December, 2010

Warning: Missing The Tax Return Deadline Could Cost You


Do you submit your tax return online?

If you do, you should remember that the online deadline for submitting your tax return for the previous tax year (6 April one year to 5th April the next) is 31st January.  If you fail to meet this deadline, you can face significant penalties from HM Revenue and Customs (HMRC).

Do you have to submit a tax return?

If you have to complete a tax return, you will be contacted by HMRC just after the end of the tax year.  There are various reasons you may have to submit a tax return; for example you have completed a tax return before or because your circumstances have changed.

If you send your return on paper, HMRC will send you a paper tax return to complete. If you send your return online, you will receive a letter instead (called a ‘Notice to File’).

The deadlines for sending in your tax return

If you submit your tax return by completing a paper form, it must reach HMRC by midnight on 31 October.

However, if you send your tax return online, it must reach HMRC by midnight on 31 January.

The deadline is only later than 31 January if you received the ‘Notice to File’ after 31 October.  In this situation you will have three months from the date you receive the notice to send your return online.

If you send in your tax return online, you will get an on-screen acknowledgment once HMRC have received your return.

Penalties if you miss the tax return deadline

If you submit your tax return online after the 31 January deadline (or after the later deadline if you received your Notice to File after 31 October) you will face an automatic penalty of £100.

If you are late submitting a Partnership Tax Return, there will be a £100 penalty for each partner.

When you may not pay a penalty

If you have a reasonable excuse for missing the 31 January deadline then you may not have to pay the penalty.  Whilst there are no specific rules on what constitutes a ‘reasonable excuse’ some examples of what may be considered reasonable are:

  • A life-threatening illness
  • The death of a partner shortly before the deadline
  • Documents being lost through fire or flood
  • Problems with the online filing system

Don’t wait until you receive the penalty to query it.  If there is a problem, get in touch with HMRC immediately and explain why your return missed the deadline.


7 Things You Should Know About Giving Your Home To Your Children

Do you want to gift your home to your children?

You are permitted to give your home to your children (or another beneficiary) at any time – even if you live in it.  However, if your home and your estate are worth more than the Inheritance Tax threshold (£325,000 in tax year 2010/11) there may well be tax implications.

Our guide outlines seven things you should know when considering giving your home to your children.

Seven-year rule

Giving your home away is treated (for Inheritance Tax purposes) as ‘making a gift’.  When passing on property, there are two things that you should be aware of.  The first is the ‘seven year rule’.

You can make an outright gift of your home to someone, irrespective of its value, and it will be exempt from Inheritance Tax if you live for seven years after making the gift.  This is known as a ‘potentially exempt transfer’ (PET).

Gifts that you continue to benefit from

The second important thing to be aware of is the idea of a ‘gift with reservation of benefit’.

If you give your home to your children with conditions attached to it, or if you continue to benefit from the home yourself, this is known as a ‘gift with reservation of benefit’.  In this case, the gift won’t be exempt from Inheritance Tax, even if you live for seven years afterwards.

Giving your home to your children and moving out of it

As we have seen above, you cannot gift your home and then continue to live in it without it remaining part of your estate.  You are permitted to make visits and to stay for short periods in the home that you gift, but you cannot remain permanently.

Giving your home to your children and continuing to live in it

If you gift your home to your children, you can continue to live in it as your main residence as long as you pay a market rent to the new owner.  You should bear in mind that the new owner may have to pay Income Tax on the rent you pay them.

If you don’t pay a market rent, the gift will be considered a ‘gift with reservation of benefit’ and the house may be subject to Inheritance Tax.

Selling your home and giving the proceeds to your children

Instead of gifting the property to your children, you could sell your home and gift them the proceeds from the sale.  In this case, the gift won’t be included in your estate for Inheritance Tax purposes, as long as you live for seven years after you make the gift.

However, if you sell your home, give the money to your children and then move into their home, there could be Income Tax implications.  You may be classed as ‘living in a pre-owned asset’ if you do not pay the market rent.

Gifting your home to your children who then move in with you

If you give your home to your children and they then move in with you, the gift will be treated as a ‘gift with reservation of benefit’ and the home will still be subject to Inheritance Tax.

