HMRC update income tax forms for new tax year changes

Released 06 April 2019

HMRC have updated income tax forms to reflect the new tax year changes.

View the updated forms and guidance at Collection: Income Tax forms.

Source: Accountancy Daily.

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700,000 taxpayers miss self assessment deadline

A record 93.68% of self assessment tax returns were completed by yesterday’s midnight deadline, with 700,000 taxpayers filing last night, according to HMRC

More than 11.5 million taxpayers were required to file their 2017/18 tax returns by 11.59pm on 31 January. The majority filed on time, but 700,000 taxpayers missed the deadline.

More than 700,000 taxpayers submitted their tax returns on deadline day, the peak hour for filing was 4pm to 5pm when 60,000 filed. The number of taxpayers who filed online soared to more than 10.1 million for the first time.

However, it is important to note that it is possible to dispute automatic penalties, at least a million of which are issued by HMRC.

The Low Incomes Tax Reform Group (LITRG) is reminding people of their right, in certain circumstances, to contest penalties given by HMRC for missing the self assessment tax return deadline of 31 January 2019.

HMRC issued one million late filing penalties issued for tax returns due for the 2015/16 tax year, the latest year’s numbers that are available.

It is possible to avoid a fine as long as the taxpayer has a so-called ‘reasonable excuse’ in the eyes of HMRC.

For example, if someone’s child was taken seriously ill just before they were due to submit a tax return, then that is likely to be a reasonable excuse for filing it late. But they would then have to submit the form as soon as possible after the situation was resolved.

Angela MacDonald, HMRC’s director general for customer services, said: ‘This year, we had a record numbers of filers completing their tax returns by the deadline. And for any customers who are yet to file their returns, please contact HMRC – we are here to help.’

HMRC is urging any taxpayer that missed the deadline to contact the tax authority. HMRC says it will treat those with genuine excuses leniently, as it focuses penalties on those who persistently fail to complete their tax returns and deliberate tax evaders.

The excuse must be genuine and HMRC may ask for evidence.

Challenging penalties

Head of LITRG team Victoria Todd said: ‘Most taxpayers will want to do everything they can to file their tax return to HMRC on time, however, sometimes that may not be possible and HMRC will automatically issue a late-filing penalty.
‘Where someone thinks they have a reasonable excuse for having missed the deadline, they must provide details and, where possible, evidence in support of those details to HMRC. It may be that a combination of reasons, rather than any one thing, may constitute a reasonable excuse to HMRC.

‘It is up to the taxpayer to appeal a penalty if they wish to claim they have a reasonable excuse. If HMRC agree with the appeal the penalty will be removed, however if they don’t, it is possible to challenge HMRC’s decision as HMRC do not have the final word on whether or not an excuse is reasonable; that question is ultimately for the courts to decide. If someone is unable to agree with HMRC, they can ask HMRC to review the decision and/or appeal to the First-tier Tribunal.

‘If someone claims a reasonable excuse, they must comply with the obligation in question without further delay, for example, submit a late tax return as soon as possible. This is because the law on reasonable excuse requires people to remedy a default within a reasonable time after the excuse has ended.’

Source: Accountancy Daily - Report by Amy Austin, Sara White.

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Two-tier Making Tax Digital penalty regime confirmed

The penalty system for Making Tax Digital will kick in within 15 days of an overdue payment and will be a two-tier system, the government has confirmed in the draft Finance Bill 2018-19, although there will be an initial grace period for late filers

The government has admitted that there were numerous complaints in the consultation responses stating that the system for Making Tax Digital penalties was overly complicated with effectively a two-tier system, but it will go ahead regardless.

HMRC has confirmed that the penalties for failure to keep digital records will come into force immediately from April 2019, while there will be a grace period for those who file late. Penalties for late filing will come into force in April 2020.

Making Tax Digital for VAT reporting for business is due to come into force from April 2019, although the wider project for corporation tax and property tax has been delayed until at least 2020-21.

Penalties will be calculated on debts remaining due after 15 days from the payment due date although on a mitigated basis where payment is made or a Time to Pay arrangements (TTP) has been set up until 30 days after the due date.

Where a successful TTP agreement is made, the government will take the date of contact with HMRC as the effective date for the purpose of late payment penalties.

