assessment letters from HMRC, and they may need to pay a tax bill by January 31, 2025, too.

HMRC has been sending out letters to those it believes need to pay tax but who would not need to fill in a full self-assessment form. Those getting the letters will include people who owe £3,000 or more, who won’t be able to pay the tax they owe out of their PAYE income, or who must pay tax on their State Pension.

Challenging a letter

If you get one of these letters and you believe it has come to you in error, or that there is an error in the calculations you’ve been sent, you will need to get in touch with HMRC within 60 days to challenge it and explain why it is incorrect or doesn’t apply to you. The deadline for paying your final bill will depend on when you get your Simple Assessment letter.

For example, if your letter comes before October 31, 2024 – which covers the April 6, 2023, to April 5, 2024, tax year – then you need to pay what is owed by January 31, 2025.

If you get your letter after October 31, 2024, which again covers the 2023/24 tax year, or perhaps an earlier one if relevant – it should say the period it relates to on the letter – then you must pay what you owe within three months of the date on the letter.

What will be in the letter?

The Simple Assessment letter will outline what your taxable income is – which could be pay from an employer, from your pension, or State benefits – and it will also show any tax you have paid. The important figure is the tax it says you owe.

However, you shouldn’t take these figures at face value. Always check HMRC has its sums right, because it can often make mistakes which could result in you paying tax you didn’t need to pay. You can check your pay on your P60, look at your bank statements, or check the figures on any letters you have received from the Department for Work and Pensions if the tax bill relates to benefits or the State pension. Remember though, if you get State benefits paid once every four weeks, you need to multiply your regular payment by 13, not 12, to find out what the total paid to you in a year is.

You may also be able to use the HMRC tax checker to double check an estimate of how much tax you should have paid in the previous tax year. But if it still doesn’t make sense, then you can always ask HMRC for advice or a speak to your accountant.

What if I don’t agree, or can’t afford to pay the tax I owe?

If you think the figures in your Simple Assessment are wrong, or you think you shouldn’t have been sent one at all, then you must go back to HMRC within the 60 days and explain which figures are wrong and what you think they should be.

If HMRC agrees the Simple Assessment is incorrect, then you will have a new letter sent to you based on new figures and you will need to make the payment outlined in that letter within the relevant period. If HMRC doesn’t agree the figures are incorrect, then you will still have to pay the amount due before the deadline, unless you are told it will delay your payment until a later date.

However, if your deadline is approaching and you have not resolved the problem with HMRC, you will still need to pay the tax HMRC says is due. Then, if you still disagree with its decision, you have the right to appeal. You can find out how to do this in the decision letter, and any appeal must be made within 30 days of receiving the decision letter.

You can pay your bill online, by bank transfer, or by cheque if you prefer. If you can’t pay on time, then you should contact HMRC and explain your position. You may be asked to pay what you owe in instalments over time, but you can only do this once the deadline has passed. You need to have your National Insurance number and your UK bank account details when you contact HMRC about this.

You will be asked:

• if you can pay in full
• if there are other taxes you need to pay
• how much money you earn
• how much you usually spend each month
• what savings or investments you have

If you have savings or assets, HMRC will expect you to use these to reduce your debt as much as possible.

Source: Gov.uk

Contact us

If you receive a Simple Assessment letter and don’t know whether the information in it is correct or not, then please get in touch with us and we will do whatever we can to help.

MTD to expand to income tax in 2026 – get ready!

The Making Tax Digital (MTD) regime is set to begin applying to income tax soon, and the first people to be brought into the regime will be the self-employed and landlords. Although April 2026, which is when relevant taxpayers must sign up to file digitally, sounds a long time away, it will arrive sooner than you think, and you need to be ready for the changes to avoid the chance of a penalty.

From April 2026, any self-employed person or landlord earning more than £50,000 a year from their self-employed income or property income, will need to sign up to the scheme and file their tax return digitally. Also, instead of filing once a year like you do now, you will instead be asked to send HMRC quarterly updates through compatible software. There are many different brands of software that would be suitable, so finding the right one for you is something you could start working on now in consultation with your accountant.

Even though the first sign-ups for MTD for income tax will be for those earning more than £50,000 a year, anyone earning income of more than £30,000 will also have to sign up to the regime by April 2027.

What if I earn less than £30,000?

If you earn less than £30,000 you can still sign up for the scheme voluntarily, but you will not be forced to join in these early stages. But there might still be some benefits to signing up early. Currently, HMRC is running a testing phase to find out how to make the expansion of MTD work best for the self-employed and landlords. This means if you sign up early, you may have a chance to help shape the outcome.

It will also help you to get to grips with the new system before you are obliged to use it, so you feel more confident in everything you need to do before the April 2026 or deadlines arrive.

You will also have access to a dedicated customer support team as an early adopter, who will help you understand and resolve any issues you have with filing under the new regime. Plus, you and your accountant would be supported through the process for your other tax affairs – including PAYE and self-assessment for the 2024/25 financial year.

How do I join up?

Around 780,000 people are expected to qualify to join the first phase of this round of MTD. The aim for HMRC is to improve record keeping, as you must file quarterly, and everything will be held digitally which should also reduce the number of errors on your taxes.

If you want to join up in this phase, then please contact your accountant and they can help you. They can sign up as many of their eligible clients as they want to, and this is the best way to access the new regime as you then have the backing and help of an expert to guide you through any problems. But if you want to sign up separately, you can do that providing you’re eligible.