However, if you give half of your home to your children, they move in with you and you share bills jointly, the half that you give them won’t be treated as part of your estate for Inheritance Tax purposes as long as you live for seven years after making the gift.

Capital Gains Tax on a home you gift to your children

As long as the home you give away is your main home, Capital Gains Tax won’t be payable.

However, if you give away a second home, Capital Gains Tax may be payable if the property has increased in value between when you first owned it and when you gave it away.

4 Key Questions About Your National Insurance Number

Do you have a National Insurance number?

If you are aged over 16 and live in the UK you should have automatically received your National Insurance number just before your 16th birthday.  However, there may be situations where you don’t have a National Insurance number and you need one.  Our guide explains when you need a National Insurance number and how you go about getting one.

1. What is a National Insurance number?

Your National Insurance number is a number that is unique to you and that you keep for your entire life.  It ensures that the tax and National Insurance contributions that you pay are accurately recorded against your name and it provides a handy reference number when you have to contact HM Revenue and Customs.

2. Should I receive a National Insurance number automatically?

You should be sent a National Insurance number automatically just before your 16th birthday, assuming that:

  • You live in the UK
  • Your parents or guardians are receiving child benefit for you

If you are aged between 16 and 20 and you haven’t received a National Insurance number, you should contact the National Insurance Registrations Helpline on 0845 915 7006 for advice.

3. When should I apply for a National Insurance number?

If you do not already have a National Insurance number there are three main situations where you will need to apply for one:

  • If you need to claim benefits or tax credits
  • When you start work – you have to have a National Insurance number to start work whether you are employed or self-employed
  • If you have applied for a student loan

You may have to attend your local Jobcentre for an ‘Evidence of Identity’ interview to obtain a National Insurance number.

4. What if you lose or can’t remember your National Insurance number?

If you do have a National Insurance number but you can’t find your plastic card or you can’t remember your number, you could first try to find it on documents such as:

  • A payslip or P60
  • A copy of your tax return
  • Other letters or correspondence from HMRC or the Department of Work and Pensions

If you still can’t find your National Insurance number, you can ask HMRC to confirm it by:

  • completing and returning the form CA5403 called ‘Your National Insurance number’
  • contacting the National Insurance Registrations Helpline on 0845 915

HMRC are not allowed to confirm your National Insurance number by telephone. They will confirm your National Insurance number in writing to you.

Merry Christmas

Tax Fix would like to wish all of our readers and clients a very Merry Christmas and a prosperous New Year.

Don’t forget the tax return deadline of 31st January!

Warning: Have You Missed Out On Your Tax Rebate?

Christmas can be an expensive time of year.  Recent research from the savings account provider ING Direct found that, in 2009, the average Brit ended up £380 in debt covering the cost of the Yuletide season.  The average person spent £490 over the Christmas holidays and it took them, on average, two months to pay off the debt.

For millions of people awaiting tax refunds after the well publicised HM Revenue and Customers tax blunders (announced earlier in 2010) these rebates cannot come fast enough.  However, a leading website has found that hundreds of thousands of taxpayers could miss out on this vital money – a particular blow at a time of year when the cash could come in very useful.

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Thousands of taxpayers could miss out on tax refunds

The Daily Mirror has reported that, following the discovery of errors in the amount of tax paid by millions of Brits, HM Revenue & Customs is sending 5.7 million letters to employees who have paid the wrong amount of tax in the previous two financial years.

However, there is a risk that these tax refunds could never get to their recipients if taxpayers have moved home in the last couple of years.  That’s the conclusion drawn by leading website Moneysavingexpert.com and reported in the newspaper.

The Daily Mirror reports that: “Some 4.3 million [people] being contacted are due refunds, which could be hundreds of pounds. Meanwhile 1.4 million [people] owe tax and will have to return an average of £1,400 each.”

However, the news source also reported that six out of ten people who have moved house have not told HMRC, mistakenly assuming that their employers inform the taxman.

Scale of tax blunder is ‘monumental’

Martin Lewis from Moneysavingexpert.com said: “The sheer scale of the tax code blunder is monumental. More than five million errors have already been found, with millions more suspected.”

