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The Low Incomes Tax Reform Group gives some timely financial advice to students, those struggling with tax returns and tax payments, and what to do if you missed the all-important tax credits renewals deadline.

Introduction

Although at this time of year you may well be concentrating on holidays and occupying out-of-school offspring, spare a few minutes to read this article reminding you about topical tax, tax credits and other considerations. 

You could even save some money to help fund a well-deserved break!

This holiday season, unfortunately many people are suffering financially due to the recession.  If you are in this situation, have a look back at LITRG’s ‘Feeling the pinch?’ article, which gives some tips and pointers on how to cope at this stressful time.

As part of LITRG’s monthly series, here are some topical reminders of things to consider in August.

Students

Exam results are coming up and you may be considering what to do next.

For those entering the world of work, either from school or university, times are tough.  Our June article gave some tips on things to consider which could be of help. 

Also, 16 to 19 year-olds considering staying on at school should check their entitlement to Education Maintenance Allowance (‘EMA’).  Directgov has a dedicated website for claimants - make sure you (or your children) are not missing out.  

If you are going on to college or university, make sure you review your student finance options.  

Remember, students working only in vacations who meet certain criteria may be able to fill in a P38(S) so that their employer can pay them without deducting tax. 

For international students coming to study in the UK, HMRC have published new guidance to explain the potential tax issues.   

Tax return or tax payment troubles?

LITRG’s July article reminded of some key self assessment deadlines.  If you missed one or more of these, you could receive a penalty; but all might not be lost – you might be able to appeal to HMRC (and, if necessary, to an independent tribunal). 

Late filing and payment penalties – appeals

If you still haven’t sent in your tax return for 2007/08, you are likely to get a second fixed £100 penalty from HMRC this month.  If you think that the penalty notice was issued in error (for example, you did file the return by 31 July so you think should not be due to pay a second penalty), make sure you lodge an appeal within 30 days of the notice.  Even if you did not meet the deadline you may have a reasonable excuse for late filing, which means you can appeal against the penalty. 

Under current rules, the £100 fixed penalty should also be reduced to nil if you had paid all the tax due for 2007/08 by 31 January 2009 or had no tax to pay.  If you owed less than £100 at that date, the penalty is limited to the amount you owed (eg if you owed £50, the maximum penalty is £50). 

Late appeals against penalties may be accepted if you have a reasonable excuse for not meeting the 30 day deadline (and an appeal can still be made to the independent tribunal if HMRC refuse you). 

If you still owed tax for 2007/08 as at 31 July 2009, you could also be charged a second 5% surcharge for late payment – so for every £100 you owed at that date, you will be charged an extra £5 on top.  Again, the notice of the penalty is likely to come through some time soon.  Similar rights of appeal apply as for late filing penalties and again, you must lodge your appeal within 30 days of the date on the notice.

Second payment on account 2008/09

You should also have made any second payment on account due for the 2008/09 tax year by 31 July.  If your circumstances have changed, you might want to consider whether you can claim to reduce 2008/09 payments on account – you can still do so, even if you have already paid the 31 July instalment, and ask HMRC to refund the amount you believe you have overpaid.  Note, however, that you must genuinely think you will owe less overall for the 2008/09 tax year than for 2007/08 (on which the payments are based). 

If you are having trouble paying what you owe, make sure you contact HMRC as soon as possible, as you may be able to negotiate extra time to pay.  If HMRC agree to spread your payments, you will still pay interest, although penalties potentially arising from the date of the agreement should be suspended provided you stick to the payment plan (or contact HMRC again promptly to renegotiate if you need further help).  To discuss time to pay, individuals not in business should contact HMRC on 0845 366 1204; businesses should use the Business Payment Support Line on 0845 302 1435.

Tax credits renewal - missed the 31 July deadline?

If you claim tax credits, you should by now have received a set of forms from the Tax Credit Office.

Some people on higher, reasonably stable, incomes will be asked simply to check that the details of their income and circumstances on the form are correct, and to contact the TCO if they are not.

Others (the majority) will have to complete an annual declaration (TC 603D) and review (TC 603R), and return them to HMRC. The purpose of so doing is twofold: to finalise your entitlement for the tax year ended 5 April 2009; and to renew your claim for the tax year 2009/10. If you did not renew (either by sending the completed forms to HMRC or renewing via the telephone) by 31 July 2009 then your award may be terminated.

If you sent back your renewal forms before the deadline, but have not yet received a new award notice, you should contact the tax credit helpline (0845 300 3900) to make sure your forms were received.

Failure to renew means that no new claim is made for 2009/10; consequently any payments received from April 2009 will become overpaid and HMRC will seek to recover them directly from you.  In addition any other overpayments that were being recovered from your ongoing award will switch to direct recovery when your award is terminated for non-renewal. 

What should I do?

If HMRC terminate your award for failing to renew (and consequently stop all payments) regulations allow the claim to be restored providing you do renew within 30 days from the date on the notice telling you your payments are to be stopped (technically called the Statement of Account).

Outside of this 30 day period, the claim can only be restored if you had 'good cause' for failing to renew, so long as you do return your renewal papers or complete your renewal details over the telephone by the later deadline of 31 January 2010.

In both cases, restoration means that HMRC treat your claim as being made from 6 April 2009.

If your claim cannot be restored, all payments made to you from 6 April 2009 will be treated as overpaid, and you will have to make a fresh claim which can only be backdated by three months.

Our advice is to contact HMRC as soon as possible.  Telephone the Tax Credits helpline on 0845 300 3900 (Textphone 0845 300 3909).