The government intends to introduce the late payment penalties based upon the two charge model consulted on as it believes that a two charge system is fairer to the vast majority who comply with payment dates and prompts better compliance behaviours for the small minority who do not in a proportionate manner:

It says that the system will encourage taxpayers to get in touch earlier with HMRC when they have payment problems and will directly link the penalty to the amount of time a debt is outstanding.

Two-charge model

Two charge model will work as follows:

- If a payment or TTP is made or treated as made within 15 days of the due date no penalty will be charged;
- Between 16 and 30 days half a penalty will be charged;
- After 30 days a full penalty will be charged plus a further penalty which will then accrue daily until payment is made or a TTP treated as made.

VAT repayment interest

Some specific concerns were raised about VAT repayment interest not being paid where there are missing returns or for periods of reasonable enquiry.

In response, the government has decided that where a repayment return is received and there are other outstanding returns HMRC will pay interest from the date any outstanding returns are submitted, subject to reasonable enquiry.

The government rejected concerns about using differential rates for corporation tax Quarterly Instalment Payments (QIPS), stating that only those paying corporation tax have to estimate their current year’s tax liability before the year is finalised and make payments based on those estimations.

Once the payment date for the year, nine months and one day after the end of the accounting period has elapsed, the usual rates apply. As a result, there will be no change to the current interest rate differential for QIPS, the government confirmed.

Source: Accountancy Daily - Report by Sara White.

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Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…

Buy-To-Let, Another Twist On Company Ownership

You’re considering getting into the buy-to-let market. You’ve read that because of changes to the rules in April 2016 it is now more tax efficient to buy the property through a company. Is this correct?

Landlords Under Attack

The Chancellor has made no secret of his intention to increase tax on profits & capital gains made by landlords in the buy-to-let market. However, not all the changes which affect individuals apply to companies. This has fuelled the long running debate over whether or not residential buy-to-let properties should in future be bought personally or through a company.

What Are The Changes?

Since 2015 three major changes have been announced which affect the taxation of residential rental properties:

* The restriction of higher rate tax relief on loans & finance costs for individuals. This will be phased in from 6 April 2017. Companies aren’t affected.

* A 3% stamp duty land tax (SDLT) (LBTT in Scotland) surcharge applies from March 2016 to purchases of residential property by companies &, if it is their second or subsequent residential property, to individuals.

* Exclusion from the general reduction in capital gains tax (CGT) rates by 8% for gains made after 5 April 2016. This does not affect companies who are liable to corporation tax on gains.

Corporate Advantage?

As you can see the changes don’t hit companies as hard as individuals. Companies also have another advantage over individuals. When they sell a property & make a gain they are entitled to reduce the amount liable to tax to take account of inflation. This is known as indexation. On the other hand, getting the rental profits & gains out of a company triggers personal tax liabilities which can significantly reduce the amount you actually end up with.

A Guessing Game

Personal or company ownership is a tax conundrum which experts have been arguing about for a long time. This is because there are so many factors involved, any one of which can sway the outcome one way or the other. To name just a few:

* the rate of increase in property values

* inflation

* the rate of interest on money borrowed to buy the property

* how much other income you have?

In order to assess the consequences, you’ll have to predict each of these factors & more for the whole period you expect to own the property.

Conclusion:

Notwithstanding the above, one factor which might be a game changer is that since 6 April 2016 it’s been possible to extract property rental income & gains from a company at zero tax cost. By extracting money from the company as dividends of £5,000 per year or less, the tax cost will be zero. What’s more, if you’re buying a property with your spouse, unmarried partner or children (aged 18 plus), they too can share in the income & gains from the property rental company at zero tax cost.

The changes don’t automatically make company ownership a better option. However, a change in the general income tax rules from 6 April 2016 means that you & the other property owners can take up to £5,000 per year of income or gains tax free. This could tilt the balance in favour of company ownership.

For more information on the Tax services we provide, please visit our Tax Compliance services page here.

If you require more detailed information on these proposed changes & the potential impact it could have on you, then please contact us & we’ll be happy to help… Our client’s vouch for our service & we invite you to look at reviews from some of our customers on our website here, together with our featured page on ‘The Best of Thetford’ website.

Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…

Residential Property Income Tax Changes

Individuals who let residential property face a number of changes to their tax position in the next few years.