To be eligible, there are various rules and regulations, so you need to check if any of them apply to you. These details are outlined on the Gov.uk website:

You can sign up voluntarily if (all the following):

• your personal details are up to date with HMRC
• you’re a UK resident
• you have a National Insurance number
• you have submitted at least one Self-Assessment tax return
• you’re up to date with your tax records — for example, you have no outstanding tax liabilities
• you use an accounting period that runs from 6 April to 5 April

You can also use an accounting period that runs from 1 April to 31 March, if the software you choose supports this. To use this accounting period, you must:

• select calendar update periods in the software before the first update is made
• make an adjustment at the end of your first tax year — so that your income and expenses from 1 April to 5 April are included in your tax return

If you sign up, during testing you will not be able to:

• claim carry back of losses
• change your accounting period
• change your accounting method

You cannot sign up voluntarily if you:

• have a High-Income Child Benefit Charge
• have a payment plan with HMRC
• are a partner in a partnership
• claim Married Couple’s Allowance
• claim Blind Person’s Allowance
• are currently, or are going to be, bankrupt or insolvent
• are an MP, minister of religion or Lloyd’s underwriter
• have income from being a foster carer or being in a shared lives scheme
• have income from a trust
• have income from a jointly owned property
• have income from a furnished holiday let
• are subject to a compliance enquiry
• use ‘averaging’ or other arrangements because your profits vary between years — for example, because you’re a farmer, writer or artist
• are signing up on behalf of someone else (unless you’re an agent) — this includes (but is not limited to) if you’re:
  • an insolvency practitioner
  • a nominee
  • a solicitor

Source: Gov.uk.

What software will I need to use?

There are many different types of software you can use to file digitally online, and some do not charge you to use them. But it isn’t as easy as just signing up to any software as which will suite you best will depend on what data you need to hold, how simple your tax affairs are, and how tech savvy you are.

All of the compatible software options can be found on Gov.uk, and while there are a few that are currently working, many more are being developed by some of the biggest names in online accounting. Again, you can ask your accountant for guidance on which would work best for you if you are unsure.

The new regime will mean more admin for those joining up, and collectively for everyone who is eligible and is earning more than £30,000, the cost of implementing the new regime is expected to be £561m as a one-off. But filing more regularly and keeping better records online is likely to help you with other areas of your finances too. So, there are additional benefits to signing up early.

Contact us

There are many aspects of the changes to the MTD regime that you may not feel comfortable with, but if you have any queries then please get in touch with us and we would be delighted to help you.

Want to avoid fines from HMRC? Here’s how

No-one likes to pay more to the taxman than they have to, but if you fall foul of HMRC’s rules, you could find yourself paying a penalty, and interest if things are not sorted out quickly.

There are various fines you could face from HMRC if you get things wrong, and here we go through a few of them to help you avoid them.

The easiest fines to avoid

Anyone who must file a self-assessment return should know that the paper return is due by October 31, and the online return is due by January 31 of the following year for the previous tax year. Failing to file on time will lead to a £100 penalty. If the return is more than three months late, you will be charged an additional £10 per day, until you reach a maximum of £900.

If you still fail to file, you can face an extra £300 fine for not filing before six months, or a penalty of 5% of the tax due, whichever is higher. You would face an additional 5% of tax due or £300 penalty, again whichever is higher, if you have still not filed the return after 12 months. So, these fines can stack up quickly.

Late payments will also incur penalties – a penalty of 5% of the tax due will need to be paid if the tax has not been paid within 30 days of it being due. A further 5% will be charged additionally at six months and 12 months if the payment has still not been made. So, you should make sure you are filing on time and paying on time whenever you can, which is something your accountant can help you with.

If you are unable to pay your tax for any reason, you should get in touch with your accountant and HMRC as soon as possible to work out a payment plan. Once this is in place, these penalties should not be applied. You may have a reasonable excuse, such as a close relative dying close to when the tax return was due, or that you were having to stay in hospital. If that is the case, then tell your accountant or HMRC directly to stop the penalties stacking up.

Failure to notify and inaccuracy penalties

If you fail to notify HMRC that you should be paying a specific tax, such as VAT for example if your business breaches the £90,000 VAT registration threshold, then you could face a ‘failure to notify’ penalty of between 0% and 100% of the tax owing.

You may also face a similarly applied inaccuracy penalty, but whether you will be charged at all will depend on whether HMRC feels your mistakes have been careless, deliberate, or deliberate and concealed.

Keeping good records and making sure you are on top of your administration is the best way to avoid these kinds of penalties. You should also keep in touch with your accountant if you have any problems that could see you miss filing deadlines or payments, as they will be able to help you.

We can help you meet your obligations

You should never leave your taxes to chance, especially if you feel you might do something wrong. So, please ask us for advice and we can explain everything you need to know.

Furnished Holiday Lettings tax rules set to change in 2025

The tax regime for Furnished Holiday Lettings (FHLs) is set to be abolished from April 6, 2025, with some key tax breaks being removed by the Chancellor in the Spring Budget on March 6 in a move which could raise as much as £300m extra in tax each year. The changes will make it much harder for individuals providing holiday lets to reclaim some of the key costs associated with their letting business, and could make it more difficult to make these types of lettings profitable.

