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Clients removed from self-assessment

HMRC have closed several of my client's self-assessment records

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Subsequent to submitting several of my client's 2020 personal tax returns HMRC have issued a standard letter informing my clients that they have no further personal tax returns to submit unless their circumstances change in the future.  

These clients are typically owner-managers of small companies whose personal income comprises a low wage plus dividends, generating a small self-assessment liability on their dividend income in excess of the annual personal and dividend allowances.

These clients are mostly all on a standard PAYE code with no adjustment built into their 2020/21 codes to collect the tax that will be due on their dividend income in the absence of submitting a 2020/21 tax return, and even if their codes were to be adjusted it is unlikely the correct amount of tax will be collected in any given year as these clients tend to draw variable amounts of dividends from one year to the next.

Given the volume of clients this has affected in my small pratice, I presume this is due to a change of policy within HMRC that has affected every agent and I would be interested to know how others are approaching the problem this is going to create in terms of their client's untaxed income. 

 

 

 

 

 

 

 

 

 

     

 

 

   

 

Replies (32)

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By richard thomas
09th Feb 2021 13:51

This action by HMRC results from a change of policy on who must be registered for SA. I claim a share of the responsibility for this change as in a decisions of mine I pointed out that HMRC were wrong to say that all directors had to notify liability to tax under s 7 TMA. If their salary and benefits were taxed under PAYE and dividends were not taxable they did not.

HMRC have accepted this by removing being a director as a sufficient criterion to be registered. There is an oddity here though, as, when I made these decisions, I was considering periods when there was no tax on dividends where the higher rate band was not reached. Now of course all dividends not covered by the PA and the dividend nil rate are taxable and so the duty to notify under s 7 TMA would in theory apply, but HMRC do not care.

What you do about dividends is up to your client's conscience and your professional obligations. The client cannot in theory unilaterally change his tax code to code out dividends, but you can inform HMRC so that the dividend goes on his IABD (other income) record in the PAYE computer and request that they change the code.

You could change the code without telling HMRC. They are hardly going to query it if more tax is collected than would be required using the official code. But others may have practical experience.

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Replying to richard thomas:
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By Hugo Fair
09th Feb 2021 15:13

OK, well I guess we could all blame you!

Of course, you were quite correct regarding HMRC's wilful creation of their "all directors have to complete SA" approach - which has now been compounded by their inability to think things through (hence the target to remove people from SA - which hides behind your justifiable point but is really meant as a cost-saving exercise).

The only half-sane conversation I've had with an HMRC rep faltered when he said ".. but we can always adjust the individual's tax code" and looked stunned when I pointed that not everyone has PAYE earnings!

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By SXGuy
09th Feb 2021 13:52

Not had this myself. However there's nothing stopping you submitting a tax return even if they have wrote to say no more needed.

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Scooby
By gainsborough
09th Feb 2021 13:57

Received a letter last year saying 2018/19 return was the last one required for a client with rental income from their main home in odd years and capital losses to declare in others. I submitted a 2019/20 return anyway (declaring capital losses) and it was accepted - a letter was then sent saying 2019/20 was the last one needed.

I plan to carry on submitting returns for years where it is appropriate to do so.

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Replying to gainsborough:
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By GSWB1954
19th Aug 2021 09:51

I agree that this is the only way of dealing with this. I did start wtiting to HMRC or calling the agent priority helpline number to ask for the client to be reinstated but this became too time consuming. Perhaps if HMRC have had the foresight that taxpayers income for 2020/21 might have been temporarily low due to Covid, they may not have been so quick to remove them from SA.

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By Hugo Fair
09th Feb 2021 14:09

Or your client can simply emulate the voting intentions of a turkey at Christmas ... i.e. phone HMRC and say that you'd prefer to stay on SA! They don't query it and (in my experience) this also stops their issue of the "last one needed" letter in the next year.

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RLI
By lionofludesch
09th Feb 2021 14:43

I haven't had any of these.

How are HMRC proposing to collect the Dividend Tax due ? Assuming there is some.

Sounds like a recipe for disaster to me.

Still, not my problem.

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By Paul Crowley
09th Feb 2021 14:53

The letter says
You must inform us if your circumstances change
So client's fault if he has a dividend a big bigger than last year
Result We still need to do tax return calculations even if HMRC have not requested a return

More relevant is that lenders want to see tax computations and TYO
Had one of these yesterday, all I can provide is 2 years, they want three
No idea if they will get the loan

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Replying to Paul Crowley:
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By Southwestbeancounter
09th Feb 2021 15:12

Yes and that means that us, as agents, have to phone HMRC every April to advise them who still requires a SATR (if one hasn't been issued) as they get in a mess if we submit unsolicited returns.

Then the client potentially gets ratty as we're submitting tax returns that haven't been requested by HMRC.

