Income Tax

HMRC is reminding married couples and those in civil partnerships that there is still time to sign up for marriage allowance before the end of the current tax year (5 April 2023) if they are eligible and haven’t yet claimed.

The marriage allowance applies to married couples and those in a civil partnership where a spouse or civil partner does not pay tax or does not pay tax above the basic rate threshold for Income Tax (i.e., one of the couples must currently earn less than the £12,570 personal allowance for 2022-23).

The allowance works by permitting the lower earning partner to transfer up to £1,260 of their personal tax-free allowance to their spouse or civil partner. The marriage allowance can only be used when the recipient of the transfer (the higher earning partner) does not pay more than the basic 20% rate of Income Tax. This would usually mean that their income is between £12,570 to £50,270 in 2022-23. The limits are somewhat different for those living in Scotland.

This transfer could result in a saving of up to £252 for the recipient (20% of £1,260), or £21 a month for the current tax year. In fact, even if a spouse or civil partner has died after 5 April 2018, the surviving person can still claim the allowance (if they qualify) by contacting HMRC’s Income Tax helpline.

If you meet the eligibility requirements and have not yet claimed the allowance, you can backdate your claim to 6 April 2018. This could result in a total tax-break of up to £1,242 if you can claim for 2018-19, 2019-20, 2020-21, 2021-22 as well as the current 2022-23 tax year. In fact, even if you are no longer eligible but would have been in any of the preceding years then you can still claim your entitlement.

Newly self-employed taxpayers should notify HMRC as soon as practicable when they begin working for themselves. However, HMRC must be officially notified by the 5 October following the end of the tax year so that a Self-Assessment return can be issued on time and to avoid any unnecessary penalties.

HMRC’s guidance says that you are probably self-employed if you:

• run your business for yourself and take responsibility for its success or failure;
• have several customers at the same time;
• can decide how, where and when you do your work;
• can hire other people at your own expense to help you or to do the work for you;
• provide the main items of equipment to do your work;
• are responsible for finishing any unsatisfactory work in your own time;
• charge an agreed fixed price for your work; and
• sell goods or services to make a profit (including through websites or apps).

The newly self-employed should also register to pay National Insurance contributions (NICs) and monitor whether a VAT registration is required.

There is a £1,000 tax-free allowance for miscellaneous trading income that has been available to taxpayers since April 2017. This is known as the trading allowance.

The exemption from tax applies to taxpayers who have trading income of up to £1,000 from:

• self-employment;
• casual services, for example, babysitting or gardening; and
• hiring personal equipment, for example, power tools.

Where this £1,000 allowance covers all the individual’s relevant income (before expenses) the income is tax-free and does not have to be declared to HMRC.

HMRC has confirmed that more than 11.7 million people submitted their 2021-22 Self-Assessment tax returns by the 31 January deadline. This included over 861,000 taxpayers who left their filing until the final day and over 36,000 that filed in the last hour before the deadline.

Whilst this was the highest ever number of filings, there are still an estimated 600,000 taxpayers that have missed the deadline and are yet to file. Are you among those that missed the 31 January 2023 filing deadline for your 2021-22 Self-Assessment returns?

If you have missed the filing deadline then you will usually be charged a £100 fixed penalty if your return is up to 3 months late, regardless of whether you owed tax or not. If you do not file and pay before 1 May 2023 then you will face further penalties unless you have arranged to pay HMRC.

If you are unable to pay your tax bill, there is an option to set up an online time to pay payment plan to spread the cost of tax due on 31 January 2023 for up to 12 months. This option is available for debts up to £30,000 and the payment plan needs to be set up no later than 60 days after the due date of a debt. This should be done sooner rather than later as a 5% late payment penalty will be charged if tax remains outstanding, and a payment plan has not been set up, before 1 April 2022.

If you owe self-assessment tax payments of over £30,000 or need longer than 12-months to pay in full, you can still apply to set up a time to pay arrangement with HMRC, but this cannot be done using the online service.

HMRC’s Director General for Customer Services, said:

‘Thank you to the millions of customers and agents who got their tax returns in on time. Customers who have yet to file, and who are concerned that they will not be able to pay in full, may be able to spread the cost of what they owe with a payment plan.’

HMRC is reminding parents that they may be eligible for Tax-Free Childcare (TFC) to help pay for February half-term holiday clubs and wraparound care during the school terms.

The TFC scheme can help parents of children aged up to 11 years old (17 for those with certain disabilities). The TFC scheme helps support working families with their childcare costs. There are many registered childcare providers including childminders, breakfast and after school clubs and approved play schemes signed up across the UK. Parents can pay into their account regularly and save up their TFC allowance to use during school holidays. 

