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Is a Tax Return Required?

Does this pensioner need to complete a Tax Return?

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An individual has pension income of £20,000 and untaxed bank interest of £4,000 in 2020/2021. No other income.

Would you advise them to:

  • Notify chargeabilty with the eventual aim of completing a Tax Return, or
  • Notify HMRC of the amount of untaxed bank interest, or
  • Neither?

Thanks in advance for any comments.

Replies (15)

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By Carl London
14th Jul 2021 18:35

I would go for option 2

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Scooby
By gainsborough
14th Jul 2021 19:08

+1 for option 2. No point putting the person in self-assessment if there is no need to (i.e. as savings income is less than £10,000) and you can't ignore the fact that tax is due on the savings income so option 3 is not an option.

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My photo
By Matrix
14th Jul 2021 19:17

Call up and get the interest put through her tax code. But you would need to sign her up, register as agent and charge a fee. Similar to the other thread on taking a client out of SA, the recovery rates on this kind of work must be very poor.

Find out about earlier years first too.

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Replying to Matrix:
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By Hugo Fair
14th Jul 2021 19:45

Agree that someone needs to call HMRC and appraise them of the bank interest (in order for HMRC to adjust the PAYE tax code notified to the pension scheme) ... but the pensioner can do that themself (one simple phone-call apart from the 'hanging on the line' aspect).
Based on previous posts it seems likely that OP is not an Agent (apologies if I'm wrong) ... in which case the taxpayer can resolve all this at no cost and little effort.

BTW, being a bit cheeky, but pensioner must have an absolute fortune at the bank to be getting that much interest (given current rates). Not my sphere but, if it's within the remit of OP's relationship with the pensioner, it might be sensible to seek an IFA's opinion as to whether there are better homes for this largesse?

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Replying to Hugo Fair:
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By creevagh
15th Jul 2021 11:23

None taken.

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Replying to Matrix:
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By rmillaree
15th Jul 2021 09:10

The problem adding to tax code is that its two stage process in that post year totals probably still need to be confirmed unless hmrc computers work their magic (they may do however if thats the case though they would likely work with post year end calc only and nothing in code ??? (would anyone agree on that?) )

Personally i would simply report post year end (late september?) - perhaps electing to wait to see if hmrc do get info and issue p800 or simple assessment first in which case you can simply instruct client to "check amounts are corect".
when you do ring in amount formally request that nothing be included in tax code for following year that may be bunkum.

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By Leywood
14th Jul 2021 20:07

Not a good idea to ignore it.

HMRC will find out from the institution paying it over.

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By SteveHa
15th Jul 2021 10:21

S7 requires that HMRC be informed of a chargeable source of untaxed income in this case.

What happens after that is up to HMRC.

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By creevagh
15th Jul 2021 11:21

Thank you all for the responses so far.

The reason for the question is that most unrepresented taxpayers would, I think, eventually land on the following HMRC page if they wanted an answer to this question:

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

If this pensioner answers the questions honestly, then HMRC seem to suggest that the answer is actually "Neither".

Or have I interpreted the HMRC result incorrectly (quite possible)?

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Replying to creevagh:
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By Hugo Fair
15th Jul 2021 12:17

Whilst I can't be certain as to all the answers given when you used the calculator, I can see why you'd be confused.

BUT:
a) GOV.UK calculators are not guaranteed to be accurate (they are in HMRC's words 'a useful indicator only')!
b) I'm guessing you saw the 'result' and didn't scroll down to read the rest of the page.

Bottom-line: the calculator is supposed to help you "Check if you need to send a Self Assessment tax return" - and correctly identifies that you don't have to (by default). But this isn't the same as not submitting one if asked to do so by HMRC (one of the additional points further down the page).

The "If you had untaxed income" section on the page says "You must tell HMRC if you had .." and lists a couple of examples that are irrelevant to your scenario. But that's poor wording if you think it means that your overall answer is "Neither".

As mentioned earlier ... the pensioner is receiving untaxed (but taxable) interest and so needs to appraise HMRC of this ... this has nothing to do (automatically) with a need to submit an SA return ... the result of informing HMRC may be an adjusted Tax Code sent to the Pension scheme or a demand for an SAR to the taxpayer (but that is, broadly, HMRC's choice).

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By More unearned luck
15th Jul 2021 17:17

The answer is 2, but in my experience you must guard against gormless HMRC officers/crap Revenue software as the banks will also tell HMRC that the taxpayer has received £4K and said officer/software will go £4k +£4k = £8k. Check the SA800/P800 when it's issued.

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RLI
By lionofludesch
16th Jul 2021 00:24

Personally, I always feel more in control with a self assessment return, regardless of legal obligation.

For some reason, I always felt that I was more likely to get it right than HMRC.

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Replying to lionofludesch:
By petersaxton
16th Jul 2021 22:14

HMRC have a blind spot when it comes to tax.

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By TASG
19th Jul 2021 10:48

I can't see a full SA100 taking that much more time then trying to get the notoriously bad PAYE coding system to actually work. I'd rather go down the SA100 route. It also means you can charge £200 reflecting the level of work involved.

Legalities aside, option 3 is only going to end badly for your client.

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By petestar1969
19th Jul 2021 12:25

Is this an exam question?

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