Tax, Spies and letters from HMRC
You just have to love the month of May, don’t you? Spring is here and there are two bank holiday Mondays in the month which is always a bonus. Although from some of the conversations I had last week for many switching back on the central heating was becoming a consideration, I just opted for my faithful scarf which seemed to get me through those chillier and wetter days.
In this week's edition, I talk about tax and spies, the opportunity not to complete a tax return and the possible consequences as well as the day in the life of a tax advisor, well most days
The secret is out
It sometimes surprising what you find out about your team when you take a few minutes out to have what you think is a non-work conversation. As some of you know Jon Golding is the Trust & Inheritance Tax expert at Tax Matters and occasionally writes for Tax Advisor magazine and has also written several IHT books over the years.
Whilst chatting the other day, he casually asked did you see my LinkedIn post today, I was curious was this going to be a tax planning opportunity or idea? It was neither, in fact, he mentioned that whilst working for one of the large four accountancy firms in the 1970s his then-boss asked him to take on an interesting case for a gentleman called “Anthony Blunt”.
Back in 1979, Mrs Thatcher (Prime Minister) outed Blunt as a KGB spy, much to Jon's surprise he never suspected or had any idea, and he said nor did the Queen. If you have never heard of the Cambridge Five spy ring then Jon reminded me that the story was featured in the NETFLIX series The Crown (series 3 episode 1 – Olding).
Jon continued to prepare Anthony Blunt's tax return until 1982 when he moved firms. Now I understand why Jon always laughs when I say to him, here is an interesting case for you, not that I believe we represent any Russian spies.
YouTube
In my latest vlog-style videos, I was asked the question "What do you do on a day to day basis as a tax advisor?" Well, now you can find out.
Over the last few weeks, many of you have been watching the videos, and I have even had a couple of comments, all of which are very much appreciated. Don't miss out on future videos by remembering to also SUBSCRIBE to the channel.
Significant Changes to Tax Return Rules for Individuals
Recent updates from HM Revenue & Customs (HMRC) have brought about significant changes to tax return regulations, particularly impacting individuals earning between £100,000 and £150,000. If you fall within this income bracket, you should have received a letter from HMRC outlining these crucial alterations.
Effective for the 2023/24 tax year, individuals earning between £100,000 and £150,000 will no longer be automatically required to file a self-assessment return if their income is solely derived from PAYE and they have no additional income streams. This shift follows the elevation of the employment income threshold.
HMRC has taken proactive steps by dispatching letters to affected taxpayers, explicitly stating that they are exempt from completing a tax return if their 2022-23 tax filing indicated income falling within the £100,000 to £150,000 range, solely taxed through PAYE, and they do not meet any other self-assessment criteria.
However, it's essential to understand that for the 2023-24 tax year, individuals within this income bracket must still submit a tax return if they meet specific criteria, including:
Receiving untaxed income exceeding £2,500
Being a partner in a business partnership
Paying the high-income child benefit charge (HICBC)
Being self-employed with gross business income surpassing £1,000
Looking ahead to the tax year 2024-25, the income threshold for PAYE-only taxpayers will be entirely eliminated. This means that all individuals, regardless of income bracket, will be required to file a tax return if they meet any of the outlined criteria.
HMRC strongly advises individuals to utilise its online tool to ascertain whether they need to submit a tax return, providing personalised guidance based on individual circumstances.
It is crucial for individuals falling within the specified income bracket to stay informed about HMRC communications and leverage available resources to ensure compliance with the revised tax regulations.
For more information or assistance, individuals are encouraged to reach out to HMRC or consult with Tax Matters
Changes in Tax Return Requirements: A Closer Look at the £150,000 Earnings Income Threshold
The recent adjustment in the earnings income threshold to £150,000 is poised to alleviate the tax filing burden for a significant number of taxpayers this year, potentially removing up to 338,000 individuals from the obligation to file a self-assessment tax return with HM Revenue & Customs (HMRC).
Until 6th April 2023, taxpayers earning above £100,000 were mandated to file a tax return, irrespective of whether all their income was already taxed at source through PAYE. However, with the threshold raised to £150,000 effective from 6th April 2023, and completely removed from 6th April 2024, a welcome simplification has been introduced to the tax filing process.
While this adjustment brings relief, it's important to note that HMRC's notification of exemption from tax return filing doesn't necessarily imply an absence of tax liability. HMRC emphasises that tax return submission is necessary when 'income from savings or investments is over £10,000'.
However, there's a potential pitfall for the uninformed. As returns on savings and investments climb, taxpayers must be mindful that interest exceeding the personal savings allowance (PSA) of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers is subject to income tax. Additional rate taxpayers receive no PSA.
Likewise, dividend income exceeding the dividend allowance, currently set at £500 (£1,000 in 2023/24), will incur income tax directly.
Financial institutions are mandated to inform HMRC of interest, prompting HMRC to collect tax via a PAYE coding adjustment initially. If PAYE income isn't adequate for tax collection on savings and investments or if there's a delay in HMRC's awareness of such income, taxpayers may receive a tax demand.
This often comes as a surprise, as taxpayers might receive tax demands or PAYE code adjustments for unpaid tax up to four years after the tax year in which the bank interest was paid.
It's noteworthy that there's no analogous mechanism for dividend income. Taxpayers with taxable dividends exceeding £500 but falling short of £10,000 are now responsible for informing HMRC to facilitate tax collection. This can be done via the Personal Tax Account or the PAYE helpline.
Despite reported issues with HMRC's customer service and accessibility, it remains the taxpayer's responsibility to notify HMRC of untaxed income and ensure tax compliance. If calling HMRC I always recommend an early morning call as waiting times appear to be shorter at this time of the day.
Another potential pitfall arises from HMRC's occasional failure to automatically remove taxpayers from self-assessment if they no longer meet the filing criteria. Relying solely on HMRC for this task could result in an unnecessary administrative burden and potential penalties for non-compliance. This is something I continually remind clients to check when they fall outside the self-assessment system.
Encouragingly, taxpayers aren't obliged to file a return simply because a filing notice has been issued. Filing notices can be cancelled, and taxpayers can be removed from self-assessment through an application to HMRC (usually a phone call from the taxpayer is sufficient).
It's prudent for taxpayers and Tax Matters to annually review tax return requirements and assess how untaxed income can be reported and taxed.
I hope you have enjoyed this edition of my newsletter, and found it both enjoyable and informative, if you have any suggestions or comments then please let me know it is always good to hear from you. In addition to the newsletter, I am also updating the website, so please take a look from time to time to see what is happening.
If I or the Tax Matters team can be of any assistance to you, your family or your friends then please do not hesitate to contact me at 01442 828006 or jreeves@taxmatters.tax
