Getting a client out of SA

Income below PA but rents over £2500

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Hi

I'm trying to get an elderly client out of SA.  She has a state pension and rental income - the total is below £10k but rental income over £3000.  HMRC are saying that as net rents are over £2500, a SA return is required, although they accept that no tax will be due.  (To be fair, the guy I spoke to sounded a bit embarrased that this was the case.)

Has anyone succeeded in getting a client out of SA in these circumstances?  If so, I'd appreciate advice on how to achieve it.

Thanks in advance

Replies (39)

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By SteveHa
12th Jul 2021 15:12

Quote TMA 1970 S7 and S8 and ask them how their assertion fits with the legislation.

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Replying to SteveHa:
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By Tax Dragon
12th Jul 2021 15:40

You mean, ask HMRC to issue to withdraw the s8 notice in accordance with s8B? (I thought the OP meant HMRC had said no - so what do you do then? Gotta file, don't you?)

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Replying to Tax Dragon:
By SteveHa
12th Jul 2021 15:55

That's not what I was suggesting, since there's no indication that a S8B withdrawal has been requested, but only that withdrawal from SA has been requested. In that case, challenging HMRC's decision by telling them what the law says would seem to be a perfectly reasonable course of action, IMO.

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Replying to SteveHa:
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By Tax Dragon
12th Jul 2021 16:06

I'm lost. If HMRC hasn't issued a s8 notice, then (apart from checking she has no tax to pay), how is the client "in SA"? What does "in SA" even mean?

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Replying to Tax Dragon:
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By Tax Dragon
12th Jul 2021 16:07

Tax Dragon wrote:

What does "in SA" even mean?

.oO How can I call myself Tax Dragon and not know this??!!!!

.oO Finally time to come clean and get my pseudonym changed to Tax Moron.

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Replying to Tax Dragon:
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By Hugo Fair
12th Jul 2021 17:03

Oi ... us morons are an exclusive group; you can't just arbitrarily grant yourself membership without going through the proper channels. Now let me see, is the correct application form specified in our latest GOV.UK update or do I have to go into the archives ...

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Replying to Hugo Fair:
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By Tax Dragon
12th Jul 2021 17:04

Take me to your leader.

(Always wanted to say that!)

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Replying to Tax Dragon:
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By Hugo Fair
12th Jul 2021 17:37

Up there on the bucket-list with ... jumping into a stranger's car at the traffic-lights and, whilst gesticulating wildly, yelling at the driver "Follow that car!"

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By Paul Crowley
12th Jul 2021 15:54

There is a difference between HMRC opinion and the law
Before the £1,000 and £2,500 HMRC decision it was easy to do away with these once a taxpayer was getting all their pensions and still no tax

HMRC used to state categorically that all directors must register for SA
Then they changed their opinion. No legal requirement so to do.
Richard got involved with that.

If you have tried Agent line twice then just submit blank returns
The tax is still correct so not much HMRC can do.

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Replying to Paul Crowley:
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By Tax Dragon
12th Jul 2021 17:29

When you do that, do you get them approved by the client first? Is that never a hurdle?

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Replying to Tax Dragon:
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By Paul Crowley
12th Jul 2021 19:47

I tell them what I intend to do

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Replying to Paul Crowley:
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By Matrix
12th Jul 2021 17:42

How much do you charge? Surely the issue here is that the OP doesn’t want to incur unnecessary cost for the client. Whereas they have now probably spent more time on trying to get the client out of SA than submitting the return. With no fee.

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Replying to Matrix:
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By Paul Crowley
12th Jul 2021 20:03

You are correct
I charge nothing
Time to submit a zero return is very close to zero for an existing client on very little income.
These clients may well be very nice but it is impossible to be commercial and deal with those tax returns.
The best commercial decision and the most honest decision and best for client is to get them out of SA.
If HMRC want tax returns showing nil liability, that is what I do.
5 last year
3 of which had zero returns the year before
The zero return stops the penalty machine.
What does Agent line HMRC do if they agree no SA return needed?
Answer File a zero return as if filed by paper, and write to say last SA return is the one they just filed a blank for.
Penalty can arise if that is after paper filing date

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By ireallyshouldknowthisbut
12th Jul 2021 16:02

I think you are adding up the rents wrong.

