The Government has made some significant amendments to the draft Finance Bill 2016 concerning entrepreneurs' relief and investors' relief, which take effect immediately. The procedures and costs relating to incorporation and returns filed at Companies House are also changing from 30 June 2016. We outline those changes below.
This is an
extract from our topical tax tips newsletter dated 23 June 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
Entrepreneurs' relief
The associated disposal rules within entrepreneurs' relief (ER) have been manipulated by people who arrange for their trading business to use a personally owned property for the purposes of the trade, (say as an office) for a year. A claim for ER on the sale of the property would succeed if the individual disposed of any shares or interest in the partnership at the same time as the property sale.
Those associated disposal rules were changed from 18 March 2015 (by FA 2015), to discourage such manipulation. Now the taxpayer has to dispose of at least 5% of his partnership, or personal company, if he wants to claim ER on an associated disposal. Finance Bill 2016 tweaks these rules further to require the personally-held asset to be owned for at least 3 years before disposal - a change which was to apply to disposals from 18 March 2015 onwards.
The Government has realised that such back-dating would mean some people would have further tax to pay on transactions which have already been completed. It has thus amended the Finance Bill 2016 such that the 3-year ownership period will only apply to assets acquired on or after 13 June 2016.
The condition that the taxpayer must dispose of at least a 5% interest in his partnership is also changed by amendments to the Finance Bill 2016. In most circumstances a partner must reduce his interest in his partnership by at least 5% (eg from 20% to 15%) when he makes an associated disposal. But if the partner is retiring and he may have already reduced his interest in the partnership to below 5%. In such a case the retiring partner will be able to claim ER on an associated disposal made when he finally exits from partnership, even if that last portion of partnership interest amounts to less than 5%
This is an
extract from our topical tax tips newsletter dated 23 June 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
The
full newsletter contained links to related source material for this
story and the
other two topical, timely and commercial tax tips. We've been
publishing this newsletter weekly since 2007; it's clearly written
and focused on precisely what accountants in general practice need to
know about each week. You can obtain future issues by registering here>>>
Tuesday, 28 June 2016
Tuesday, 21 June 2016
Shortage of funds, Professional conduct, HMRC experiments
Two tricky tax problems to consider this week; how a shortage of funds leads to a default surcharge for late paid VAT, and a client who refuses to provide the information necessary to complete his tax returns. We have tips on what to do in both situations. We also have news of two experiments HMRC is conducting on your clients. Are they messing with our minds?
This is an extract from our topical tax tips newsletter dated 16 June 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
PCRT - Guide to professional conduct relating to tax
Tax work can put you in a tricky position at times, as you stand between your client and HMRC. You are paid by the client, but occasionally you must provide some uncomfortable truths about his obligations under tax law. This can place you in an ethical dilemma.
Fortunately help is at hand in clearly written guidance approved by a joint committee of the professional accountancy and tax bodies: Professional conduct in Relation to Taxation (PCRT). This document was last updated in May 2015 and its worth referring to when in doubt as what to do.
One fairly common situation is when the client doesn't provide you with the information to complete his accounts or tax return on time. You may be tempted to do what one accountant did, and submit blank tax returns for his client for three consecutive years (see Murat Anik v HMRC). The accountant did this to prompt HMRC to investigate his client and, in his words “kick start” his client into doing something.
The accountant knew there were self-employed profits and rental income to report, but he didn't have any figures to use as an estimate, so he entered nothing. This was the wrong approach, as by submitting a nil return he was knowingly presenting an incorrect position. The professional conduct guidance says a tax adviser “should take care not to be associated with the presentation of facts he knows or believes to be incorrect or misleading nor to assert tax positions in a tax return which he considers have no sustainable basis.”
The professional conduct guidance also sets out what a tax adviser should do if there is a possible irregularity in the tax return, such as an under declaration (see para 5.9). If the client will not disclose the correct information to HMRC you must cease to act for the client. You would need to advise the client in writing, and HMRC. You may also need to make a money laundering report.
This is an extract from our topical tax tips newsletter dated 16 June 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>
This is an extract from our topical tax tips newsletter dated 16 June 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
PCRT - Guide to professional conduct relating to tax
Tax work can put you in a tricky position at times, as you stand between your client and HMRC. You are paid by the client, but occasionally you must provide some uncomfortable truths about his obligations under tax law. This can place you in an ethical dilemma.
Fortunately help is at hand in clearly written guidance approved by a joint committee of the professional accountancy and tax bodies: Professional conduct in Relation to Taxation (PCRT). This document was last updated in May 2015 and its worth referring to when in doubt as what to do.
