January's top 10 self assessment troublespots
Ahead of her self assessment surgery with Sage next week, Rebecca Benneyworth casts an eye over the topics she sees people tripping up over so far this tax season.
Continuing our SA coverage, Benneyworth considers the following key points to watch out for in 2014 returns.
If your client’s net adjusted income exceeds £50,000, you may need to declare a charge to claw back any child benefit that has been received by your client or the person with whom they were living at the time the child benefit was paid. This will involve also checking whether your clients’ partner has net adjusted income of a higher amount, in which case the partner will be liable for the charge.
However, this is not the end of the story. Your client (or their partner) may have elected not to receive child benefit in 2013-14 on the basis that they expected their net adjusted income to exceed £60,000. If there has been an unexpected reduction in income, then they may need to withdraw the election not to receive child benefit, and to notify HMRC that child benefit is payable for the 2013-14 year.
Life becomes even more complicated if the person with the higher income has between £50,000 and £60,000 as the child benefit will be paid in full and a tax charge will also be due to reduce the payment to the correct amount. You will need to review the position carefully to ensure that you take the correct steps.
Net adjusted income is total income less the gross amounts of both gift aid and pension contributions paid net.
As before, student loan recovery may be an issue. You must ensure that the student loan box is ticked if your client is liable to make student loan repayments. The student loan amounts collected through the tax return are due as if they are tax, so late payment will be charged to a late payment penalty in the same way as if the tax due for 2013-14 is paid late.
This is now the only way to affect the tax due for 2013-14 (assuming there are no losses to carry back). Clients who are on the very edge of an abatement band – such as that starting at £100,000, but also for older taxpayers and those liable to High Income Child Benefit Charge can make a donation work very hard for them if paid now (before the tax return is filed) and carried back to 2013-14. Some clients may already have made gift aid payments between 6 April 2014 and now, so it is worth checking if your client is just into some of the higher effective tax rates.
It is now too late for a liability for 2013-14 to be coded out – the return needed to be submitted by 30 December 2014 for a request to be made. However, noting those clients who missed the boat this year, and ensuring that they submit their records earlier next year may give them a welcome cash flow boost.
Looking forward to 2015-16 tax year, some clients may be in the position of wishing to transfer unused personal allowances to their spouse or civil partner. It is probably worth reviewing clients as you progress tax returns this year, to give you an idea of how many will be needing this advice. The likely position is that you will make an election to forego personal allowance of £1,060 on your client’s 2016 tax return, so this is some time away, but it is worth thinking about how you will assemble information about spouse/civil partner and their income which you will need in order to make a decision about the appropriate advice later.
This is the first return affected by the new statutory residence test in Finance Act 2013. As a result you will see that the non resident pages are seeking quite a bit of information that may not be relevant to your clients’ tax positions. For example, if your client spent less than 16 days in the UK in 2013-14 he is automatically not UK resident. However the form still requests information about trips to the UK and work days both in the UK and overseas, even though these will not impact on your client’s residence status for 2013-14. Now that you have seen the data the forms seek to collect, you can warn your client to have that information ready for next year’s return.
7. Property in the UK – non residents
Although this is a future issue, the tax return for 2014 will flag up any clients who may need advice for 2015-16. Changes in capital gains tax coming into force on 6 April 2015 will result in a tax charge for non residents on UK residential property. It will also prevent someone who is not UK resident from nominating a UK property as their PPR unless they spend at least 90 days (midnights) there in 2015-16. Where a client has left the UK and retains a property here, they may need specific advice about future capital gains tax liabilities. Reviewing 2014 tax returns provides the ideal opportunity to identify non resident clients with UK letting income who may be in need of advice.
It is no secret that HMRC is becoming much more forceful when seeking to collect tax debts, and debts are passed to external debt collectors much quicker now than in the past. If your client thinks that they may not be able to settle their liabilities in full at the end of January, they (or you) should contact HMRC as soon as possible in order to seek time to pay arrangements. It is much better to do this before the liability is actually due as late payment penalties will not then apply, although interest is always chargeable.
It can be the case that preparing the 2014 return throws up an error made previously on the 2013-4 return. The error can be corrected by filing an amended return before 31 January (irrespective of the date the 2013 return was filed), but note that this leaves the enquiry window open for a further 12 months in respect of the corrected item. Merely correcting a return to show the right figure may not meet HMRC’s test of “disclosure” of an error so if you think that your client has been careless then you may wish to make a stand alone disclosure. If the amendment date has passed, you will still need to notify HMRC if there is additional income liable to tax that was omitted from the 2013 return.
10. Paying HMRC
HMRC changed their bank accounts some time ago now, but it is not unusual for clients to dig out an old payslip to make payment. It is worth ensuring that clients know how to make a payment before the end of January so that the last few days run smoothly. For clients who have an HMRC self assessment log on, most will be able to pay their tax through a new online payment gateway. This opened for business very recently, so not all clients will be able to see the new facility as it is being rolled out slowly, but it is worth being aware of. Payments are made by debit card.
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Rebecca trained in London with Kidsons and, on qualifying, spent some time as Chief Accountant of a manufacturing company. She now has her own small practice in Gloucestershire that comprises of owner managed businesses and small companies.
She also lectures extensively for a range of professional bodies, accountancy firms,...