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Client with salary over £100k

Client with salary over £100k

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Recently met a new client and it came out that his wife was earning over £100k in the previous 4 tax years as per the P60's. She says that no one from the finance department at the company she worked for advised her about the need to file SA returns and her then FD said that she should have received notifications from the tax office, which she never received. Does HMRC have the obligation to send notices to file SA returns for people with salaries exceeding £100k? If she voluntarily now files the returns and pays the outstanding tax should she expect any leeway from HMRC regarding penalties and interest? Or should she wait for HMRC to come first, since over the 4 years HMRC did not contact her about the issue and possibly it was not flagged anywhere in their system.

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09th Sep 2014 15:41

its self assessment

its up to the tax payer to register and get into the system, although HMRC will auto register some in this situation.

Ignorance of the law and rules is no defence, but if tax returns are filed von a voluntary basis they may waive the penalties

either way you have a professional duty to ensure that the wife registers for SA and files returns going forwards

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09th Sep 2014 16:14

check tax codes

Would first step be to check tax position for those years not automatically assume a tax return is required

No details of ages given but also be aware of possible high income child benefit charge

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to atleastisoundknowledgable...
09th Sep 2014 18:02

yes, extra tax liability exists

Thanks for this, she has no children and looking at listentotaxman.com tax calculations she has extra tax liability in 3 of those 4 years.

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By cbp99
to Tax Dragon
09th Sep 2014 18:24

No P800s?

deeagle.co.uk wrote:

Thanks for this, she has no children and looking at listentotaxman.com tax calculations she has extra tax liability in 3 of those 4 years.

Has she not received a P800 Tax Calculation letter from HMRC each year?

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to fawltybasil2575
09th Sep 2014 19:01

No, no P800s.

cbp99 wrote:

deeagle.co.uk wrote:

Thanks for this, she has no children and looking at listentotaxman.com tax calculations she has extra tax liability in 3 of those 4 years.

Has she not received a P800 Tax Calculation letter from HMRC each year?

No, nothing received from HMRC

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09th Sep 2014 16:18

Check if required

Income over £100,000 - Yes

Check completed. A tax return is required.

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By cbp99
to Duggimon
09th Sep 2014 16:52

TMA 1970s7

stepurhan wrote:

Income over £100,000 - Yes

Check completed. A tax return is required.

Assuming no other income, or gains, then unless TMA 1970 s7 has changed recently, not sure there is any need to notify HMRC, unless there is child benefit being received, despite what HMRC may advertise.

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to Accountant A
10th Sep 2014 10:47

s.7 TMA 1970

cbp99 wrote:

stepurhan wrote:

Income over £100,000 - Yes

Check completed. A tax return is required.

Assuming no other income, or gains, then unless TMA 1970 s7 has changed recently, not sure there is any need to notify HMRC, unless there is child benefit being received, despite what HMRC may advertise.

I disagree with Step.  There is no mention in s.7 of any requirement to notify chargeability (register for self-assessment) just because the personal allowance is withdrawn.  The wife is subject to the exception:

"s.7(3)  A person shall not be required to give notice ... if for that year

   (a)  the person's total income consists of income from sources falling within subsections (4) to (7) below

s.7(4)  A source of income falls within this subsection in relation to a year of assessment if

   (a)  all payments of ... income from it during the year, and

   (b)  all income from it for that year which does not consist of payments

   have or has been taken into account in the making of deductions or repayments of tax under PAYE regulations."

(It would be nice if they updated the TMA 1970 at legislation.gov.uk so that we didn't have to type out the text.)

It is up to HMRC to raise P800 tax calculations.  The wife has no legal obligation to notify HMRC.

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to Matrix
10th Sep 2014 11:30

Bank interest?

Euan MacLennan wrote:

I disagree with Step.  There is no mention in s.7 of any requirement to notify chargeability (register for self-assessment) just because the personal allowance is withdrawn.  The wife is subject to the exception:

But what about the last sentence of s7(6). Does that not imply a liability to register even if there is just £1 of bank interest taxable at other than basic rate, which is highly likely?

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to DJKL
10th Sep 2014 11:57

Indeed

James Reeves wrote:

But what about the last sentence of s7(6). Does that not imply a liability to register even if there is just £1 of bank interest taxable at other than basic rate, which is highly likely?

... but we have to answer questions on the basis of the facts stated and the OP did not mention interest, dividends or letting income.

It would not apply in this case as there are no children, but I had a married couple of clients, who were both NHS consultants earning the usual £125K or so a year each, but insisted that they had not a penny of bank interest income.  When I pointed out that HMRC might find that odd, they just said "school fees" - enough said!