Around 127,000 properties in the UK were reported as FHLs on the 2019/2020 tax returns, but the measure is designed to encourage those offering their properties for rent as FHLs to instead offer them for long-term rent. These measures could have the desired effect, or it could result in some of those landlords affected deciding to sell up instead as it is expected the regime would bring FHLs in line with the tax treatment of long-term rental properties, but the draft legislation surrounding this change hasn’t yet been announced.

Even so, experts predict the changes could make a big dent in an FHLs current profits. At present, interest on mortgages on FHL properties can be deducted from the rental income for individuals. From April 6, 2025, interest on mortgages for businesses operated by individuals could no longer be deducted if the regime is aligned with longer-term rental property. Instead, a 20% tax credit would be given against the owner’s tax liability, which for higher rate taxpayers will reduce the tax relief for interest to 20%, rather than 40%.

What else will change?

FHLs owned by individuals currently enjoy a lower capital gains tax on their sale as they are classified as trading assets which are subject to business asset disposal relief when they are sold. This means that where the FHL qualifies, with gains up to the lifetime limit of £1m, they would be taxed at 10%.

From April 6, 2025, the business asset disposal relief won’t be available on FHLs owned by individuals, so they will face CGT of 18% of profits in the standard rate band, or 24% for profits in the higher rate band once the property is sold.

Also, under the current regime, FHLs would qualify for CGT rollover relief if a “replacement qualifying asset” is bought with the proceeds of the sale. But this benefit will also be removed from April 6, 2025.

Are there other allowances that will be removed?

Other changes that allow the offset of running costs could also impact the profitability of FHLs. Under the current regime, any expenditure on an FHLs can get tax relief as capital allowances. This will also be removed from April 6, 2025, although there may still be a way of reclaiming the cost of replacing domestic items against profits. Landlords can claim tax relief for replacing broken furniture and other domestic items under the Replacement of Domestic Items Relief, but this doesn’t apply to furnishing a property at the start, only for items that need to be replaced.

Toby Tallon, Tax Partner at professional services and wealth management group Evelyn Partners, said: “For second homeowners who like to make extra money out of their holiday home by putting it on AirBnB while they are not using it, it will simply make this a less lucrative ‘side hustle’. If that is a make-or-break issue for them and they don’t want to be long-term private landlords, then we could see some of these properties being sold.

“Recent changes to other areas of tax have benefitted FHL owners, which may have influenced the Government in its decision to withdraw the benefits. FHLs qualified for capital allowances, so the full expensing change last year increased tax deductions available to owners. During the pandemic, FHLs that paid business rates became eligible for grants targeted at small businesses. The rules to qualify for business rates rather than council tax were tightened in 2023. For those registered for VAT, they were also eligible for the temporary reduced rate of VAT for hospitality businesses.”

None of these changes will apply to FHLs owned through a company structure, so these properties would not be affected. We will have to wait to see the draft legislation until we know exactly what the impact of the changes will be on individuals running FHLs.

We can help you

If you own an FHL and want to find out what your options are before the rules change, then please get in touch with us and we will be happy to help you.

Cryptocurrency gains must be reported on self-assessments

If you hold or invest in cryptocurrency, or even if your employer pays you in a cryptocurrency such as Bitcoin, you may need to declare this on your self-assessment form. For anyone who didn’t in the 2022/23 form which should have been filed before January 31, it would be wise to get advice quickly on how to amend this error.

HMRC has urged anyone with crypto assets to declare any income or gains above the tax-free allowance on their tax return and they should have already paid any tax due. If you haven’t, you should address this as soon as you can.

When would I pay tax on cryptocurrency?

Someone may need to pay tax on cryptocurrency if a person:

• Receives crypto assets from employment, if they’re held as part of a trade, or are involved in crypto-related activities that generate an income.
• Sells or exchanges crypto assets, including:
  • Selling crypto assets for money.
  • Exchanging one type of crypto asset for another.
  • Using crypto assets to make purchases.
  • Gifting crypto assets to another person.
  • Donating crypto assets to charity.

Source: Gov.uk

Myrtle Lloyd, HMRC’s Director General for Customer Services, said: “People sometimes forget that information about crypto-related income and gains needs to be included in their tax return. Some people affected may not have had to do a tax return before, so it is important people check.”

How are cryptocurrencies taxed?

The way cryptocurrency is taxed will depend on how you have acquired or sold them, or whether you have given them away. For example, to check if you need to pay capital gains tax (CGT) you need to consider how much gain you have made on each transaction. The way you calculate your gain is different if you sell your tokens within 30 days of buying them.

If you got your cryptocurrency for free, then you would need to work out the gain from the market value of the asset. CGT doesn’t need to be paid on the cryptocurrency if you have paid income tax on it, but if you have made gains after receiving it, you would still need to pay CGT on any gain arising afterwards. You can find out more about how your cryptocurrency is taxed on Gov.uk.

Although the value of cryptocurrency is very volatile, there is an event coming up in the next few weeks which in the past has resulted in Bitcoin increasing significantly in value. This event is known as the ‘halving’ which is when the reward for mining Bitcoins is cut in half. It has happened on average every four years, and results in a reduced rate at which Bitcoins are created which has in the past increased the price.

Bitcoin last halved on May 11, 2020, and the next halving is expected to happen around mid-April at the current rate of mining. If the price of Bitcoin goes up after the halving in April this time, then anyone holding Bitcoin before this may see a gain that they would need to include in the tax return.