I am pretty sure they are under £2,500 now.

Double check.....I find if HMRC are being silly there is no harm in making mistakes. You are human after all.

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Replying to ireallyshouldknowthisbut:
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By Jane Wanless
12th Jul 2021 16:25

Just to clarify, the rents are a little over £4000, so over £3000 after the £1000 allowance.
The pension is around £4k, so whether we worry about the £1k allowance or not, total taxable income is still below the PA. HMRC are using their criteria of net rents over £2500 to insist on returns, although they agree there's no tax at stake.

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Replying to janewanless:
By ireallyshouldknowthisbut
12th Jul 2021 16:37

As I say, you are adding them up wrong.

I am sure its just under £2,500.

Double check and your problem is solved.

Your risk is tax geared penalties of nil. A practical solution to a stupid problem.

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Replying to ireallyshouldknowthisbut:
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By Paul Crowley
12th Jul 2021 16:42

Agree
So easy to just trust the figures from the client without a logic check
Agents ask how much rent this year
Client accurately replies

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Replying to janewanless:
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By Tax Dragon
12th Jul 2021 16:38

For clarity, you mean HMRC won't withdraw a notice per s8B? (It's just that we're getting a bit confused on that point above. I say we. I mean me.)

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Replying to Tax Dragon:
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By Jane Wanless
12th Jul 2021 16:46

Correct - they won't withdraw the return they'd issued

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Replying to janewanless:
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By Hugo Fair
12th Jul 2021 19:27

How did your client end up with a State Pension of only "around £4k"? Or rather, without intending to be rude, are you sure?

There's nothing that special about my circumstances, but my State Pension is currently teetering on the edge of consuming 100% of my PA ... so, unless Rishi revokes the triple lock pledge, I will presumably end up with a K code for my remaining PAYE work (in order to collect tax from listed company dividends)!

Also, continuing with my unintentionally patronising questions, I presume the rental income is from a separate property to the one in which she lives? [Otherwise, Rent-a-room Relief can mean the rent is not even reportable].

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Replying to Hugo Fair:
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By Rgab1947
14th Jul 2021 11:34

State pension near £12.75k? How did you get that when the max amount is circa £590 p.m. Or am I missing something (Quiet possible). Do tell, would love my pension to be at that level.

Easy to get a lower pension. Don't have the 30 years contribution.

Many an expat returning will be in that position

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Replying to Rgab1947:
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By Hugo Fair
14th Jul 2021 13:39

Well, it'd have to be 'near £12.57k' (not 12.75) of course ... and it's currently £12,209 (so the 6% that Rishi is due to confirm but no doubt won't) would take it to £12.94k
[FWIW the 'full rate of the new State Pension' (which is not as generous as for people already claiming it) is £179.60 pw or £9,339 pa].

I'm no expert in State Pension, but I have a complete set of full contribution years (from age 16 to retirement) plus an extra amount added from my deceased wife's entitlement. Not sure that helps you much - but you asked!

BTW, you didn't respond to my point about Rent-a-Room Relief?

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Replying to Rgab1947:
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By jeremybarker
14th Jul 2021 21:57

The old (pre 2016) state pension consisted of the basic pension and also additional pension which was earnings-related (Serps, S2P and some other odds and ends). The total amount could easily be over £200 a week if someone was in well-paid employment but their employer didn't operate a contacted-out pension scheme.

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By Tax Dragon
12th Jul 2021 16:42

How came this elderly lady to be into SA?

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Replying to Tax Dragon:
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By Jane Wanless
12th Jul 2021 16:47

She previously had earnings that took her over the PA, but the earnings ceased several years ago. The rents remained...

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Replying to janewanless:
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By Tax Dragon
12th Jul 2021 16:58

Does she have undrawn pensions? Could it be that next year she's liable to tax again and you've argued with HMRC to get her out of SA for nothing?

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Replying to Tax Dragon:
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By Jane Wanless
12th Jul 2021 17:07

No undrawn pensions. There are non-taxable sources but unless she gets a big lottery win, new sources are unlikely

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Replying to janewanless:
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By Tax Dragon
12th Jul 2021 17:24

I've seen people taken out of SA (in the sense of HMRC not issuing any more notices - no-one's given me another sense above) in these situations. They may have to undertake to let HMRC know if anything changes, but that sounds like an easy undertaking to give here. (I've also seen threads recently where people have been moaning about HMRC taking clients out of SA when they shouldn't. Perhaps you can ask to have your case referred to those HMRC operatives!)