The TFC scheme provides for a government top-up on parental contributions. For every £8 contributed by parents an additional £2 top up payment will be funded by Government up to a maximum total of £10,000 per child per year. This will give parents an annual savings of up to £2,000 per child (and up to £4,000 for disabled children until the age of 17) in childcare costs. 

The TFC scheme is open to all qualifying parents including the self-employed and those on a minimum wage. The scheme is also available to parents on paid sick leave as well as those on paid and unpaid statutory maternity, paternity and adoption leave. In order to be eligible to use the scheme parents will have to be in work at least 16 hours per week and earn at least the National Minimum Wage or Living Wage. If either parent earns more than £100,000, both parents are unable to use the scheme.

HMRC’s Director General for Customer Services, said:

‘We want to help working families and by using Tax-Free Childcare, they can use the government top-up to make their money go further. Search ‘Tax-Free Childcare’ on GOV.UK to find out how it could help you.’

The Gift Aid scheme is available to all UK taxpayers. The charity or Community Amateur Sports Clubs (CASC) concerned can take your donation and, provided all the qualifying conditions are met, reclaim the basic rate tax allowing for an extra 25p of tax relief on every pound donated to charity.

If you are a higher rate or additional rate taxpayer, you are eligible to claim additional tax relief on the difference between the basic rate and your highest rate of tax.

For example:

If you donated £5,000 to charity, the total value of the donation to the charity is £6,250. You can claim back additional tax of:

• £1,250 if you pay tax at the higher rate of 40% (£6,250 × 20%),
• £1,562.50 if you pay tax at the additional rate of 45% (£6,250 × 25%).

If you are a higher rate or additional rate taxpayer, you have the option to carry back your charitable donations to the previous tax year. A request to carry back the donation must be made before or at the same time as your previous year’s Self-Assessment return is completed.

This means that if you made a gift to charity in the current 2022-23 tax year – that ends on 5 April 2023 – you can accelerate repayment of any tax associated with your charitable giving. This can be a useful strategy to maximise tax relief if you will not pay higher rate tax in the current tax year but did in the previous tax year. This should be done as part of the Self-Assessment tax return for 2021-22 which must be submitted by 31 January 2023.

You can only claim if your donations qualify for gift aid. This means that your donations from both tax years together must not be more than 4 times what you paid in tax in the previous year. If you do not complete a tax return you need to use a P810 form to make a claim.

A new press release by HMRC has highlighted the fact that 3,275 taxpayers took the time to file their tax return online on Christmas Day with a further 10,311 taxpayers completing their tax returns on Boxing Day. In total, 22,060 Self-Assessment returns were filed between 24 and 26 December. The total number of submissions for the period were actually less than last year. 

HMRC’s Director General for Customer Services, said:

‘We are grateful to those customers who have already filed their tax returns. For anyone who is yet to make a start, help is available on GOV.UK, just search ‘Self-Assessment’ to find out more.’

If you are filing online for the first time you should ensure that you register to use HMRC’s Self-Assessment online service as soon as possible. Once registered an activation code will be sent by mail. This process can take up to 10 working days. 

We would encourage our readers to complete their tax return as early as possible to avoid last-minute stress as the 31 January 2023 filing date looms. Last year over 2.3 million taxpayers or 19% of those required to file missed the 31 January deadline.

If you miss the filing deadline then you will be charged a £100 fixed penalty (unless you have a reasonable excuse) which applies even if there is no tax to pay, or if the tax due is paid on time. There are further penalties for late tax returns still outstanding 3 months, 6 months and 12 months after the deadline. There are also additional penalties for late payment amounting to 5% of the tax unpaid at 30 days, 6 months and 12 months.

The deadline date to file your 2021-22 Self-Assessment tax return is fast approaching. Last year over 12.5 million taxpayers were required to complete a Self-Assessment tax return but over 2.3 million taxpayers missed the 31 January deadline.

The deadline for submitting your 2021-22 Self-Assessment tax returns online is 31 January 2023. You should also be aware that payment of any tax due should also be made by this date. This includes the payment of any balance of Self-Assessment liability for the 2021-22 plus the first payment on account due for the current 2022-23 tax year.

If you miss the filing deadline you will usually be charged a £100 fixed penalty which applies even if there is no tax to pay or if the tax due is paid on time. If you do not file and pay before 1 May 2023 then you will face additional daily penalties of £10 per day, up to a maximum of £900. If the return still remains outstanding further higher penalties will be charged after six months and again after twelve months from the filing date. There are also additional penalties for paying late that amount to 5% of the tax unpaid at 30 days, 6 months and 12 months.

If you had tax underpayments in the 2021-22 tax year you have until 30 December 2022 to file your online Self-Assessment returns in order to have the monies collected in the 2023-24 tax year starting on 6 April 2023.

We would encourage you to complete your tax return as early as possible as the filing date looms. If you are filing online for the first time you should ensure you register to use HMRC’s Self-Assessment online service. Once registered an activation code will be sent by mail. This process can take up to 10 working days. 