We can help you meet your obligations

If you forgot to include cryptocurrency gains in your most recent tax return, or you want to find out more about how your cryptocurrency holdings might need to be declared to HMRC, then please get in touch with us and we can explain what you need to know.

End of tax year planning starts now – use up any allowances

Now is the time to start thinking about your end-of-year tax planning while there is still time to maximise the benefit of any allowances you haven’t used yet this tax year. The end of the current tax year is April 5, 2024, and there are various tax breaks you want to make the most of before that date.

However, there is another date to bear in mind too – March 6, which is when Chancellor Jeremy Hunt will deliver his Budget to the House of Commons. There is some expectation that he will announce tax cuts on this date, which is customary in a General Election year. The question is whether it will be possible with an economy that is currently in recession.

Even so, there are plenty of things you can already do to help yourself legitimately save tax without waiting on a politician’s promise, so read on to find out more.

Maximise your pension contributions

Pensions is one of the most advantageous areas to maximise your tax relief. Most of us can put as much as £60,000 into a pension in the 2023/24 tax year and get tax relief on the contributions. But the actual amount you can put in and receive tax relief on is determined by how much tax you will pay in this tax year. You can’t receive more in tax relief than the tax you have paid in a single tax year.

Anyone who is a 40% or 45% taxpayer may need to reclaim their pension tax relief above 20% – which is the basic rate of income tax relief – directly from HMRC via their self-assessment return. If you have made all of the contributions you can for this tax year, then you can look to add some more to your pension by using up unused allowances from previous tax years.

This is something called Carry Forward. You can go back three years to mop up unused pension tax relief, and you must have also used up all of your allowance in the current tax year before you use Carry Forward. You must also have been a member of a UK pension scheme – not just the State Pension – for each of the previous three years you want to carry forwards.

If you earn more than £260,000, then your annual allowance which qualifies for tax relief will be reduced by £1 for every £2 above this amount you earn. The taper stops at £360,000, giving everyone a minimum of at least £10,000 annual allowance.

To make sure you don’t fall foul of any HMRC rules, you should speak to your accountant before you make your pension contributions to ensure you maximise the benefits and limit any issues.

Use up your Capital Gains Tax and ISA allowances

Each of us has a Capital Gains Tax (CGT) allowance each tax year, which for the 2023/24 tax year is just £6,000 – down from £12,300 in the 2022/23 tax year – and it is expected to fall to £3,000 for the 2024/25 tax year, unless there is a change announced in the March 6 Budget.

This amount can be used to reduce the amount of tax on any investment you may have crystallised a gain on in the relevant tax year. For example, if you invested, say, £100,000 in a fund and you made £6,000 on the investment in this tax year, you could crystallise that return between now and April 5, and you would not pay any CGT on it as it is under the CGT allowance. This is assuming you haven’t crystallised other gains elsewhere.

Remember though, CGT applies to many types of investments, including property investments that are not your own home. So, any buy-to-let property that you sell would also face CGT if you had made a gain above the £6,000 for this tax year.

Any amount of gain over this threshold in a residential property investment that isn’t your home, is taxed at 18% and 28% respectively for basic rate and higher rate taxpayers. For other investments, the rates are 8% and 20%.

To remove the threat of CGT, you can make your investments through an Individual Savings Account (ISA). For this tax year, you have a limit of £20,000 that you can invest through an ISA, and if you haven’t used your full allowance yet, you still have time to top it up before April 5. Using an ISA means your investment is excluded from CGT and Income Tax charges, so there is a real benefit to using as much of your ISA allowance as you can each tax year.

What else should I consider before the end of the tax year?

There are various other things to consider before the end of the tax year, and your accountant is best placed to advise you on your specific financial position. But other things to consider include reclaiming any tax you may have overpaid in this tax year if, for example, you were made redundant or left a job for another reason, such as moving overseas.

A Pay-As-You-Earn (PAYE) tax basis means the amount of tax you are due to pay in a whole year will be split into 12 even payments. If you are employed for the full 12 months, then you will have paid the correct amount of tax.

However, if you are made redundant or leave your job before the 12 months is up, then you will have overpaid tax as you will have not earnt the full amount expected. Any statutory redundancy pay, up to £30,000, will be tax free. But if you have other types of payments as part of your termination pay, such as unpaid wages, holiday pay and so on, then this part may be subject to tax and National Insurance. If you need to reclaim overpaid tax, or you need advice after getting a payout from the company you are made redundant from, your accountant can help.

Contact us

If you are unsure about how to maximise your tax relief or you have questions about a redundancy payment, then please get in touch with us and we would be delighted to help you understand your tax position.

Rumours circulate over HMRC crackdown on eBay and Etsy sales

Rumours have been circulating online that HMRC is set to crack down on tax avoidance on sales of goods on the likes of eBay and Etsy, but the basic rules haven’t changed, and anyone who was trading on one of these sites should always have been declaring their earnings to the taxman.

What has changed is that from January 1, 2024, these sites are obliged to provide information to HMRC on sellers operating through the site before January 2025. So, if you have been using these sites to sell items and generating income that should have been taxed, you should get in touch with your accountant to find out what you need to do as soon as possible.