If you have moved house in the last two years it is quite possible that HMRC will not be aware that you have relocated.  Your employer does not automatically tell your Tax Office, so it is important that you notify them of any change of address.  You can find details on the HMRC website at www.hmrc.gov.uk.

If you are one of the 4.3 million people who are owed money by HMRC, it could come in extremely useful over the holiday season.  So, make sure your Tax Office knows exactly what your current address is.

5 Things You Should Know About Income Tax When Arriving in the UK

Are you moving to the UK to work?

If you are, then you are likely to have to pay income tax in the UK.  The tax you pay depends on two main factors: how long you plan to remain in the UK and whether you intend to live here permanently.

1. Residence and Domicile

The income tax that you will pay in the UK depends on whether you are ‘resident’, ‘ordinarily resident’ or ‘domiciled’ in the UK.  It is possible to fall into more than one – or indeed none – of these categories.

Resident

You are classed as a ‘resident’ for tax purposes if:

  • You are in the UK for 183 days or more in a tax year
  • You come to the UK to live permanently or for at least three years
  • You are in the UK for an average of 91 days or more in a tax year (worked out over a maximum of four consecutive tax years)

Ordinarily resident

If you are resident in the UK year after year you will normally be treated as ‘ordinarily resident’.  If it is clear on your arrival that you intend to stat for at least three years then you will be treated as ‘ordinarily resident’ from the date of your arrival.

Domiciled

Your domicile is normally acquired at birth.  However, ‘domicile’ is a more complicated issue and covers a range of factors.

2. What you will pay income tax on if you are resident and ordinarily resident

If you are both ‘resident’ and ‘ordinarily resident’ for tax purposes you will pay income tax on all the work you do in the UK, all UK pensions and all your UK investments.  If you are also ‘UK domiciled’ you will also pay tax on all your overseas income.

If you are not ‘UK domiciled’ you will usually pay tax only on overseas income that you bring into the UK.  However, you will pay tax on all your earnings if you work overseas for a UK employer and on all your earnings if you work in the UK for an overseas employer.

There are special tax allowances for seafarers who spend long periods outside the UK and people who receive overseas pensions.  Contact your Tax Office for more details.

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3. What you will pay income tax on if you are resident but NOT ordinarily resident

If you are ‘resident’ but not ‘ordinarily resident’ you will pay tax on all your UK income.  You will usually only pay tax on overseas income you bring into the UK.  In addition, you will pay tax on earnings for work done abroad that you bring into the UK.

4. What you will pay income tax on if you are NOT resident

If you are not a resident for tax purposes, you will still pay tax on your income from work you do in the UK, any UK pensions and all UK investments.  You’ll also pay tax on any rental income you receive from a UK property.

However, you won’t pay tax on your overseas income even if you bring it into the UK.

5. What happens if you arrive in the UK part way through a tax year

When you come to the UK part way through a tax year you’ll normally only pay tax on income you receive after you arrive.  This assumes that you are coming here to live permanently (or for at least two years) and you were not ‘ordinarily resident’ in the UK before you arrived.

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How To Claim a Pension Tax Rebate

Have you paid too much tax on your pension income?

Whether you receive a State, company or personal pension through PAYE there are a number of reasons why you may end up paying too much tax.  However, if you have paid too much tax, you can claim a tax rebate from HM Revenue and Customs (HMRC).  Our guide explains all you need to know about claiming a pension tax rebate.

When you may have paid too much tax

There are a number of reasons why you may have paid too much tax on your pension.  Some common reasons include:

  • the amount of annual State Pension included in your tax code is wrong
  • your pension provider has used the wrong tax code
  • your pension provider has the wrong personal information for you
  • your taxable state benefits or other income has reduced and HMRC don’t know about this
  • you have more than one tax code as you have several pensions or employment income

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Checking your PAYE tax code

Pay As You Earn (PAYE) is the system used by employers and pension providers to deduct tax from your wages or pension.  If your pension is dealt with via PAYE, you can check your PAYE Coding Notice to check what type and amount of tax free allowances you receive.  The PAYE Coding Notice also confirms your tax code which should match your pension payslip.

