Steps to ensure you don’t burn the midnight oil as tax return season swings into life.
Before you press the ‘file online’ button and heave a sigh of relief, make sure you review the information on the returns for completeness. Here we summarise common and quirky issues/errors/omissions that many members have spoken to us about this year. We also include a few suggestions for members as a general recap to online help available before finalising accounts/tax returns.
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 all of the main areas of the return such as capital gains, claiming expenses, rental income etc. These can be accessed here.
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 situtaions 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.
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 found here.
Alternatively the client might wish to set up their own personal tax account. The instructions can be found here.
Has your client claimed the correct deductions from rental income?
Your clients may have one or more rental properties. The rules regarding what can/can’t be claimed are changing fast so here’s a quick re-cap:
Back to basics: the expenses must be wholly and exclusively for the purposes of renting out the property. However, generally where a definite part or proportion of an expense is incurred wholly and exclusively for the purposes of the property business, you can deduct that part or proportion
Common types of expenses that can be deducted (if paid by the client) are:
finance costs - only the interest part of the mortgage payment can be treated as an expense when working out your rental profit or loss for tax purposes. With a repayment mortgage, the capital repayment part of any payments isn’t an allowable deduction.
If the mortgage loan on a buy-to-let property is increased, the interest on the additional loan may be treated as a revenue expense, as long as the additional loan is wholly and exclusively for the purposes of the letting business. Remember that interest on any additional borrowing above the capital value of the property when it was brought into the letting business isn’t tax deductible.
For furnished lets, wear and tear allowance isn’t available for income tax purposes from 6 April 2016. Instead there may be a claim for Replacement Domestic Item relief instead.
Disclosures and calculations 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 2016/17 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 pages need to be completed merely because the client sold or disposed of chargeable assets which were worth more than £44,400.
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.
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.
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 higher rate tax in a previous year (but are not now).
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.
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 £1,100 of their personal allowance to the husband, wife or civil partner. This can reduce their tax by up to £220 every tax year. To benefit as a couple, the transferor needs to earn less than their partner and have an income of £11,000 or less. For more details follow this link to HMRCs guide.
ACCA has produced various guides and summaries on the 2016 Budget which affect
For further information on 2016/17 tax returns, see ACCA’s guidance issued following the 2016 Budget here.