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Red Leader
By Red Leader
12th Jul 2021 17:49

When you asked HMRC to withdraw the SATR, did you just do this by phone? Have you put in a written request?

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By Not Anonymous
12th Jul 2021 19:52

Bit old school and probably not your preferred option but you could try the Liability Unlikely route.

File the 2021/22 return and then ask HMRC to mark it as a liability unlikely case and that sorts the next five years.

https://www.gov.uk/hmrc-internal-manuals/self-assessment-manual/sam101160

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By rmillaree
13th Jul 2021 08:47

If all else fails and you refuse to lie to hmrc and hmrc are being intransigent here (as they can be) - you can advise client if tenant ever moves out or expenses spike up and it is expected at that moment that expected rental income or profits will dip below relevant cutoff point then they should alert you and you should use that chance to correctly advise expected income or profits below threshold and that they be removed from sa - there is then zilch obligation to put them back in later when no tax due.

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By monksview
14th Jul 2021 10:23

I have a ridiculous case of an unnecessary return too. The client has rental income only, of about £5k. HMRC have absolutely refused to take him off the system. Total waste of time. But I'll check out the Liability Unlikely route, thanks for that.

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Replying to monksview:
By SteveHa
14th Jul 2021 12:24

As I've said, what HMRC and what the legislation says are two different things. The only get out that HMRC have is to issue a S8 notice, which can be withdrawn, though I'm sure there was a tax case (can't remember which one, but possibly @richard thomas can) where HMRC were found to have issued a notice incorrectly, that may be of use.

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Replying to monksview:
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By Tax Dragon
14th Jul 2021 12:52

What makes it unnecessary? If a s8 notice has been issued and not withdrawn, then it seems to me that, as SteveHa points out, the return is very necessary.

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Replying to Tax Dragon:
By SteveHa
14th Jul 2021 14:48

Tax Dragon wrote:

What makes it unnecessary? .

Nothing of any substance to report makes it unnecessary. I still go to S7 to determine whether or not a S8 notice is necessary or not, and if I find it isn't (especially where similarly unnecessary penalties are involved) I will argue the point to the hilt with HMRC. They do, generally, eventually capitulate.

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Replying to SteveHa:
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By Tax Dragon
14th Jul 2021 16:13

At least with SATRs there's a notice process. With, say, ERS returns, there's an obligation to fill in a form, with no notice being needed to impose that obligation, and with a greater than fair to middling chance that no tax will ever be charged by reference to that form.

You do understand I assume that tax returns great and small are the way that this country uses for taxpayers to provide information to the taxing authority, and that the taxing authority is fully empowered to ask whomever it wants to provide whatever information it deems necessary for the purpose of administering the tax system. (That's a simplification, but you get the drift.)

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Replying to Tax Dragon:
By SteveHa
15th Jul 2021 10:18
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By More unearned luck
14th Jul 2021 17:32

If the taxpayer wasn't in receipt of an NTF she would have no requirement to give an s 7 notice. Therefore HMRC's refusal to withdraw the NTF is irrational. Such a refusal , I'd argue, is an abuse of power unless they have reason to disbelieve what you've told them*.

The refusal is also contrary to the taxpayers' charter wherein HMRC promise, inter alia, to:
*Minimise compliance costs
*Be aware of the taxpayer's personal situation (and, by implication, take them into account)
*Make sure that everyone pays the right amount of tax (how does a tax return from this client further that goal?)

I'd put the request in writing quoting the charter and complain as far as the adjudicator /ombudsman if HMRC say no.

*How does the client live on only £10K? Benefits? Rich husband? Eating into capital?

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By Jack the Lad
14th Jul 2021 17:54

Not Anonymous and More Unearned Luck have the answer.
I have a clients whose income was taxed at source except for a known calculable annual pension from the States of Jersey of around £1,250pa. Because it was "Foreign Income" they insisted upon a SAR.
It took me two years to get HMRC to include it in her PAYE Code, and another 3 years to persuade them to dispense with the need for a SAR, but only after several letters requesting referral to their technical unit, and even higher!

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