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Self Assessment Filing: Potential Pitfalls

5th Jan 2015
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It’s that time of year again…

Ben Chaplin walks you through the updated self assessment tax return form and highlights some of the potential pitfalls.

As the dark nights start to draw in and festive lights and decorations start making an appearance in shops and homes, minds start wandering to that joyous annual event that we all enjoy – tax return ‘deadline day’.

It’s now only a matter of weeks until 31 January 2015. Clients’ tax returns will be being dealt with at a steady, even relentless, regularity with details and information often becoming a blur from one individual to another. Here at Taxwise we also see a spike in activity – our tax advice lines will deal with some 15,000 queries between mid-November and the end of January, and the majority of these calls will be what and where certain information needs to be included on HMRC’s form.

With the 2013/14 tax return form consisting of the main SA100 and up to 18 sets of supplementary pages (some are naturally much more specific than others) the need to complete specific boxes, and in some cases even whole sections, can be overlooked, especially when things become time pressured. 

The information below is intended as a helpful reminder of certain parts of the return which can ‘slip through the net’ or that are most likely to attract HMRC attention from a compliance point of view.

Residency Pages: New Information Following the introduction of the new Statutory Residency Test ‘SRT’ rules for 2013/14, HMRC have also altered the questions asked on the Residency pages (Form SA109) and there is now more information to be included than in previous years. For example, question 9 now requires confirmation of whether your client has had access to a home overseas during the year and question 12 requires confirmation of how many ties they had to the UK in the full tax year. Information of this nature has never been required in previous years and the need to report it in 2013/14 may inadvertently lead to delays in submitting a return as it may be necessary for the client to provide these details. 

Non-Resident Personal Allowances: It is possible to claim UK personal allowances for non-residents in two situations. Firstly, when they are eligible under the Double Tax Treaty between the UK and the country of residence, and secondly ‘for another reason’. It is necessary to confirm under which basis the claim is being made. A detailed list of when a personal allowance is available to non-residents can be found in HMRCs own manuals at RDRM10340.

Student Loan Repayments: While for most clients this is automatically collected as a deduction from their employment income, boxes 1 to 3 on page TR5 of the main tax return are often missed resulting in an underpayment for the year. Additional payments will become due when the individual has other sources of income, including rental or self-employment, in the year. The additional loan repayment will become due for payment along with the rest of their tax liability.

Pension Contributions: Most entries in this section will be based on the amount of payments physically made to a scheme in the year by the individual; however, in some circumstances the amount of ‘contribution’ may actually be the growth in the pension pot and not necessarily the money paid into the scheme. This will primarily arise in superannuation and final salary schemes so it is important to check with the pension provider that the right figure is being used.

Excess Contribution Penalty: As the pension Annual Allowance is the total amount of individual and employer contributions in the year the total of £50,000 for 2013/14 (£40,000 for 2014/15) can be exceeded, especially in the NHS superannuation scheme, leaving a 50% penalty of the excess contributions becoming due for payment to HMRC. Your client should be aware that unless a request is made for the pension provider to make a payment directly from the pension pot to HMRC that they will become liable for this penalty in addition to their tax liability by 31 January 2015.

Collection of Tax Through PAYE Code 1: The deadline for making a claim for collection of a liability of less than £3,000 to be included in the client’s 2015/16 PAYE code is 30 December 2014. After this date a payment of the full liability will be due.

Collection of Tax Through PAYE Code 2: HMRC often include expected rental and investment income in a client’s PAYE code. As these can vary year-on-year, some client’s do not wish to make a payment throughout the year and prefer to make a lump sum payment once actual income levels are known. As this is automatically done by HMRC, it is necessary to ‘opt-out’ of this collection method by completing Box 3 on page TR6.

High Income Child Benefit Charge: This charge will apply to the highest earning parent/carer of a child who is in receipt of child benefit who has net adjusted income in excess of £50,000 in the year. The ‘claw back’ of Child Benefit through the self-assessment system will arise regardless of whether the client is in receipt of the child benefit payment personally and/or when it is not their own child as long as the child is living with you during the year. While HMRC have written to most people who need to pay the charge, personal circumstances may have changed in the year and it is necessary to check if your client now falls into payment.

Personal Service Company Users: HMRC have set up several specialist teams to review the application of the IR35 legislation on those individuals who trade through their own Personal Service Companies, and as part of their change in tack on their information gathering process there is now a requirement to complete the box on page TR5 to confirm the total amount of gross dividends and salary received from their company in the year. This box has only ever been an ‘information only’ box but it is expected to have more influence going forward and should not be ignored.

Removal of Renewals Basis: Landlords of unfurnished/part-furnished properties will no longer be able to claim the non-statutory renewals basis for replacing free-standing items within their properties from 6 April 2013. This, in effect, removes the ability to claim for replacements of items including carpets, curtains, furniture and non-integral white goods (fridges, washing machines, etc.). There is no effect on the ability to claim wear and tear allowance by landlords of fully furnished properties.

Full list of Directorships: All employments/ office holdings should be reported on their own separate employment page (SA102), although where no remuneration has been received from an employer it is sufficient to include a list of these in the Additional Information box.

P11D Information (1): The tax return should reflect the position as declared on the Company’s submitted P11D even if those figures are incorrect. HMRCs systems will automatically ‘flag up’ differences between the submitted P11Ds and the return. If errors exist, the P11D form should be amended first as HMRC will update the relevant tax return/PAYE code as applicable.

P11D Information (2): It is possible to claim a deduction against employment income for all expenses incurred wholly, exclusively and necessarily in the performance of the duties through the tax return even when these have not been included on a section 336 election through the P11D system. Often professional subscriptions paid by employees personally (as opposed to being met by the employers) are missed when preparing tax return forms and can be included on the employment pages as a deduction. In addition to this, claims for business mileage are eligible for a deduction where the employer reimburses the cost at less than HMRC’s approved rates (45p per mile for the first 10,000 miles and 25p per mile thereafter) for journeys undertaken in the employee’s own vehicle. Approved mileage rates for business journeys completed in a company car are much lower and a review of the expenses claimed in these situations should be undertaken as any excess payments will be liable to income tax.

Late Submission Penalties: A late filing penalty of £100 will apply to all returns submitted after 31 January 2015 deadline regardless of the actual tax liability or repayment position. Previously (before 2011), the penalty was reduced and did not exceed the liability. If all of the information is not available by the submission date it may be beneficial to take advantage of the “provisional return” option and finalise the return once all of the information is available instead of delaying the submission and incurring the penalty charge.

These are just a few of the areas that can appear when dealing with a client’s tax return at one of the busiest and most time pressured parts of the year but as always, our tax, VAT and payroll advice lines staffed by both tax professionals and ex-HMRC staff are on hand to help Taxwise clients throughout the holiday period and the January rush.

• Ben Chaplin is Managing Director of Taxwise Services

This article is taken from “Accounting Practice” the ICPA quarterly magazine. Dedicated to supporting and promoting the needs of the general practitioner. You can find us at www.icpa.org.uk  or email [email protected]  or by phone on 0800-074-2896

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