The Changes

Currently, letting residential property (even by individuals) is treated as a ‘property business’ for the purposes of calculating the taxable profit. Therefore, using normal business tax rules, interest paid on a loan to finance the purchase of a property which is subsequently let can be deducted 100% from the rental income received within the property business. For individuals who are landlords, the Government has decided to change this longstanding rule. In future, instead of deducting the interest from the letting profit before that profit is taxed, the individual will only be allowed an income tax deduction at the basic rate (20%) on the interest paid.

The Details

This is a major change for landlords, & the Government has stated that it does not wish to cause substantial short term disruption to the private rentals market. Therefore, the change will be phased in from the 2017/18 tax year, with transitional rules until 2020/21.

During the transitional years, the amount of the tax deduction from rents will reduce and the proportion of loan interest that will only qualify for basic rate tax relief will increase. In these transitional year’s landlords will be able to claim the following relief:

* 2017/18 - 75% of the interest against rents, 25% basic rate tax relief

* 2018/19 - 50% of the interest against rents, 50% basic rate tax relief

* 2019/20 - 25% of the interest against rents, 75% basic rate tax relief

However, any unrelieved interest can be carried forward to future tax years. HMRC have confirmed that the changes will have no effect where a property meets all the criteria to be a furnished holiday let.

What Are the Implications?

The change will likely affect higher & additional rate taxpayers who let out highly geared residential properties. Additionally, there are currently no proposals to change the eligibility criteria for tax relief on letting related borrowing. For example, it should still be possible to release equity on a buy to-let property by increasing the mortgage secured on it & still claim relief for all of the interest (albeit eventually only at the basic rate tax relief of 20%).

Individuals who currently pay tax at 40% or 45% on letting profits will pay more tax as a result of this change, although the increases planned for personal allowances & the basic rate band up to 2020 will help to mitigate the impact slightly. Landlords will need to consider these tax changes carefully when setting rent levels in future.

What Options Are Available to Mitigate the Tax Changes?

Ownership through a limited company could be a favourable option for some as the changes will have no direct impact on those who own & let residential properties through this method. Companies will continue to deduct loan interest as a business expense & get effective tax relief at up to 20% (although this will fall in future as the rate of corporation tax falls). However, by 2020, this change will remove the interest relief disincentive to holding buy-to-let properties through a company. Similarly, the ability to take income flexibly in the form of dividends will be more attractive to landlords who might otherwise lose their personal allowance. Of course, the effective rate of tax on dividend income has changed from 6 April 2016. Those taking low levels of dividends may suffer a lower effective rate because of the new £5,000 allowance, but those taking higher dividends may pay more as the rate of tax on dividends rises.

Conclusion:

As there are many issues to consider, deciding on the most tax efficient way to hold buy-to-let properties is not straightforward. The best option will depend on individual circumstances & long term objectives. Incorporation of an existing property letting business may not be practicable in many cases, including where this would result in a large stamp duty land tax liability.

For more information on the Tax services we provide, please visit our Tax Compliance services page here.

If you require more detailed information on these proposed changes & the potential impact it could have on you, then please contact us & we’ll be happy to help… Our client’s vouch for our service & we invite you to look at reviews from some of our customers on our website here, together with our featured page on ‘The Best of Thetford’ website.

Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…

Budget 2015 – Small Firms Facing Tax Shake-Up

On 8 July 2015, The Chancellor delivered his budget to Parliament. Like all budgets there are ‘Winners & Losers’ but this Budget in particular has provided plenty ‘food for thought’ amongst accountants as we look at ways of minimising the impact to our clients.

Our main focus in this blog is regarding the impact the Budget will have on small firms & the shake-up within the taxation rules associated with it.

As such, one of the main advantages of incorporation was to reduce tax but the tipping point at which incorporation starts to deliver significant tax savings has clearly gone up. It looks as if incorporation at earnings even as high as £30,000 will now deliver a very marginal benefit.

Thinking of this in broad terms, the advantage of incorporation has been that much of the income could be received as a tax-free dividend. Of that £30,000, something like £20,000 could be taken as dividend (using the personal allowance to cover salary).

From the 6 April 2016 that £20,000 will create additional income tax of £1,125 (£15,000 x 7.5%) - Each taxpayer will receive a £5,000 tax free Dividend Allowance, hence the reduction to £15,000. That is a significant increase whereas, broadly speaking, the self-employed will see little change. Additional tax at that level would make incorporation much less attractive.