A statement was made by the Financial Secretary to the Treasury on 19 December 2022. It confirmed that the roll-out of Making Tax Digital for Income Tax, due to commence April 2024, is being delayed. The statement says:

Across the globe, digitalisation of tax is increasingly the norm. Modernisation of UK businesses and the tax system remains of crucial importance to the UK.

Making Tax Digital (MTD) for VAT is already demonstrating the benefits to businesses that digital ways of working can bring.

MTD for Income Tax Self-Assessment (ITSA) will follow, with businesses, self-employed individuals, and landlords keeping digital records and using MTD-compatible software to submit updates to HM Revenue and Customs.

The government understands businesses and self-employed individuals are currently facing a challenging economic environment, and that the transition to MTD for ITSA represents a significant change for taxpayers, their agents, and for HMRC.

That means it is right to take the time needed to work together to maximise those benefits of MTD for small business by implementing gradually.

The government is therefore announcing more time to prepare, so that all businesses, self-employed individuals, and landlords within scope of MTD for Income Tax, but particularly those with the smallest incomes, can adapt to the new ways of working.

The mandation of MTD for ITSA will now be introduced from April 2026, with businesses, self-employed individuals, and landlords with income over £50,000 mandated to join first.

Those with income over £30,000 will be mandated from April 2027.

The government will now review the needs of smaller businesses, and particularly those under the £30,000 threshold. This will look in detail at whether and how the MTD for ITSA service can be shaped to meet the needs of smaller businesses and the best way for them to fulfil their Income Tax obligations. Once that review is complete – and in consultation with businesses, taxpayers, agents, and others – the government will lay out the plans for any further mandation of MTD for ITSA.

Following the phased approach, the government will not extend MTD for ITSA to general partnerships in 2025. It remains committed to introducing MTD for ITSA to partnerships at a later date.

The new penalty system, harmonising late submission and late payment penalties for Income Tax Self-Assessment with those for VAT, will come into effect for taxpayers when they become mandated to join MTD. This makes penalties fairer and simpler for taxpayers. The government will introduce the new penalty system for Income Tax Self-Assessment taxpayers outside the scope of MTD after its introduction for MTD taxpayers.

The government anticipates that most taxpayers within the scope of MTD for ITSA will be able to sign-up voluntarily before they are mandated to do so. HMRC will keep this under review to ensure all taxpayers using the MTD for ITSA service receive a high-quality service.

A new press release from HMRC has revealed that more than 50,000 taxpayers have used the HMRC app to make Self-Assessment tax payments since February 2022. Payments can be made safely and securely through the app. In October alone, more than 6,700 Self-Assessment taxpayers paid almost £5.9 million in tax via the HMRC app, compared to around 2,500 customers in February 2022, who paid £1.8 million.

Commenting on the payments, HMRC’s Director General for Customer Services, said:

'We’re seeing more and more people embrace the convenience and flexibility the HMRC app offers. Self-Assessment customers can pay the tax owed through the HMRC app, which is a secure and convenient tool that can be used at a time and place to suit them.'

The free HMRC tax app is available to download from the App Store for iOS and from the Google Play Store for Android. 

The app can also be used to complete a number of other tasks that include:

• to renew and report changes to your tax credits;
• access your Help to Save account;
• using HMRC’s tax calculator to work out your take home pay after Income Tax and National Insurance deductions;
• track forms and letters you’ve sent to us;
• claim a refund if you’ve paid too much tax; and
• update your postal address.

An updated briefing which looks at how HMRC deals with wealthy individuals has been published. The briefing looks at helping wealthy individuals to comply with their tax obligations and also what happens to those who don’t play by the rules. According to HMRC, the High-Risk Wealth Programme (HRWP) aims to accelerate the resolution of some of the most complex and high-risk cases within the wealthy customer group.

HMRC defines individuals as ‘wealthy’ if they have incomes of £200,000 or more, or assets equal to or above £2 million in any of the last 3 years. According to HMRC, there are approximately 800,000 wealthy taxpayers. HMRC uses details from tax returns and other public information databases to identify links between people, organisations, assets and income.

Wealthy customers are managed by the Wealthy Team within HMRC’s Customer Compliance Group. The team applies a proactive and co-operative approach, taking into account the unique nature of this customer group’s tax affairs.

According to HMRC, wealthy individuals may present a higher risk of error than other customers as the amounts involved are greater also because they may have investments in more than one country, making their financial affairs more complex. 

The Wealthy Team also works with colleagues across HMRC, including Fraud Investigation Service and Counter-Avoidance, handling marketed avoidance schemes and offshore disclosure. This means that HMRC can see a taxpayer's past history including involvement in a tax planning scheme or the use of offshore bank accounts and use this information to help identify taxpayers for further investigation.