Confusion arises because many people will sell items they no longer want or need on eBay, for example, and in most of these cases there is no tax to be paid. But if you buy goods with the intention of selling them, or you make a capital gain on what you’re selling, then there could be tax to pay.

When would you need to pay tax?

In a useful update, HMRC has outlined the various scenarios that you may find yourself in if you are selling items on one of these sites, and when you would be most likely to need to pay tax. For example, if you are selling items that you own – perhaps because you are clearing out a shed or an attic – then this is likely to be a one-off activity, and you will most probably sell the items for the same or less than you bought them for. In this case, you wouldn’t need to pay tax.

However, let’s say you sold some unwanted clothes or other items you had in the house online to either raise money or simply reduce clutter in your home. You find that you are quite good at getting a good price for these items and decide to start buying items at car boot sales or elsewhere, and then sell them online for a profit. The original sale wouldn’t be considered trading, but the later sales would as you’re deliberately buying goods to sell. In this case, you could be liable to pay tax.

You would also be considered trading if you buy and then sell model cars – another HMRC example – or other items, or you import goods to sell online for a profit. You would even be trading if you make homemade gift cards that you sell online regularly with the intention of making a profit from them.

What other ways might you be liable to tax online?

There are other ways you might be selling that could leave you open to a tax charge. One would be if you are selling online services, such as teaching a language over Zoom or Teams, for instance, or if you generate revenue by offering other services online, such as proofreading. This may not be a service you offer through the likes of eBay or Etsy, but you would be liable to pay tax on income you generate from it just the same.

In fact, any online marketplace – which includes a website or a mobile phone app – would be considered as such by HMRC if any kind of transactional trading takes place on it. These online marketplaces will soon be generating copies of your transaction history that you can get hold of to check your liabilities yourself, but that will also be sent to HMRC directly under a wide-ranging set of internationally agreed guidelines. So, make sure you know if you are expected to pay tax on these transactions, and prepare for it accordingly so you don’t have any nasty surprises.

Are there any allowances?

One thing to consider is that there are certain allowances you might be able to benefit from if you are selling goods online. For example, if your total income from selling goods or services online was less than £1,000 before you take off any costs or expenses, then you wouldn’t need to tell HMRC about it or pay any tax on this.

This is because that amount comes under the Trading and Miscellaneous Income Allowance – which also gives you a £1,000 allowance for any property income under the same legislation. But if the amount you generate is above this, then you would need to inform HMRC and pay any tax due.

Remember though, you also have the Personal Allowance, which for the 2023/24 tax year is £12,570 per year. If you don’t have a full-time job, or you earn less than this across all the ways you generate income each year, then you would still have no tax to pay. But you must still register with HMRC and file a self-assessment return each year.

If you don’t know how to do this, or need to register and file a self-assessment return, you can find more information on Gov.uk

Contact us

If you are unsure whether any of your activities could generate a tax liability, then please get in touch with us and we would be delighted to help you understand your tax position.

Could you be better off by claiming Marriage Allowance?

HMRC is encouraging those who are either married or in a civil partnership to check whether they could be up to £252 a year better off by claiming Marriage Allowance. It has launched a Marriage Allowance Calculator to help those who are unsure double check what they might be due.

Couples could be eligible where one partner is working and the other has income of less than their personal allowance of £12,570, which would include those who have retired, are not working because they are caring for children or elderly relatives, can’t work because of a long-term health condition, have a part-time job, or are low paid.

Around 68% of people in their 60s are either married or in Civil Partnerships, the Government said, and may not realise they can claim the Marriage Allowance if one of them has retired while the other is still working.

Charlie Bethel, Chief Officer, UK Men’s Sheds, a charity which brings retired men together to meet at community workshops, said: “If you have retired and your partner is still working, you may not realise that you could apply for Marriage Allowance. As a charity that brings retired men together, we are urging our members throughout the UK to invest the 30 seconds of time it takes to find out if they can claim.”

How does it work?

Marriage Allowance gives couples the chance to reduce their tax liabilities by allowing the lower or non-earning spouse to reduce the amount of tax their partner or spouse pays. This is due to the way the Personal Allowance, which is normally £12,570, and is the amount that someone can earn before they need to begin paying tax, can be dealt with.

If the couple is eligible for Marriage Allowance, then the lower or non-earning spouse or partner can transfer £1,260 of their Personal Allowance to the higher earner in the partnership. This can reduce their tax liability by as much as £252 a year.

Even better, if the couple has been eligible but hasn’t previously claimed the Marriage Allowance, then they can backdate their claim for the previous four tax year and receive a lump-sum payment of more than £1,000.

How to find out if you’re eligible

HMRC is currently promoting its Marriage Allowance Calculator, which will allow you to find out if you are eligible for the allowance or not.

Angela MacDonald, HMRC’s Deputy Chief Executive and Second Permanent Secretary, said: “The Marriage Allowance calculator helps couples to find out in seconds how much they stand to benefit. Check today and claim right away. It’s a quick and easy process that’s worth up to £252 a year.”

To benefit from the tax relief, one partner must have income less than £12,570 and the higher earning partner’s income must be between £12,571 and £50,270 or £43,662 in Scotland. HMRC has produced a YouTube video to explain who is eligible and how to apply called Marriage Allowance – who is eligible and how to apply which gives more information.

We can help you meet your obligations

Marriage Allowance is one tax benefit you might be eligible for, but there could be others. If you want to be sure you are claiming everything you can, then please get in touch and we will explain what you need to know.