One fairly common situation is when the client doesn't provide you with the information to complete his accounts or tax return on time. You may be tempted to do what one accountant did, and submit blank tax returns for his client for three consecutive years (see Murat Anik v HMRC). The accountant did this to prompt HMRC to investigate his client and, in his words “kick start” his client into doing something.
The accountant knew there were self-employed profits and rental income to report, but he didn't have any figures to use as an estimate, so he entered nothing. This was the wrong approach, as by submitting a nil return he was knowingly presenting an incorrect position. The professional conduct guidance says a tax adviser “should take care not to be associated with the presentation of facts he knows or believes to be incorrect or misleading nor to assert tax positions in a tax return which he considers have no sustainable basis.”
The professional conduct guidance also sets out what a tax adviser should do if there is a possible irregularity in the tax return, such as an under declaration (see para 5.9). If the client will not disclose the correct information to HMRC you must cease to act for the client. You would need to advise the client in writing, and HMRC. You may also need to make a money laundering report.
This is an extract from our topical tax tips newsletter dated 16 June 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>
Tuesday, 14 June 2016
Share scheme reporting, Second income disclosure, Penalties for follower notices
The P11D forms are sorted, so what's the next tax deadline to worry about? That will be the annual returns for employee share schemes which are due in by 6 July, as outlined below. We also have news of a disclosure opportunity for individuals who have a second income, and some new HMRC factsheets about penalties and follower notices.
This is an extract from our topical tax tips newsletter dated 9 June 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
Second income disclosure
This disclosure opportunity was opened in April 2014 (see our newsletter 17 April 2014), but the guidance has recently been updated. It amounts to an open-ended opportunity to disclose taxable income or gains and take advantage of a discount on penalties due.
To use this disclosure opportunity, the individual (or you as their tax agent), must notify HMRC using a special online form or by telephoning: 0300 123 0945. HMRC will respond with a disclosure number, and a payment reference number to quote when paying the tax due. A full disclosure and payment of all liabilities must be made within four months of HMRC's acknowledgement of the notification.
The calculation of the payment due must include interest and penalties, but the level of penalty will be no more than 20%, and could be zero for some years. If the taxpayer can't pay the full amount due in one go, you should contact HMRC and make a formal time to pay agreement. This will generally require instalments to be paid by monthly direct debit for a period of between 6 and 12 months.
If the only undeclared income relates to let property, the individual should use the let property campaign to declare that income and any related gains. The let property campaign operates in a similar fashion to the second income disclosure, but the taxpayer has only three months to pay the amount due after notifying HMRC.
The second income disclosure can't be used to declare employer's NIC, IHT, VAT, trust income or income arising from a deceased's estate during administration. It also can't be used if there is an open tax enquiry into the taxpayer's affairs.
If the taxpayer is uncertain about their residency status, and hence their liability to pay UK tax, that point needs to be resolved before completing the disclosure form. Also if the taxpayer has been part of a tax credit claim in any of the tax years covered by the disclosure, that fact should be declared on the disclosure form.
This is an extract from our topical tax tips newsletter dated 9 June 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>
This is an extract from our topical tax tips newsletter dated 9 June 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
Second income disclosure
This disclosure opportunity was opened in April 2014 (see our newsletter 17 April 2014), but the guidance has recently been updated. It amounts to an open-ended opportunity to disclose taxable income or gains and take advantage of a discount on penalties due.
To use this disclosure opportunity, the individual (or you as their tax agent), must notify HMRC using a special online form or by telephoning: 0300 123 0945. HMRC will respond with a disclosure number, and a payment reference number to quote when paying the tax due. A full disclosure and payment of all liabilities must be made within four months of HMRC's acknowledgement of the notification.
The calculation of the payment due must include interest and penalties, but the level of penalty will be no more than 20%, and could be zero for some years. If the taxpayer can't pay the full amount due in one go, you should contact HMRC and make a formal time to pay agreement. This will generally require instalments to be paid by monthly direct debit for a period of between 6 and 12 months.
If the only undeclared income relates to let property, the individual should use the let property campaign to declare that income and any related gains. The let property campaign operates in a similar fashion to the second income disclosure, but the taxpayer has only three months to pay the amount due after notifying HMRC.
The second income disclosure can't be used to declare employer's NIC, IHT, VAT, trust income or income arising from a deceased's estate during administration. It also can't be used if there is an open tax enquiry into the taxpayer's affairs.
If the taxpayer is uncertain about their residency status, and hence their liability to pay UK tax, that point needs to be resolved before completing the disclosure form. Also if the taxpayer has been part of a tax credit claim in any of the tax years covered by the disclosure, that fact should be declared on the disclosure form.
