You don’t have to burn the midnight oil as tax return season swings into life.
Here we summarise common and quirky issues/errors/omissions that many members have spoken to us about this year.
Remember, before you press the ‘file online’ button and heave a sigh of relief, make sure you review the information on the returns for completeness and accuracy.
Using HMRC agents’ ITR toolkits
These toolkits provide guidance on areas of error that HMRC frequently sees in returns and set out steps to reduce these. They are designed to:
ensure that returns are completed correctly, minimising errors
focus on likely errors that HMRC considers key
demonstrate reasonable care.
The toolkits can be used:
as a straightforward checklist
to complement or check and refresh your existing processes
as a training aid for your staff.
There are toolkits for each main area of the return such as capital gains, claiming expenses, rental income etc.
New clients – remember that filing is not possible without a unique tax reference (UTR)
It might be obvious, but a UTR is required to file the return online. If your new client has come from another accountant they will most likely have one. But a start-up may not have registered as self-employed and may have to wait up to ten working days for HMRC to issue a UTR. Ensure they are prepared for this step.
Have you checked if your client is claiming child benefit?
Where a client has income over £50,000 there is a specific tax charge (basically a repayment of the benefit). But remember this includes situations where:
the client or their partner get child benefit
someone else gets child benefit for a child living with them and they contribute at least an equal amount towards the child’s upkeep
it doesn’t matter if the child living with the client or in fact is not their own child.
The relevant income is the total taxable income before any personal allowances and less things like gift aid. Remember to advise a client that is affected that the options are:
carry on getting child benefit and pay any tax charge at the end of each tax year.
Some tax software includes a ‘nudge’ warning where the income entered exceeds the above but always ensure you confirm the situation if this is the case. Some clients may need to register for a tax return to pay the charge even if they are not self-employed or normally need to fill in a tax return.
Many clients use the annual tax return to get a tax refund – or make a payment of tax liabilities – because they have multiple sources of income and the tax codes issued do not properly address the correct tax. Where a code is incorrect, the accountant can advise their client to get it corrected directly and not wait for the return to be submitted. Or the accountant can do this for them using the online form
Alternatively the client might wish to check their tax details and codes directly. However note that this particular HMRC service cannot be used by the taxpayer if self assessment is the only way they pay income tax.
Disclosures and tax reliefs relating to capital gains
Use of reliefs
Ensure that clients are aware of/have claimed relevant capital gains tax reliefs. There have been a number of changes recently so it’s important to refresh your knowledge on the main reliefs available both for the 2017-18 tax return and for future years. Some of them have some devil in the detail; access full guidance here:
Ensure that the CGT allowance is utilised and also losses brought forward are claimed where applicable.
Remember that the capital gains tax pages need to be completed merely because the client sold or disposed of chargeable assets which were worth more than £45,200,
Where a client has self-employed income as well as taxed salary income, the student loans repayment is based on both (subject to thresholds). Clients may think that because deductions are taken from their salary this is all that needs to be done. So be careful that the student loans box is completed on the tax return and that the calculations include all relevant income.
If your client needs more information on how much they will repay and when this starts, please follow this link to HMRC’s guidance.
Clients that make charitable donations may not inform you of these and may be unaware of the available tax relief. Higher rate taxpayers can claim the difference between the rate paid and basic rate on the donation, either:
through the self assessment tax return
by asking HMRC to amend the tax code – this is now done as part of the personal tax account
A client donates £100 to charity and claims gift aid to make the donation £125. The client pays 40% tax so they can personally claim back £25.00 (£125 x 20%). A client’s tax-free allowance may also increase if they make donations through gift aid and claim married couple’s allowance. If the client fills in a self assessment tax return, their allowance will be adjusted automatically if it needs to be.
Clients can also claim tax relief on gift aid donations made in the current tax year (up to the date of sending the return) if they either:
want tax relief before the end of the tax year
were a higher rate taxpayer in a previous year (but are not now).
Remember the small ‘print’! The client cannot claim tax relief early as above if:
the tax return deadline is missed (31 January if you file online)
the donations don’t qualify for gift aid – the donations from both tax years together must not be more than four times what was paid in tax in the previous year.
Make sure the client is keeping proper records of all the charitable donations they are claiming.
Make sure salaried clients (especially directors) are aware that P11d benefits need to be included on the tax return in most cases. These can easily be left off the tax return as clients assume that because their code has been altered then their disclosure responsibilities are complied with.
With the advent of benefits being ‘payrolled’ the client may be confused as to how the benefits are being/will be taxed so it’s even more important to ensure that the tax return is complete.
Transfer of personal allowances
Although not strictly a tax return issue, this is a good opportunity to enquire about the income of your client’s spouse or civil partner. They can transfer £1,190 (2017-18) of their personal allowance to the husband, wife or civil partner. This can reduce their tax by up to £238 every tax year. To benefit as a couple, the transferor needs to earn less than their partner and have an income of £11,850 or less. For more details follow this link to HMRC’s guide.