Self-assessment deadline is looming again

The start of the year is always the time when anyone who needs to file a self-assessment return should get their skates on if they haven’t filed yet. The deadline for filing your self-assessment is January 31, and anyone not hitting the target could be setting themselves up for a fine and possible interest payments on any tax that is owed.

It may come as a surprise that a considerable number of people choose to deal with their tax return over the Christmas period. HMRC said that last year 22,000 people filed their tax return over Christmas, with 3,725 filing on Christmas Day itself. But whenever you choose to file your return, you should make sure you are claiming all the allowances you are entitled to, so you keep your tax bill to a minimum.

Reclaim tax relief on pension contributions

One of the reliefs that often gets forgotten is the tax relief on pension contributions. How much you can or need to claim will vary depending on your personal tax position, and how your pension tax relief is dealt with by your employer or pension provider.

Anyone who is a 20% taxpayer and is paid through PAYE will usually have the pension tax relief claimed on their behalf through the company pension scheme at source. But if you are a 40% or 45% taxpayer, you will need to find out whether your company scheme claims these additional reliefs for you, or whether this needs to be done via your self-assessment.

Typically, the additional 20% or 25% relief is the part that you may need to include on your self-assessment return. If you work for yourself as a sole trader or within a partnership, then you will need to claim all your pension tax relief on your return.

Tax relief on charitable donations

If you like to give money to good causes over the year, then you may have tax relief you can reclaim on the donations you have made. Any donation made through Gift Aid will ensure that the charity will receive the 20% tax relief directly. But again, if you are a 40% or 45% taxpayer, you can reclaim the difference on your self-assessment.

Once you get this rebate, which will be for the full gross value of the donation you made, you can decide whether you want to give it to the charity or not. This applies for both regular, and one-off donations, so keep any details of single donations you have made throughout the year too.

You can claim for donations for the entire tax year and up to the date you file your tax return. This means if you file on the last day, you can claim for donations made from April 6, 2022, to January 31, 2024.

Claim for any work-related expenses

If you are someone who pays their tax through PAYE, that doesn’t mean you can’t file a return, and if you pay for some of your work-related expenses out of their own pocket, then it is a sensible thing to do.

You can reclaim tax rebates on various items solely used for work, which could include memberships of professional associations, reading materials, or even clothing that you need to have for work but is paid for by you. These costs can add up, so it is wise to claim for these items if you can.

We can help you

If you want to find out what you can claim on your self-assessment, and make sure you’re complying with all the relevant tax legislation, then please get in touch with us and we will be happy to help you.

NICs changes to start from January 6

Just a quick reminder that the reduction of Class 1 National Insurance Contributions (NICs) will begin on January 6, 2024. From this date, the amount paid on Class 1 NICs will fall from 12% to 10%. This is the main rate of NICs paid by employees through PAYE.

The change was part of a range of measures announced by Chancellor Jeremy Hunt as part of the Autumn Statement in November, which included cuts to other forms of NICs including a reduction of Class 4 NICs for the self-employed from 9% to 8% from April 6, 2024, and the removal of the requirement to pay Class 2 NICs from the same date. The Government will ensure that contributory benefits, such as the State Pension, will be maintained.

Class 2 NICs can still be paid voluntarily

There is one group of people who pay Class 2 NICs on earnings below £6,725 so they can access the contributory benefits, and these people will still be able to make these payments voluntarily.

The Government claims these combined measures will cut tax for around 29m people in the 2024/25 tax year, giving the average employee on £35,400 more than £450 extra in their pocket, and saving the average self-employed person on £28,200 an extra £350. But the impact on individual taxpayers will vary, and this doesn’t take into account any other measures that affect how much tax each of us pays, such as ‘fiscal drag’ where tax thresholds fail to rise significantly and result in higher tax payments as wages increase.

Let us help you

If you want to know what you can expect personally in relation to these changes, then please get in touch and we will be happy to offer you the help and guidance you need.

Don’t miss the October 5 deadline to register for self-assessment

Anyone who has become self-employed, was in a business partnership, earned more than £100,000 or had to pay the High-Income Benefit Charge this year has until October 5 to speak to HMRC to register for self-assessment.

Millions of people each year need to do a self-assessment, and this includes anyone earning money outside of their PAYE job, including commission or tips, or you earn income from renting out a property.

What if I need to claim tax relief?

If you need to claim tax relief on anything, such as items you pay for out of your own pocket which are solely used for your PAYE employment, then you would also need to sign up for self-assessment. You may be due a tax rebate too if you have been made redundant, as you may not have been paid as much as expected across the whole year.

Other tax reliefs might come from Gift Aid donations you have made to charity, or reclaiming the additional tax relief on your pension contributions if you are a 40% or 45% taxpayer.

You can also claim tax relief on maintenance payments if you have to make them to your ex-spouse or civil partner, although this would only apply if one of you was born before April 6, 1935.

Check if you need to make a self-assessment payment by visiting the Gov.uk website.

Can I be fined if I miss this deadline?

If you fail to notify HMRC before the October 5 deadline, then you could face a penalty. If you fail to register and file your return before January 31 of the year following the tax year when the amount was due, you could face another.

The best thing to do is act now and check if you need to file a self-assessment. If so, then get your skates on and register before October 5. If you can’t, then do it as soon as you can afterwards and check if any penalties will apply.