This is an extract from our topical tax tips newsletter dated 9 June 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>
Tuesday, 7 June 2016
Doctors' pensions, VAT compliance checks, Beware HMRC scammers
The civil service for central Government is now in “purdah”, which means there will be no significant Government announcements until after the EU referendum on 23 June 2016. This is holding up the publication of key tax consultations, particularly on Making Tax Digital. In the meantime there is a problem with GPs' pensions you need to be aware of. We also have news of a pilot scheme for VAT compliance visits, and a warning about fraudsters claiming to be from HMRC.
This is an extract from our topical tax tips newsletter dated 2 June 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
Beware HMRC scammers
Fraudsters are using threats and intimidation in phone calls to taxpayers and accountants, as they pretend to be collecting tax debts on behalf of HMRC. This is not surprising as the HMRC-approved debt collectors can be threatening and unreasonable at times.
The latest calls and text messages claim there is an outstanding tax debt, and that payment must be made immediately or the police will arrest the individual. The fraudsters are able to use technology to pretend to be calling from a genuine HMRC call-centre telephone number, in this case: 0300 200 3300. You should not trust the number shown on your telephone's display as it can easily be spoofed.
The fraudulent caller normally attempts to obtain credit or debit card details, and may give her name as Heather Grey of HMRC. There is no such person within HMRC. In another twist the taxpayer may be asked to pay the tax debt in the form of gift card vouchers from iTunes or Argos. This sounds incredible, but some people are falling for this scam. Gift cards can be easily redeemed or sold on.
Please warn your clients about these scams, especially those individuals who are new to self-employment and haven't dealt directly with HMRC before. HMRC never use text messages to ask for payment.
If you or your clients have suffered an attempted fraud, report it to Action Fraud (National Fraud and Cyber Crime unit) on 0300 123 2040 or by using the online fraud reporting tool.
This is an extract from our topical tax tips newsletter dated 2 June 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>
This is an extract from our topical tax tips newsletter dated 2 June 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
Beware HMRC scammers
Fraudsters are using threats and intimidation in phone calls to taxpayers and accountants, as they pretend to be collecting tax debts on behalf of HMRC. This is not surprising as the HMRC-approved debt collectors can be threatening and unreasonable at times.
The latest calls and text messages claim there is an outstanding tax debt, and that payment must be made immediately or the police will arrest the individual. The fraudsters are able to use technology to pretend to be calling from a genuine HMRC call-centre telephone number, in this case: 0300 200 3300. You should not trust the number shown on your telephone's display as it can easily be spoofed.
The fraudulent caller normally attempts to obtain credit or debit card details, and may give her name as Heather Grey of HMRC. There is no such person within HMRC. In another twist the taxpayer may be asked to pay the tax debt in the form of gift card vouchers from iTunes or Argos. This sounds incredible, but some people are falling for this scam. Gift cards can be easily redeemed or sold on.
Please warn your clients about these scams, especially those individuals who are new to self-employment and haven't dealt directly with HMRC before. HMRC never use text messages to ask for payment.
If you or your clients have suffered an attempted fraud, report it to Action Fraud (National Fraud and Cyber Crime unit) on 0300 123 2040 or by using the online fraud reporting tool.
This is an extract from our topical tax tips newsletter dated 2 June 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>
Tuesday, 31 May 2016
RTI penalties, Class 2 NIC errors, SEIS investments
Seven weeks into the 2016/17 tax year and HMRC finally tell us what is happening with RTI late filing penalties, and we explained the the details in last week's newsletter. We also had alarming news about the mistakes HMRC are making with class 2 NIC liabilities, and a lesson to learn when applying for approval for investments under SEIS.
This is an extract from our topical tax tips newsletter dated 26 May 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
Class 2 NIC errors
From 2015/16 class 2 NIC should to be collected through the taxpayer's self-assessment, rather than paid separately by direct debit or cheque. Most commercial tax return software has been amended to incorporate this change for the self-employed, but it appears the HMRC computer has not.
If you submit a 2015/16 tax return, your commercial software will calculate the class 2 NIC liability if the taxpayer's self-employed profits exceed £5,965 for the year. HMRC's computer will then “correct” the tax calculation and strip out the class 2 NIC liability, and it may repay that amount to the taxpayer.
The HMRC computer is wrong, but you will be wasting your time arguing with the HMRC operative who answers the phone at the call centre as they can't override the computer. The call-centre person may also tell you that your client is not registered for class 2 NIC, which is also likely to be incorrect. The problem apparently stems from HMRC's NIC computer and SA computer not talking to each other, and this situation should be fixed soon.
