Income Tax

The SA302 tax calculation and tax year overview documents are commonly used as evidence of income for loan or mortgage purposes for the self-employed. The forms have become more widely used since the mortgage rules have required evidence of income for the self-employed. The SA302 provides this evidence for the last four years Self-Assessment tax returns.

The SA302 shows the breakdown of the income returned on the taxpayer’s tax return, including commercial versions. The tax year overview confirms the tax due from the return submitted to HMRC and shows any payments made, cross referencing the Tax Calculation with HMRC records.

Self-Assessment taxpayers can use HMRC’s online service to request an SA302 tax calculation. It takes 72 hours after an online tax return has been submitted before the documents are available to print.

Most lenders will accept a SA302 printed from online accounts or from the commercial software used to submit returns. HMRC has been working with the Council of Mortgage Lenders and their members to increase the number of lenders who will accept self-serve copies.

The second payment on account for Self-Assessment taxpayers for the 2022-23 tax year is due on 31 July 2023. Taxpayers are usually required to pay their Income Tax liabilities in three instalments each year. The first payment was due on 31 January 2023. The final balancing payment of tax will be due on 31 January 2024.

If you are having trouble paying your tax on time you may be eligible to receive support with your tax affairs. An online payment plan for Self-Assessment tax bills can be used to set up instalment arrangements for paying tax liabilities up to £30,000.

Taxpayers that want to use the online option must have filed their latest tax return within 60 days of the payment deadline and intend to pay their debt within the following 12 months or less. Taxpayers that qualify for a Time to Pay arrangement using the self-serve Time to Pay facility online, can do so without speaking to an HMRC adviser.

Taxpayers with Self-Assessment tax payments that do not meet the above requirements need to contact HMRC to formally request a Time To Pay arrangement. These arrangements are agreed on a case-by-case basis and are tailored to individual circumstances and liabilities.

HMRC will only offer taxpayers the option of extra time to pay if they think they genuinely cannot pay in full but will be able to pay in the future. If HMRC do not think that more time will help, they can require immediate payment of a tax bill and start enforcement action if no payment is forthcoming.

There are a number of reasons why you might need to contact HMRC about changes in your income. 

HMRC’s guidance states that this could happen because you:

• did not realise you needed to tell HMRC about it;
• were not sure how to declare it; or
• did not declare it because you could not pay the tax.

For example, reasons you may need to contact HMRC are if you are self-employed, a company director, have annual income over £100,000 and / or have undeclared income from savings, investment, property or overseas income. The £100,000 threshold for the Self-Assessment threshold for taxpayers taxed through PAYE only, has increased from £100,000 to £150,000 with effect from 6 April 2023. However, the Self-Assessment for 2022-23 tax returns remains at £100,000.  

Taxpayers that need to complete a Self-Assessment return for the first time should inform HMRC as soon as possible. The latest date that HMRC should be notified is by 5 October following the end of the tax year for which a Self-Assessment return needs to be filed. If you are required to submit a Self-Assessment return for 2022-23, you should ensure that you file your tax return electronically and pay any tax due by 31 January 2024.

HMRC has an online tool www.gov.uk/check-if-you-need-tax-return/ that can help you check if you are required to submit a Self-Assessment return.

There are two small exemptions from tax that may apply:

• If you make up to £1,000 from self-employment, casual services (such as babysitting or gardening) or hiring personal equipment (such as power tools). This is known as the trading allowance.
• If your annual gross property income is £1,000 or less, from one or more property businesses you will not have to tell HMRC or declare this income on a tax return. For example, from renting a driveway. This is known as the property allowance.

Where each respective allowance covers all the relevant income (before expenses) the income is tax-free and does not have to be declared.

If you have undeclared income, it is always preferable to contact HMRC as soon as possible. We would be happy to assist.

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

Higher rate and additional rate taxpayers are eligible to claim tax relief on the difference between the basic rate and their highest rate of tax. This can be actioned through their Self-Assessment tax return or by asking HMRC to amend their tax code.