With the tax benefits of incorporating being reduced (& I expect them to be further reduced in the coming years) there is a lot to be said for them to remain as self-employed. Also it’s worth mentioning here that for self-employed people the view to incorporate generally reduced the need for payments on account upon cessation of their trade for the following tax year & as such provided those with a tax break period upon incorporation. With Dividend income to be taxed from 6 April 2016 this could potentially throw another spanner in the works for those considering incorporation at this time!

For those who are already incorporated, there will be different considerations. Some will be happy to operate in corporate form but others may start to wonder whether it is time to disincorporate.

So what do we say to clients about these changes & the further ones that are almost certain to come?

The first thing is to remind clients that the dividend tax does not come into effect until next year, so there is nothing to do immediately. For clients who are considering incorporation, it might be best to put any plans on hold until the position is clearer.

This is certainly the case if the benefits are only marginal or if there are concerns about the additional complexity. Clients will be forewarned that next year’s tax is likely to be higher than this year’s, despite all the talk of tax cuts in the Budget.

For those with significant income, where the dividend tax will make a big difference, we will start thinking about timing of dividend payments next spring to ascertain if more tax-efficient.

HMRC can be expected to look closely at the timing of dividends paid in March and April next year, so getting the paperwork right will be essential.

Our client’s will be receiving detailed information on how the Budget changes will affect them & advice also on how to tackle them as each case will differ dependant on their circumstance.

For more information on the Taxation services we provide, please visit our Tax Compliance services page.

If you require more detailed information on the Budget & the potential impact it could have on both you & your business then please contact us & we’ll be happy to help… Our client’s vouch for our service & we invite you to look at reviews from some of our customers here.

Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…

Claiming a Tax Refund on Pension Withdrawals

If an individual withdraws a lump sum from a defined pension contribution pot using the new pension rules (effective from 6 April 2015), they could find that they don’t end up with as much cash in their pockets as they expect.

This happens when the pension provider doesn’t hold a P45 or current tax code for that person. HMRC guidance advises that the pension provider will have to deduct income tax from the pension payment at the emergency tax rate (i.e. Month 1). This means that any income received from the individuals pension pot will be taxed by reference to 1/12 of the personal allowance, 1/12 of the basic rate band & so on…

However if the scenario above applies to you, there are ways of obtaining an early income tax refund. How the tax is reclaimed really depends on your personal circumstances. There are a number of new forms to claim an income tax refund where you may have been taxed at the emergency rate:

  • Form P50Z – If an individual has chosen to empty all their pension pot in one go & they have no other PAYE or pension income (other than state pension).
  • Form P53Z – If an individual has chosen to empty all their pension pot in one go & they do have other PAYE or pension income other than state pension.
  • Form P55 – Where an individual has taken a lump sum payment which doesn’t use up all of their pension pot, they have only taken a single payment & don’t intend to take further payments in that tax year.

For more information on the above &/or if you require assistance with obtaining an income tax refund for income tax you’ve overpaid on your pension withdrawal, please contact us & we’ll be happy to help…

Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…

Class 2 NI Changed From April 2015

In prior years, once the tax return season is over, your accountant may have turned their attention to completing a deferment application for next year’s Class 2 NI if your earnings were likely to be below the small earning threshold or with both self-employed & employed income.

However, in the case of our client’s we won’t need to complete these for 2015/16 as there has been a change in the way Class 2 NI is paid.

From 6 April 2015 Class 2 NI, like Class 4, will be payable with income tax through your self-assessment tax return. Therefore, any Class 2 NI calculated for the 2015/16 tax year will be due by 31 January 2017. For client’s with small earnings, Class 2 NI will only be due on that date if their profits are above the small profits threshold (previously small earnings limit). This has been set at £5,965 for the tax year 2015/16.

As Class 2 NI counts towards the state pension (& some other state benefits such as maternity allowance), it would still be advisable for people with profits below the small profits threshold, & not having any employment income, to take up the option of making voluntary Class 2 NI payments. This point assumes that those reaching state pension age on or after 6 April 2016 haven’t already reached the 35 years’ contributions needed to earn the maximum new flat-rate state pension.

Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…