In the meantime, your client may have received an unexplained tax refund of £145.60, which he has forgotten to tell you about. It's important the taxpayer's NIC record is corrected and that he pays the class 2 NIC due for 2015/16 in order to build up qualification for the full state pension.
Where your client has been paying class 2 NIC on a voluntary basis because he lives outside the UK, he should still be billed for the class 2 NIC in late 2016 for payment by 31 January 2017. Problems occur where the individual returned to the UK part way through 2015/16 and thus should pay class 2 under self-assessment for part of the year. The HMRC computer can't cope with that situation.
This is an extract from our topical tax tips newsletter dated 26 May 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>
This is an extract from our topical tax tips newsletter dated 26 May 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
Class 2 NIC errors
From 2015/16 class 2 NIC should to be collected through the taxpayer's self-assessment, rather than paid separately by direct debit or cheque. Most commercial tax return software has been amended to incorporate this change for the self-employed, but it appears the HMRC computer has not.
If you submit a 2015/16 tax return, your commercial software will calculate the class 2 NIC liability if the taxpayer's self-employed profits exceed £5,965 for the year. HMRC's computer will then “correct” the tax calculation and strip out the class 2 NIC liability, and it may repay that amount to the taxpayer.
The HMRC computer is wrong, but you will be wasting your time arguing with the HMRC operative who answers the phone at the call centre as they can't override the computer. The call-centre person may also tell you that your client is not registered for class 2 NIC, which is also likely to be incorrect. The problem apparently stems from HMRC's NIC computer and SA computer not talking to each other, and this situation should be fixed soon.
In the meantime, your client may have received an unexplained tax refund of £145.60, which he has forgotten to tell you about. It's important the taxpayer's NIC record is corrected and that he pays the class 2 NIC due for 2015/16 in order to build up qualification for the full state pension.
Where your client has been paying class 2 NIC on a voluntary basis because he lives outside the UK, he should still be billed for the class 2 NIC in late 2016 for payment by 31 January 2017. Problems occur where the individual returned to the UK part way through 2015/16 and thus should pay class 2 under self-assessment for part of the year. The HMRC computer can't cope with that situation.
This is an extract from our topical tax tips newsletter dated 26 May 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>
Tuesday, 24 May 2016
VAT flat rate scheme, Repayment claims, Members of the armed forces
Last week we had good news about revised HMRC guidance concerning the VAT flat rate scheme, and a prompt to think about clients submitting repayment claims. We also highlighted some special situations that apply to members and former members of the armed forces.
This is an extract from our topical tax tips newsletter dated 19 May 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
Members of the armed forces
Individuals who serve in the armed forces are highly motivated, but some leave the forces carrying burdens of illness or disability. The UK tax and benefits system can present a barrier, as there are many rules which don't fit easily with the usual situations faced by current and former members of the armed services. For instance:
Residence
Serving personnel may be posted to other countries, but their residence for tax purpose must be worked out using the statutory residence test (SRT). Individuals are not deemed to be UK resident for tax purposes when serving - although they may be treated as UK resident for tax credit purposes. Earned income from the armed forces will always be subject to UK income tax. The SRT will have to be applied to family members of serving personnel who also live abroad.
Tax credits
Serving personnel and their families can claim tax credits, even if they are serving in another country. The serving claimant is treated as if they were present in the UK, as long as they were ordinarily resident in the UK before their overseas posting began.
Non-taxable income
There are a number of travel and operational allowances that serving personnel receive which are not taxable and are disregarded for tax credits. Former members may receive war pensions and mobility supplements which are not treated as pension income. Also the armed forces independence payment is not treated as income.
All of these issues, and much more, are covered in the LITRG guide for armed forces. There is also a very handy leaflet covering the same topics that can be printed out.
This is an extract from our topical tax tips newsletter dated 19 May 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>
This is an extract from our topical tax tips newsletter dated 19 May 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
Members of the armed forces
Individuals who serve in the armed forces are highly motivated, but some leave the forces carrying burdens of illness or disability. The UK tax and benefits system can present a barrier, as there are many rules which don't fit easily with the usual situations faced by current and former members of the armed services. For instance:
Residence
Serving personnel may be posted to other countries, but their residence for tax purpose must be worked out using the statutory residence test (SRT). Individuals are not deemed to be UK resident for tax purposes when serving - although they may be treated as UK resident for tax credit purposes. Earned income from the armed forces will always be subject to UK income tax. The SRT will have to be applied to family members of serving personnel who also live abroad.