You may receive several PAYE Coding Notices if you have several pensions taxed through PAYE.

Claiming a pension tax refund

How you go about claiming a pension tax refund depends on your particular circumstances.

  • If you are receiving taxable pension income (including a retirement annuity) through PAYE and you find an error within the current tax year, contact your Tax Office. They will send a revised PAYE Coding Notice to your pension provider and they will adjust your tax code to alter any further payments for that year.  Your pension provider will refund the tax in the next payment.
  • If you are claiming a refund of tax deducted on earnings or pensions for previous tax years then you should write to your Tax Office and include any relevant documents about your earnings/pensions during the tax year for which you are claiming (P45s, P60s etc).  In most cases you will get back the tax you have overpaid as long as you put in your claim on time.  You have between four and six years to submit your claim (depending on which tax year it refers to).

How you will receive your pension tax rebate

HMRC will ordinarily send you a payable order by post.  However, you can tell them to pay the refund directly into your bank or building society account if you prefer.

If you wish, you can also nominate someone else to receive the refund.  It will then be paid to them by post or directly into their building society or bank account.

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5 Steps To Filling In A Tax Return For Landlords Of Houses


If you let a property, you will have to declare your income from the letting to HM Revenue and Customs (HMRC).  Most landlords of houses will have to complete a tax return in order to declare their property income.

Here are five easy steps to completing a tax return for all landlords of houses.

1. Work out whether you need to fill in a tax return

Not all landlords of houses need to complete a self-assessment tax return.

If you are employed (or getting a pension through PAYE) and your taxable income from property is less than £2,500, your Pay As You Earn (PAYE) tax code can be adjusted every year to collect the tax on your property income.  You need to ask your Tax Office to send you the form P810 to report your income each year.

If your profit is £2,500 or more or you’re not on PAYE then you will need to fill in a Self Assessment tax return.

2. Work out what type of letting it is

As the rules are slightly different for different types of letting, you will need to determine which type of letting you have.  It will generally fall into one of three categories:

  • Standard residential letting
  • Overseas holiday letting
  • Furnished UK holiday letting

The rules for holiday lettings in the UK and overseas are different to the tax rules for standard rental lettings.  For example, with holiday lettings you can offset losses against all your income (not just property income) and you can claim ‘capital allowances’ for the cost of furniture and fixtures that you provide in the property that you let.

3. Work out your total rental income

Even if you only let one property, HMRC will treat this as a property business.  So, to work out your property income, you should total up the gross rental income you receive from all the properties that you let in the appropriate tax year.

If your total income from UK property in the 2009-10 tax year is under £68,000, you can group the expenses as a single total on your Self Assessment tax return. If your property income is £68,000 or more, you will need to show your expenses separately.

4. Deduct your allowable tax expenses

HMRC allow you to deduct certain expenses incurred through letting property.  These include:

  • Interest on property loans
  • Letting agent’s fees
  • Maintenance and repairs to the property
  • Council Tax and any other utility bills that you pay
  • Buildings and contents insurance
  • Rent, ground rent and service charges

You should deduct these allowable tax expenses from your gross rental income before declaring your rental income to HMRC.

5. Tax return for landlords of houses can be submitted in two ways

If you have to submit a tax return as the landlord of houses, you have two options.  You can do this:

  • Through a paper tax return (deadline is 31st October)
  • Online (deadline is 31st January)


4 Questions To Ask When Claiming A Car Petrol Tax Refund

Do you use your own car for work journeys?

If you do, you are eligible to be paid an allowance by your employer to cover any costs that you incur.  And, as long as you comply with certain rules, these payments can be made to you free of fax and National Insurance Contributions (NICs).

Are there any rules I have to follow to receive tax-free payments?

Yes.  There are three rules that you must comply with in order to receive a car petrol tax refund free of tax:

  • The payments must be within the set limit that is fixed by law
  • The payments must be made to you directly (and not to someone else on your behalf)
  • The payments must be in relation to expenses you have incurred for using your own vehicle for work journeys

The rules for receiving payments without National Insurance Deductions deducted are slightly different, and your employer is responsible for working out what you can claim.