Why can't they just leave things alone sometimes!

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Replying to Southwestbeancounter:
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By Paul Crowley
09th Feb 2021 15:16

Agree
BUT HMRC were strongly the other way, quite unneeded, in stating that ALL directors must submit no matter what.

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Replying to Southwestbeancounter:
RLI
By lionofludesch
09th Feb 2021 15:26

Southwestbeancounter wrote:

Yes and that means that us, as agents, have to phone HMRC every April to advise them who still requires a SATR (if one hasn't been issued) as they get in a mess if we submit unsolicited returns.

Then the client potentially gets ratty as we're submitting tax returns that haven't been requested by HMRC.

Why can't they just leave things alone sometimes!

As Hugo remarks, you have the perfect opportunity to make your feelings known to Richard Thomas.

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Replying to Southwestbeancounter:
By tonyaustin
16th Feb 2021 10:08

You do not have to phone HMRC every year. The clients retain their UTR and remain on your list of clients. If they have a tax liability you can submit a tax return either using HMRC online system or commercial software, even if HMRC have not issued one. All it means is that you do not have to submit a return if there is no additional tax to pay.

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By tltodman
09th Feb 2021 15:23

Yep - I've had several of these in the last couple of weeks. And like you, all director/owners.

When the first one arrived I phoned and was told they no longer met the SA criteria. That director had interest income in excess of allowance & apparently he/I needs to write in now to give them details of the the banks and account numbers and HMRC will get the info for year to 5th April each year directly from those banks and include it in a tax calculation.

With the next two, who both need to pay dividend tax, I was told that I/they need to phone and tell them of the dividends post year end so they can be included in a tax calculation.

Such a faff.

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Replying to tltodman:
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By Paul Crowley
09th Feb 2021 15:19

And of course nothing in writing from HMRC saying that the action they suggest is how it should be done
Nothing to rely upon

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Replying to tltodman:
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By Southwestbeancounter
09th Feb 2021 16:11

That sounds crazy!

It would probably be cheaper all round just to file a tax return especially when you have to wait for 45+ minutes for the ADL to be answered!

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Replying to Southwestbeancounter:
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By Paul Crowley
09th Feb 2021 16:48

That is what I have done and will continue to do.

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By CJaneH
09th Feb 2021 17:52

I agree that one can continue to submit tax returns anyway, but when the requirement to submit a tax return is removed, the agents ability to look at clients PAYE coding notices also disappears. This is a handicap in if clients do not forward PAYE coding notices.

I would advise phoning HMRC and getting requirement for SA100 reinstated.

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Replying to CJaneH:
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By Matrix
09th Feb 2021 19:09

How so? They are still on your agent account.

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Replying to CJaneH:
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By johnjenkins
16th Feb 2021 10:41

The requirement to submit hasn't been removed. If you read the letter carefully you will see that this is the case. The tax account is still available. I just ignore the letter. In fact I ignore a lot of what comes out of HMRC because I trust my own judgement (and I think a lot of you think the same) rather than HMRC. Unfortunately they have got so much to do, with computers spewing out incorrect information, it is little wonder nothing really works properly.

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By mbee1
10th Feb 2021 08:46

We've also had a number but still continue to submit Returns which get accepted. I don't have the time to wait for the ADL to be answered and go through the rigmarole of getting HMRC to set their system to issue a Return.

Yes there is a downside in that the ability to view PAYE codes also stops (goodness knows why).

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Replying to mbee1:
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By Southwestbeancounter
10th Feb 2021 15:15

I actually got so incensed at the time it was taking to get through to the 'ADL' in January that I gave up and emailed Jim Harra's office requesting a 2019/20 SATR was issued for my client, explaining that the ADL was unfit for purpose etc, and it was done in a few days!

We always check who's been issued tax returns in April/May time annually but this client came to us unexpectedly in December.

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Jane
By Jane Evans
10th Feb 2021 09:15

A contact of mine has been having the same problem. He has used the information from Richard Thomas. The correspondence is set out here:

https://www.accountingweb.co.uk/any-answers/hmrc-refusing-self-assessmen...
We'll see if it works in April when the 2020/21 tax return notices are due to be issued.

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By CJaneH
10th Feb 2021 11:32

Reply to Matrix

I agree that they are still on my agents account, but I have found that I am not allowed to access PAYE codings. This has happened several times.

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By fawltybasil2575
10th Feb 2021 13:53

@ L Haldane (OP).

In order to attend efficiently to all "owner managers of small companies"tax affairs, one must always maintain an annual record of their taxation position (ie prepare a calculation of the tax payable or repayable) for each tax year.