 

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By Kirkers
09th Sep 2014 16:25

In this situation would pension contributions (if they made any) affect the need to file if your employment income is 100k? eg, paid 20k into pension, would they still need to file a return?

 

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09th Sep 2014 16:27

What have I missed

Why does she have to do SA returns if on PAYE just because she's earning over £100k?

Has HMRC required one - Not apparently

Is there an additional liability - hopefully not if PAYE operated correctly

Are there BiK? Surely they're on P11D and would flag it for HMRC.

Have HMRC not dealt with any underpayment as part of the year end 'rec' that caused all the A19 claims a couple of years back because they put it off for a couple of years? Again apparently not, so probably no additional liabiliy, so no need for SA - QED.

Or as in the heading ... have I missed something in the OP?

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09th Sep 2014 17:11

Withdrawn PA

When income exceeds £100,000, there is a withdrawal of personal allowance.

Because that withdrawal of personal allowance is dependent on how much the income is over £100,000, it is impossible for the tax coding system to deal with it. Essentially the act of making another payment above £100,000 renders the previous code incorrect immediately.

Therefore PAYE cannot take the correct amount of tax and that is what will cause a return to be required. It is not the £100,000 income itself, but the effect that has on the tax paid that is the trigger.

Theoretically, under RTI, once a person hit £120,000 then a code showing no personal allowance could be used from then on. I doubt HMRC's systems are geared up for that though.

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By cbp99
to redleader
09th Sep 2014 17:45

.

stepurhan wrote:

When income exceeds £100,000, there is a withdrawal of personal allowance.

Because that withdrawal of personal allowance is dependent on how much the income is over £100,000, it is impossible for the tax coding system to deal with it. Essentially the act of making another payment above £100,000 renders the previous code incorrect immediately.

Therefore PAYE cannot take the correct amount of tax and that is what will cause a return to be required. It is not the £100,000 income itself, but the effect that has on the tax paid that is the trigger.

Theoretically, under RTI, once a person hit £120,000 then a code showing no personal allowance could be used from then on. I doubt HMRC's systems are geared up for that though.

I take your point, but it seems to me that the legal onus remains on HMRC to issue a request for a return. The Paye system should catch up with any under or overpayment through the annual reconciliation.

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to Ian Lawrence
09th Sep 2014 18:22

Strong case for appealing penalties and interest?

cbp99 wrote:

stepurhan wrote:

When income exceeds £100,000, there is a withdrawal of personal allowance.

Because that withdrawal of personal allowance is dependent on how much the income is over £100,000, it is impossible for the tax coding system to deal with it. Essentially the act of making another payment above £100,000 renders the previous code incorrect immediately.

Therefore PAYE cannot take the correct amount of tax and that is what will cause a return to be required. It is not the £100,000 income itself, but the effect that has on the tax paid that is the trigger.

Theoretically, under RTI, once a person hit £120,000 then a code showing no personal allowance could be used from then on. I doubt HMRC's systems are geared up for that though.

I take your point, but it seems to me that the legal onus remains on HMRC to issue a request for a return. The Paye system should catch up with any under or overpayment through the annual reconciliation.

That is the problem - many people on PAYE earning over £100,000 are not aware that due to the withdrawal of Personal Allowance they need to file SA return and as in this case, they do not receive any notices from HMRC to make them aware of this. Do you think that registering now for the UTR and voluntarily filing the outstanding returns should make a strong case when appealing the penalties and interest that will be charged?

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to paul.benny
09th Sep 2014 18:29

Appeal?

deeagle.co.uk wrote:

Do you think that registering now for the UTR and voluntarily filing the outstanding returns should make a strong case when appealing the penalties and interest that will be charged?

If there's a filing obligation, then it should be met as soon as possible.  I'm not sure what the "strong" case is against penalties!  "Agreeing" to file late returns?  I'd have some slight sympathy if there was no tax due but irrespective, rightly or wrongly, to me, there's an element of "noblesse oblige".  I've never met anyone earning that kind of salary who doesn't take some interest in their tax affairs (and who hasn't taken some financial or investment advice which often touches on tax).  I'm sure it also gets discussed among colleagues and friends.  These tax threshold issues are certainly the kind of thing that gets a good airing in the personal finance pages of the weekend broadsheets.

 

If an appeal is successful, do report back.

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10th Sep 2014 13:34

Client with salary over £100k

I'm probably missing something here, but HMRC have just issued one of my director clients with a K tax code, which is a negative allowance device to collect tax from someone earning over £120,000 per year. Surely, this means the tax due is collected as normal through the payroll?

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