For example:

If a taxpayer donates £500 to charity, the total value of the donation to the charity is £625. The taxpayer can claim additional tax back of:

• £125 if they pay tax at 40% (£625 × 20%),
• £156.25 if they pay tax at 45% (£625 × 20%) plus (£625 × 5%).

Taxpayers should be aware that one of the conditions of qualifying for tax relief is that you must have paid enough tax (or any tax) in the relevant tax year. The rules state that your donations will qualify for tax relief as long as you have not claimed more than 4 times what you have paid in tax in that tax year. If you have claimed more tax relief than you are entitled to you will need to notify the charity and pay back any excess tax relief to HMRC.

Taxpayers can also give money to charity from their wages using the payroll giving scheme. The scheme allows taxpayers to make a tax free donation to charity directly from their pay or pension if their employer runs a payroll giving scheme, approved by HMRC. 

At Spring Budget 2023, the government announced that with effect from 15 March 2023, tax reliefs and exemptions for charities will be restricted to UK charities. Any non-UK charities that were registered with HMRC for tax reliefs and exemptions as of 15 March 2023, can continue to claim tax relief until 5 April 2024. This means that from April 2024, taxpayers will no longer be eligible to claim UK tax relief on donations to these non-UK charities and the charities themselves will be unable to claim Gift Aid.

The marriage allowance is available 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 2023-24).

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 £12,571 to £50,270 for the 2023-24 tax year. The limits for those living in Scotland may vary slightly from these figures.

Claiming the allowance 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 since 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 2017. This could result in a total tax refund of up to £1,242 if you can claim for 2019-20, 2020-21, 2021-22, 2022-23 as well as the current 2023-24 tax year. Even if you are no longer eligible, but you would have been in all or any of the preceding years, you can still claim your entitlement.

HMRC is currently writing to UK residents who were named in the leaked Pandora Papers and offering them the chance to regularise their tax affairs. The letters are being sent to UK residents named in the files of 14 offshore financial service providers. 

During 2021 and 2022, the International Consortium of Investigative Journalists released more than 11 million records from 14 offshore service providers, this is known as the Pandora Papers. HMRC has been analysing this data, which is the largest ever release of financial documents to identify UK residents with untaxed offshore assets.

HMRC’s letters, which started distribution earlier this month, warn recipients to report all their overseas income or gains on which they owe UK tax or face penalties of up to 200% of any tax due or prosecution.

There are typically two methods for making a disclosure.

1. The Contractual Disclosure Facility (CDF) is a facility for taxpayers to disclose serious tax fraud to HMRC. The CDF is only suitable for taxpayers who want to confess to tax fraud. It is not a method to notify HMRC about errors, mistakes or avoidance schemes where no fraud has taken place. HMRC will not criminally investigate and prosecute taxpayers over fraud disclosed as part of the CDF contract. This is in return for the taxpayer meeting some important conditions including making a full, open, and honest disclosure of all the tax fraud committed. If all the conditions are met, the investigation will be conducted using civil powers, with a view to a civil settlement for tax, interest and a financial penalty.
2. The Worldwide Disclosure Facility (WDF) was launched in September 2016 and is open to those who want to disclose a UK tax liability that relates wholly or partly to an offshore issue. Unlike previous disclosure opportunities, the WDF does not offer any special terms for settling tax affairs and in most cases any interest and penalties levied will be charged in full. The WDF Facility does not provide any protection from prosecution and so where there is deliberate and/or fraudulent conduct, such as evasion, the CDF is the more appropriate facility.

Recipients of these letters should seek professional advice as a matter of urgency.

HMRC’s Self-Assessment helpline closed on 12 June 2023 and will re-open on 4 September 2023. This closure is part of a trial to direct Self-Assessment queries from the helpline to HMRC’s digital services, including online guidance, digital assistant and webchat. 

This move has been planned for a ‘quiet’ time for Self-Assessment queries and the helpline will reopen on 4 September 2023 so taxpayers can receive expert support in the 5 months running up to the Self-Assessment deadline on 31 January 2024.

HMRC says that the helpline receives far fewer calls over the summer, with calls around 50% higher between January and April compared with June to August. It remains to be seen what the impact of the closure will be, but this is likely to result in significant disruption for taxpayers.