We can help you meet your obligations

If you think you may have a self-assessment liability for 2023/24, then please get in touch and we will make sure you get everything you need in place.

Deed of assignments won’t be treated as nominations for income tax

The ability to legally assign an income tax repayment, or the right to an income tax repayment, to a third party has been removed by HMRC from March 15 this year, meaning any repayment will remain the legal property of the taxpayer in question.

The change affects those who may have used a business, an accountancy firm, or a tax agent to facilitate their access to a repayment, along with any company involved in helping individuals in this way.

Why has this happened?

HMRC has made this ruling in a bid to protect taxpayers from unscrupulous operators in this sector, and to make the tax rebate system fairer and simpler for all. The Government wants to maintain trust in the sector, and to ensure that when taxpayers are entitled to claim a tax repayment, they can do so “easily and freely”.

There have also been some concerns around consumer protection issues in the “repayment agent” market, according to Gov.uk.

What are people being protected from?

There are contracts that many repayment agents ask their clients to sign which transfer the legal entitlement to the income tax repayment to them. What many people don’t understand is that to revoke this assignment, both parties must agree – it cannot be done by one side alone. Under these contracts, rogue agents can charge excessive fees to their clients and at times the client won’t benefit from other payments that they may not be aware of.

The bottom line is that you should either make the income tax repayment yourself, or work with an accountant you know and trust. In any case, at the very least, you should make sure you understand the implications of any piece of paper you’re signing.

We can help you meet your obligations

If you think you are due an income tax rebate, then we are happy to help advise you on the best way to get this sorted.

Pension tax overpayments – £56m returned in Q2 2023 alone, so here’s how to claim

People making the most of flexible pension withdrawals have been facing tax overpayments due to miscalculations by HMRC. In Q2 2023 alone, the taxman repaid £56,243,842 to people who had been taxed more that they should on their pension withdrawals. This amounts to an average of £3,551 per person.

The figure is up nearly £8m on the amount overpaid in the first quarter of the year and is nearly double the £33.7m collected in the same period last year. As the cost-of-living crisis continues to wreak havoc on people’s wallets, this is money that would be better being with the people who need it most.

How do you know if you have overpaid?

The people affected by the tax overpayment are those who are starting to access their pension, and it is because of an oddity within the PAYE system, according to Jon Greer, head of retirement policy at Quilter.

He added: “This emergency tax situation can be particularly frustrating for people trying to access their funds quickly. It arises due to an oddity within the PAYE system when people start to take money from their pension as they are not taxed using the correct tax code.”

The problem with emergency tax codes is that you will often end up being charged more in tax than you should be, so reclaiming the overpayment is essential. To do this you would need to use form P55 if you have flexibly accessed part of your pension, form P50Z if you have emptied your pension pot, or P53Z if you have received a serious ill-health lump sum or have accessed your pension while you are still working or receiving benefits.

However, you should always check the tax code that is being applied to any income you receive to make sure you are not paying too much tax.

How many people are reclaiming tax?

It seems plenty of people are putting in their tax claims to make sure they are getting the money they are due. For example, just in Q2 2023, HMRC said it has processed 11,232 P55 forms, 2,987 P53Z forms, and 1,620 P50Z forms, suggesting people are accessing their pensions more readily to help cope with the cost-of-living crisis.

Even though inflation has dropped slightly in the last month, wage growth means we could see additional base rate rises implemented by the Bank of England before the end of the year, according to some experts.

Flexible pension access is a way of increasing your income

If you are over 55 and want to access your pension – the minimum age can depend on the scheme rules for your employer or the insurance company that provides your pension plan – then you can begin to make withdrawals.

The first 25% of your pension can be taken tax-free, and this is easy to calculate if you take your pension pot as whole. But if you choose to take your pension out in a flexible way – which means taking a bit at a time – then you will need to pay the relevant amount of tax on that income.

It becomes more complicated if you are still working and have additional income to take into consideration for tax. This is where the tax overpayments are typically happening. One way around this is to work with a tax professional who can help make sure your tax code is correct, and that you are not going to be paying more than you need to the taxman.

This helps to reduce the risk of overpaying your tax in the first place, allowing you to keep the money in your pocket rather than having to wait for the taxman to give it back to you, which can take some time.

Contact us

If you are considering accessing your pension soon, or you have already accessed it but don’t know whether your tax code is correct, then please get in touch and we will check that you are not overpaying tax or that you have any tax rebates due from HMRC.

New tax regime for sole traders and partnerships starts

HMRC is changing the way sole traders and partnerships need to calculate profits for their self-assessment returns. The Revenue will require the profits to be declared for the tax year in question, rather than the accounting year as is currently the case.

Any sole traders or partnerships with an accounting year ending at any point other than March 31 or April 5 will be affected by these changes and will need to amend the way they calculate and pay the tax due on their profits. These changes are not influenced by delays to the Making Tax Digital regime.

What do the changes mean?

This tax year – 2023/24 – is a transition year, so sole trader and partnership businesses must declare their profits for two accounting periods – their existing accounting period and any additional time that would take their trading activity to the end of the tax year.

HMRC states: “Businesses will need to declare the total profits from the end of the last accounting date in tax year 2022 to 2023 up to and including April 5, 2024. This means that profits generated over a longer period will be taxable in the transition year.”