Tax credits
Serving personnel and their families can claim tax credits, even if they are serving in another country. The serving claimant is treated as if they were present in the UK, as long as they were ordinarily resident in the UK before their overseas posting began.
Non-taxable income
There are a number of travel and operational allowances that serving personnel receive which are not taxable and are disregarded for tax credits. Former members may receive war pensions and mobility supplements which are not treated as pension income. Also the armed forces independence payment is not treated as income.
All of these issues, and much more, are covered in the LITRG guide for armed forces. There is also a very handy leaflet covering the same topics that can be printed out.
This is an extract from our topical tax tips newsletter dated 19 May 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>
Tuesday, 17 May 2016
PAYE codes, CIS returns, ATED returns
RTI was supposed to produce more accurate PAYE codes, but the evidence so far is quite the opposite, as we explain below. We have an update on compulsory online filing for CIS returns and the subcontractor verification process. Finally, a warning about ATED returns, which are now overdue for 2016/17.
This is an extract from our topical tax tips newsletter dated 12 May 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
PAYE codes
It's been a bumper year for PAYE coding errors. Here is summary of all the known issues, and what to do resolve them.
Allowances
In spite of an application to transfer 10% of the allowance to a spouse, PAYE codes have not been altered for the couple.
The personal allowance should be restricted where the taxpayer's income exceeds £100,000. However, the RTI system estimated 2016/17 income from February 2016 year to date figures which excluded any year-end bonuses. Thus the taxpayer's total income for 2016/17 is underestimated and allowances are not restricted.
Dividend income
This will be estimated based on the 2014/15 tax return. Taxpayers can ask for dividend income to be excluded from their code, in which case they will need to pay any dividend tax due by 31 January 2018.
Interest received
Interest is also estimated from the 2014/15 tax return. The personal savings allowance of £1000 or £500 may have been ignored.
Ceased job
The date of leaving can't be reported under RTI until the FPS for the last employment period is submitted. The taxpayer may be recorded as starting new job before the notice of his leaving date filters through to the RTI computer.
Benefits in kind
All benefits included in payroll and taxed as income should be removed from the code, but this is not happening. Some taxpayers are seeing random benefits appearing in their code which they have never received.
Pension withdrawals
Where the taxpayer has taken a one-off cash withdrawal from their pension fund, this may be incorrectly treated as a regular recurring withdrawal.
Scottish taxpayers
Taxpayers who don't use the word “Scotland” in their residential address logged with HMRC may not be registered as Scottish taxpayers, and thus don't receive a S prefix to the code, as they should do.
All of the above issues can be reported to HMRC using the PAYE code notice correction form (see below). But the Scottish address issue may need to be corrected using the change in personal details form. For the 'old' address use that on the P2 notice of coding form.
This is an extract from our topical tax tips newsletter dated 12 May 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>
This is an extract from our topical tax tips newsletter dated 12 May 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
PAYE codes
It's been a bumper year for PAYE coding errors. Here is summary of all the known issues, and what to do resolve them.
Allowances
In spite of an application to transfer 10% of the allowance to a spouse, PAYE codes have not been altered for the couple.
The personal allowance should be restricted where the taxpayer's income exceeds £100,000. However, the RTI system estimated 2016/17 income from February 2016 year to date figures which excluded any year-end bonuses. Thus the taxpayer's total income for 2016/17 is underestimated and allowances are not restricted.
Dividend income
This will be estimated based on the 2014/15 tax return. Taxpayers can ask for dividend income to be excluded from their code, in which case they will need to pay any dividend tax due by 31 January 2018.
Interest received
Interest is also estimated from the 2014/15 tax return. The personal savings allowance of £1000 or £500 may have been ignored.
Ceased job
The date of leaving can't be reported under RTI until the FPS for the last employment period is submitted. The taxpayer may be recorded as starting new job before the notice of his leaving date filters through to the RTI computer.
Benefits in kind
All benefits included in payroll and taxed as income should be removed from the code, but this is not happening. Some taxpayers are seeing random benefits appearing in their code which they have never received.
Pension withdrawals
Where the taxpayer has taken a one-off cash withdrawal from their pension fund, this may be incorrectly treated as a regular recurring withdrawal.
Scottish taxpayers
Taxpayers who don't use the word “Scotland” in their residential address logged with HMRC may not be registered as Scottish taxpayers, and thus don't receive a S prefix to the code, as they should do.
All of the above issues can be reported to HMRC using the PAYE code notice correction form (see below). But the Scottish address issue may need to be corrected using the change in personal details form. For the 'old' address use that on the P2 notice of coding form.
This is an extract from our topical tax tips newsletter dated 12 May 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>
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