The Chair of the Treasury Committee said:

'Given the potentially significant impact closing the Self-Assessment helpline may have on taxpayers, we’re looking for clarification that HMRC has fully considered the costs and benefits of this decision.

There are also concerns around the short notice with which this was announced. HMRC must be open, upfront and transparent when making decisions which could impact so many individuals.'

HMRC has stressed that this trial will free up 350 advisers (full-time equivalent) to take urgent calls on other lines and answer customer correspondence. HMRC also stresses that the vast majority of Self-Assessment taxpayers use HMRC’s online services, with 97% filing online.

If you have any Self-Assessment queries and are unable to reach HMRC, please call, we will be happy to assist.

The settlement legislation is intended to prevent an individual from gaining a tax advantage by diverting his or her income to another person who is liable at a lower rate of tax or is not liable to Income Tax.

Where a settlor has retained an interest in a property in a settlement the income arising is treated as the settlor’s income for all tax purposes. A settlor can be said to have retained an interest if the property or income may be applied for the benefit of the settlor, a spouse or civil partner.

In general, the anti-avoidance settlements legislation can apply where an individual enters into an arrangement to divert income to someone else and in the process, tax is saved.

These arrangements must be:

• bounteous, or
• not commercial, or
• not at arm’s length, or
• in the case of a gift between spouses or civil partners, wholly or substantially a right to income.

However, there are a number of everyday scenarios where the settlements legislation does not apply. In fact, after much case law in this area, HMRC has confirmed that if there is no 'bounty' or if the gift to a spouse or civil partner is an outright gift which is not wholly, or substantially, a right to income, then the legislation will not apply.

HMRC has issued an updated version of their online guidance entitled ‘Check if a text message you've received from HMRC is genuine’. The guidance provides a current list of genuine text messages issued by HMRC.

The list has been updated to include details of a text message HMRC is sending to some taxpayers about a Self-Assessment tax check. 

HMRC is also sending certain taxpayers a text message if they call an HMRC helpline from a mobile phone. These messages might include a link to relevant GOV.UK information or webchat.

Although these communications are genuine, taxpayers should still be wary of receiving phishing texts, emails and phone calls that are purported to come from HMRC. Messages from HRMC will never ask for personal or financial information.

Fake messages can appear to be genuine but clicking on a link from within the message or email can result in personal information being compromised and the possibility of computer viruses affecting your computer or smartphone. If you are unsure as to the validity of any message it should not be opened until the sender can be verified. Any suspicious text messages can be sent to 60599 or by email to phishing@hmrc.gov.uk.

HMRC has issued a press release to remind employees that may be able to claim a claim tax relief for bills they pay that are related to their employment. The most recent figures show that more than 800,000 taxpayers claimed tax refunds for work expenses during the 2021-22 tax year with an average claim of £125. A claim can be made online by using HMRC’s online portal at GOV.UK.

A claim for valid purchases can be made against receipts or as a 'flat rate deduction'. The flat rate deductions are set amounts that HMRC has agreed are typically spent each year by employees in different occupations. These deductions range from £60 to £1,022. If an occupation isn’t listed, employees can still claim a standard annual amount of £60 in tax relief if they pay their own expenses.

This means that qualifying basic rate taxpayers can claim back £12 (20% x £60) and higher rate taxpayers £24 (40% x £60) per year. Claims can usually be backdated for up to 4 years. 

Employees may also be able to claim tax relief for other expenses such as using their own vehicles, professional fees, union memberships, subscriptions and for buying work-related equipment. As a general rule, there is no tax relief for ordinary commuting to and from an employee’s regular place of work.

HMRC’s Director General for Customer Strategy and Tax Design, said:

'Every penny counts, and we want to make sure employed workers are getting what they deserve – their hard-earned cash straight back into their pockets. To make a claim just search ‘employee tax relief’ on GOV.UK. It is the quickest way of getting a tax refund on your work-related expenses and ensures you get 100% of the money back.'

There is no tax relief available if an employee is fully reimbursed by their employer.