You can claim these tax expenses for using any vehicle in relation to your work, including a car, van, motorcycle or bicycle.

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What constitutes a ‘work journey’?

Any journey that you have to make as part of your work is considered a ‘work journey’.  For example, if you have to visit clients at their homes or make deliveries using your own vehicle, these would generally be considered ‘work journeys’.

Your normal ‘commute’ – i.e. your journey to and from your normal place of work every day – is not considered a ‘work journey’ for tax expenses purposes.

What level of tax expenses can I claim?

The amount of car petrol tax refund that you can claim depends on what vehicle you use. HMRC publish a list of set ‘mileage rates’ for the different modes of transport – cars, vans, motorcycles and bicycles.  You can claim the number of miles you have travelled on ‘work journeys’ multiplied by the set mileage rate for the vehicle that you used.

Bear in mind that there is a maximum amount of tax relief that you are able to claim in one year, even if your travel expenses exceed this amount.  Details can be found via HMRC.

If your employer already pays you expenses which are above the fixed HMRC rate, any excess is taxable as income.  Similarly, if your employer pays you a lower mileage rate than the set HMRC figure, you can claim Mileage Allowance Relief by using form P87 or writing to HMRC.

Do I need to keep any records?

Yes.  It is important that you keep good records of any business mileage that you have undertaken.  HMRC may need it if you wish to claim Mileage Allowance Relief and your employer will also need to see the records to determine the level of expenses payments that are due.

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The Top 10 Things You Should Know About House Lettings Tax Returns


Do you let out a property?

If so, you may well have to declare your rental income to HM Revenue and Customs (HMRC).  To help you, here is our guide to the top ten things you should know about house lettings tax returns.

1. You have to declare rental income to HMRC

All income, whether earned through employment or self-employment or that comes from property, savings, investments or pensions has to be declared to HMRC.

2. You don’t always have to submit tax returns for house lettings

You do not automatically have to complete a tax return just because you receive rental income.  If either of the following two statements applies, you won’t necessarily have to complete a tax return:

  • You earn income from property (before deducting allowable expenses) of less than £10,000
  • You earn income from property (after deducting allowable expenses) of less than £2,500

If you are employed, or getting a pension through PAYE, and your taxable income from property is less than £2,500, your tax code can be adjusted to collect the tax that you owe on your property income.

3. There are lots of tax expenses you can claim on house lettings tax returns

HMRC allow you to claim a number of tax expenses which can be deducted from your property income.  Tax allowances that you can claim include:

  • Council tax and any utility bills you pay
  • Letting agent’s fees
  • Interest on property loans
  • Buildings and contents insurance
  • Repairs and maintenance to the property
  • Professional fees including legal fees for lets of a year or less and accountant’s fees

4.  House lettings tax returns are different depending on the type of rental

The rules for declaring rental income depend on the type of letting.  It will normally be:

  • Residential letting (properties let out for people to live in as their home)
  • Holiday letting in UK
  • Holiday letting overseas

5. You need to claim tax expenses in the correct tax year

Make sure that you allocate property tax expenses to the year they apply to. It doesn’t matter when you pay the expenses but it does matter when they occurred.

6. Rules for the ‘rent a room’ scheme are different

If you are letting furnished accommodation in your own home to a lodger and your total receipts are £4,250 or below (£2,125 if letting jointly), you are able to earn this income tax-free under the ‘Rent a Room’ scheme.

7. You can submit house lettings tax returns in two different ways

If you do have to submit a tax return to include rental income you receive, you can do this in one of two ways:

  • Through a paper based tax return (deadline 31st October)
  • Through an online tax return (deadline 31st January)

8. You can’t claim for improvements to a property

Whilst you can claim for essential repairs to a property, you cannot claim improvements to a property (an extension or conservatory, for example) as an allowable tax expense.

9. You have to calculate your rental income

To work out your rental income you should: add up all the rental income you receive from your rental property/properties, add up all your allowable tax expenses and take your allowable expenses from your income.

10. You may not have to break down the expenses on your house letting tax return

If your total property income is under £68,000, you simply include the total figures for income and expenses on your tax return.  You do not have to break these figures down into their constituent parts.