If one considers it easiest to submit voluntary Tax Returns, then that is usually fine (albeit, strictly speaking, if HMRC were to make a formal enquiry into that Tax Return, whether justifiably or not, the client might rightly hold you to account for submitting a Tax Return unnecessarily, and subjecting them to your time costs and possibly additional tax payable).

All that one needs to do is submit a letter to HMRC each year, along the lines of:-

“I enclose a Tax Calculation for the above client for 2019/2020. This shows a potential tax liability of £372.50. I also enclose my client’s cheque for that same amount. Please action these items in the appropriate manner.

Please also acknowledge receipt of this letter”.

[If exceptionally there has been a new source of income, then such source should be notified to HMRC within 6 months of the tax year-end if the above letter is itself not sent to HMRC within that 6 months].

One should of course show the client’s NI number (and UTR no. if there is one) on the reverse of the cheque, such cheque to be photocopied.

Then, just liaise with your client to ensure that the cheque has cleared. If so, then one can readily dispose of any inappropriate HMRC contention that the client has not complied fully with his obligations.

IMHO, seeking to adopt a “pay tax as you go” policy, by engaging in correspondence re Codings, is not an efficient use of one’s time, and thus not cost-effective (for the client and/or yourself, depending upon the terms of the Engagement Letter re your fees).

One should never operate a PAYE Code No. which has not been issued by HMRC (this is in breach of the PAYE Regulations).

Basil.

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Replying to fawltybasil2575:
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By Rgab1947
16th Feb 2021 09:29

Cheques? How quaint. Can you still get them?

And get a receipt for a letter sent from HMRC?

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Replying to Rgab1947:
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By fawltybasil2575
16th Feb 2021 10:22

@ Rgab1947.

(1) The official confirmation that cheques continue (until announcement to the contrary) is here (no subsequent update from GOV.UK, hence still current):-

https://www.gov.uk/government/news/frequently-asked-questions-on-the-clo...

(2) The use of a cheque, as opposed to bank transfer, is advised, since it provides evidence (albeit not incontrovertible) that the letter itself HAS been received by HMRC [ie where HMRC bank the cheque:)].

Basil.

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Replying to Rgab1947:
RLI
By lionofludesch
16th Feb 2021 10:39

Rgab1947 wrote:

Cheques? How quaint. Can you still get them?

Quaint and much derided and yet how else would you pay someone if you don't have their bank details ?

Mrs Lion doesn't have a cheque book and, consequently, half of the cheques I issue are for payments she wants to make. I never get the money back. I am sure this is a deliberate ploy.

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By haggis
16th Feb 2021 10:16

I'd imagine this is to do with HMRC now considering that you do not need a return if your dividends (and other savings) income is less than £10,000.

https://www.gov.uk/check-if-you-need-tax-return

I exepect they plan to estimate the dividends each year via a P800, and it will be for us to correct them when they're wrong.

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By Flustered
16th Feb 2021 10:56

This happened to me . I am self-employed & have rental income, my PAYE sources are minute and certainly not large enough to allow effective coding. No earthly reason why I should NOT submit a Return, so I have ignored it. I can see it would be problematic if clients received the same, though.

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By Tomazaan
16th Feb 2021 12:16

My understanding re tax returns is that if you wish to submit an unsolicited tax return, you HAD to get HMRC to change their computer system so that they are expecting the return. In the past this required a short phone call to the ADL.

For my clients who have been told not to submit tax returns, I carry out (and charge for) a quick review to ascertain whether or not they have a tax liability. If they do, I ask HMRC to amend their SA computer and submit a return. If not, no more work needed until the next year.

As an aside, there was an article in January's Tax Adviser (p 34) by Karl Khan (from HMRC) setting out when HMRC thought you had to complete a tax return. It contained rubbish similar to the "if you are a director, you have to complete a tax return" and I was so angry that I wrote a letter to the Editor to complain. Not heard anything since.

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By David Gordon FCCA
16th Feb 2021 14:04

Dear richardthomas and others,
Your post is correct.
We have however to deal with the practicalities of the matter.
It does not do a practice's PR any good having to inform a client, "Sorry mate but whatever HMRC says, you have to do a tax return for this year"
So, in appropriate cases we send back the letters with a big sticker:
"This client may be entitled in future years to taxable income, dividends and or interest, from his Private Limited Company". Please keep this UTR live and on record.
Any professional fees arising as a result of HMRC closing this account down will be billed to HMRC"
Job done.
Actually my personal view is, all directors of "Live" Ltd Co should prepare a return. It is a sort of audit check against equating No Tax return = No paying tax

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Replying to David Gordon FCCA:
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By johnjenkins
16th Feb 2021 14:16

The idea is to edumacate our clients so that they know if they have a source of income that is taxable they have to declare this to HMRC. Unfortunately HMRC in their rush to get MTD and "Tax Returns will soon be a thing of the past" message across are leading our clients up the garden path.

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