However, from April 2024 to 2025 and any future years, the amount of profit made in each of the relevant periods where the accounting period may straddle the tax year will need to be allocated correctly.

Sounds complicated, how does it work?

It may be complicated initially while businesses get used to working out their profits and tax in a new way, but HMRC is working on an online form to make the returns easier. For now, sole traders and partnerships should rely on their accountant to help if they are unsure what to do.

Take an example – if your accounting date is December 31, 2023, then as a sole trader or partnership you need to declare profits from January 1, 2023, to April 5, 2024. This will give you a period for this return of 15 months rather than the usual 12 for the 2023/24 tax year. This must be filed and any tax due paid on or before January 31, 2025.

Some businesses may need to use provisional figures for this period, and they would have the usual amount of time to amend these to final figures on their tax return.

One benefit businesses will have if they need to make this change in the 2022/23 tax year is the ability to use any overlap relief due. Some may change their accounting dates to coincide with the tax year to make life easier. If this is done in the 2023/24 tax year, then the current change of accounting rules will apply.

HMRC stated: “In tax year 2023 to 2024, businesses can use any overlap relief resulting from overlap profit when the business first started. By default, any remaining additional profit can be spread over five years.”

If a business changes their accounting date from 2023/24 onwards, then these rules won’t apply. Also, any future changes can be made no matter what changes have been made in the past.

Get previous overlap relief figures from HMRC

HMRC should be able to provide you with overlap relief figures for any accounting date changes in the 2021/22 tax if you request them, provided they are recorded on its systems.

More staff are currently being trained to deal with these overlap relief queries and eventually HMRC will have a specific form to use to make these overlap relief requests more streamlined. In the meantime, if you want to get overlap relief data, HMRC is asking you to provide as much information as possible from the following list:

• Taxpayer name.
• National Insurance number or Unique Taxpayer Reference.
• Name and description of business.
• Whether the business is self-employment or part of a partnership.
• If the business is part of a partnership, the partnership’s Unique Taxpayer Reference.
• Date of commencement of the self-employment business, or date of commencement as a partner in partnership.
• The most recent period of account or basis period the business used.

Those sole traders or partnerships looking to change accounting dates in 2022/23 and 2023/24 will need to wait for additional information on the “provision of overlap relief figures for these tax years” said HMRC.

There is some additional background information in the ‘Basis period reform’ policy paper.

Contact us

These changes may create additional complications for your business in the short term, and you need to be sure you’re keeping on top of what you need to file to HMRC, and by when. If you need assistance with this, please just get in touch with us and we will support you.

Self-assessment thresholds change for PAYE workers

The threshold for people taxed through PAYE who are required to file a self-assessment return has increased from £100,000 to £150,000. Those affected should be contacted by HMRC if they need to change anything. That said, there have been times in the past where HMRC hasn’t always been spot on with its own paperwork, so you would be wise to keep on top of this yourself if you think this could be an issue for you.

The threshold rises for this tax year, 2023/24, so those filing returns for 2022/23 will still have to file self-assessments if they earn £100,000 or more. If they have income between £100,000 and £150,000 that is taxed through PAYE in their 2022/23 return, HMRC will send a Self-Assessment exit letter. Then those earning above £150,000 through PAYE would need to continue filing self-assessment returns until their position changes. The exception to this would be if those earning below the £150,000 mark meet any of the other criteria which would require them – or would benefit them – to file a self-assessment return.

Why would you still file a return for income below £150k?

If your income is taxed under PAYE for the 2023/24 tax year, and is below £150,000, then you would not need to file a self-assessment return, unless you are also:

• In receipt of any other untaxed income.
• A partner in a business partnership.
• Have a tax liability to the High-Income Child Benefit Charge.
• Or you are a self-employed individual and with gross income of over £1,000.

You can also find out online via Gov.uk if there are any other circumstances under which you would need to send a Self Assessment tax return.

What if I need to reclaim some allowances?

Self-assessment isn’t all about paying tax. If you have some items you need to reclaim tax relief on, then filing a self-assessment return would be the way to do this. There is no reason for you to pay tax unnecessarily, so make ensure you’re claiming any income tax reliefs due.

These could include items you need to buy out of your own pocket to do your PAYE job that are not reimbursed via expenses, such as membership of professional associations, courses that provide continuing professional development, work uniforms that aren’t supplied by your employer, or textbooks you need for your work. You may also need to pay for professional indemnity insurance to cover your work.

Is there anything else I would need to claim for?

If you are a 40% or 45% taxpayer, then any pension contributions you make may only be given tax relief at source of 20% – the basic rate of tax. It will depend on the scheme you are paying into, but many people will need to reclaim the additional 20-25% tax relief due on your pension contributions if your marginal rate of tax is higher than the basic rate.

You can also reclaim additional tax relief on charity contributions, maintenance payments and for any time you have spent working on a ship.

There are various rules to comply with to get maintenance payments relief, but the main one is that you or the person you are paying maintenance payments to must be born before April 6, 1935. So, there are likely to be fewer of these people qualifying as each year passes.

If you think there are any payments you should be able to get tax relief on, then speak to HMRC directly or to your accountant who will help you navigate the self-assessment maze.

We can help you

If you need help to determine whether you should file a self-assessment return to pay additional tax owing or to reclaim tax relief, then please get in touch with us and we can help you understand what you need to do.

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.