LITRG’s reminders article for March focuses on practical points to consider before the tax year end, tidying up last year’s loose ends and looking forward to the year ahead.
Introduction
Each month, we are writing articles to remind you of tax, tax credits and some benefits issues to consider. Here we cover some practical points and issues that you might need to think about and act on in March.
Points to check now or before 6 April
Tax on your wages or pension – make sure yours is right
1. Why you MUST check your Coding Notices this year
Employees and pensioners should now be receiving ‘PAYE Notices of Coding’ (form P2) for each job or source of pension income. These tell you how your tax is to be deducted from your income for the forthcoming tax year.
Every year it is important that you check these look right and, if in doubt, contact HMRC. But do pay extra attention this year, as we know there have been problems, many of which are affecting pensioners. If you have not received a Notice of Coding from HMRC for one of your jobs or pensions, it might be that nothing has changed so last year’s codes will continue to apply. But don’t assume that this means everything is correct – check what codes are being used (look at your payslip and/or pension statements) and again contact HMRC if you need help understanding them or think they might be wrong. HMRC have advised people to telephone 0845 3000 627.
2. Students – working in the holidays?
As the end of the spring term approaches, students may be looking for a job over the holiday period. If you are a student working only in holiday time and think you will earn less than your personal allowance over the whole tax year (£6,475 for both 2009/10 and 2010/11), you can ask your employer if you can complete a form P38(S) which allows you to be paid without tax being taken off your wages. Remember, though, that National Insurance contributions may still be deducted depending on your weekly or monthly income.
One point to remember is that if holiday work straddles the tax year end (5 April), you will be asked to sign two forms P38(S).
3. Student loan deductions
Student loan borrowers who completed or left their higher education course recently may have to start making repayments from 6 April 2010 if they are earning over £15,000 a year. Although there was some discussion about increasing the threshold at which repayments begin, it has been announced that it will remain at £15,000 until at least April 2011. Also, if you have been repaying your loan for some time and think you might soon clear the balance in full, have a look at last month’s article on opting out of the usual PAYE repayments for employees.
Tax returns – dealing with last year’s fallout
1. Have you received a late-filing penalty?
We noted in last month that February tends to be the time when HMRC issue late-filing penalties for tax returns not submitted by the 31 January deadline (or 31 October if you filed on paper). These penalty notices might still be coming through – don’t forget that you have 30 days to appeal if you think the notice is wrong or you had a reasonable excuse for not meeting the deadline.
2. Have you been charged an extra 5% for late payment?
In March HMRC will start issuing 5% surcharge notices for 2008/09 self assessment liabilities which were not paid by 28 February. Again, you have 30 days to appeal if you think that you should not have been charged the penalty or if you had a reasonable excuse for delayed payment. We also highlighted in an earlier article (link below) a change in HMRC’s bank details, suggesting what you should do if your payment was late because you used the old information.
3. Still struggling to pay your 31 January tax?
If you still have not paid your tax bill from 31 January, it is best to take action as soon as possible – leaving the statements to pile up will only make matters worse. Contact HMRC (using the contact information provided on your self assessment statements) to discuss it with them and ask if you can agree a payment arrangement. The good news is that, if HMRC agree to give you extra time to pay, late payment penalties should be suspended provided you stick to the agreement. If you are struggling to keep up an existing time to pay agreement, again contact HMRC as soon as possible to see if you can renegotiate.
4. Has your income reduced? Think about claiming to reduce your payments
You can claim to reduce self assessment payments on account at any time, but the tax year end is a good time to consider doing so. This is because as the end of the tax year approaches, you might be able to get a better idea of how much your income will be for the tax year to 5 April 2010 – if it is less than the year to 5 April 2009 there is a good chance that you will be able to reduce your payments on account.
For 2009/10, you should already have paid the first instalment on 31 January 2010 and the next is due on 31 July 2010. But if you can claim to reduce the payments now, you can ask HMRC for a refund if you paid too much in January.
Reduced time limits for reclaiming tax for earlier years
Currently, claims for repayment of tax may be made for five years and ten months following the tax year to which the repayment relates. The 31 January 2011 is therefore the last day for making any such claims for repayment of tax for 2004/05 and earlier years are now generally closed. Exceptionally, a concession allows repayments to be made for earlier years in cases of official error by HMRC or another government department.
Note, however, the rules are changing from 6 April 2010. From that date, many tax repayment claims will be limited to the last four tax years, although following campaigns from LITRG and other groups, commencement of this reduced time limit is to be partly deferred until 6 April 2012 so that taxpayers not in self assessment can continue to make claims under the old rules for a further two years.
Self-employed? Check your National Insurance Contributions
If your self-employed earnings have changed, your eligibility for the Small Earnings Exception from paying class 2 National Insurance Contributions may also have changed.
Previously granted exceptions last for three years, so if your earnings have gone up and you are no longer entitled to the exception, you should contact HMRC and start paying weekly class 2. If your earnings have gone down, you may now be able to apply for exception.
The threshold for the exception for both 2009/10 and 2010/11 is £5,075.
Is your employer helping with childcare costs? It might be time for a review
As we approach a new tax year, it is worth considering the benefits you are getting from your employer and whether you should continue with previous options you have taken up, such as childcare vouchers. If your income has changed, your overall tax, national insurance and tax credits position on taking vouchers may have altered.
Struggling with your council tax? Help could be available
Assessments for council tax for the forthcoming year will also be coming out about now. People on low incomes who are struggling with bills in the current economic climate should investigate whether they qualify for council tax benefit and disabled people should ask whether they are entitled to a reduction.
More information is given on the Directgov website – or contact your local council direct.
Tax Credits – check whether you are getting the right amount
As we approach the end of the tax year, it is important for tax credit claimants to think about what their household income figure is likely to be for 2009/10 and let HMRC know. In most cases, updating income in this way will not diminish this year’s award unless this year’s income is likely to be £25,000 more than last year’s. This is because HMRC pay tax credits initially based on your previous tax year’s income (so 2009/10 awards are initially based on 2008/09 income) and your payments will stay like this unless you expect your current year income to be lower than your previous year income, or to have increased by more than £25,000.
However, providing HMRC with your 2009/10 figure early will help make sure that HMRC have your most up to date information so that they can pay you the right amount from April 2010. This is the best way to try and prevent any overpayments building up, which can happen if HMRC continue to pay you based on out of date information.
Don’t worry if you do not have the exact figure. It is fine to provide an estimate at this point. Remember that even if you do give HMRC an updated figure now, you must still complete your renewal papers that will be sent to you after 6 April. These papers will ask you to confirm your actual income for 2009/10.
Many people have had a reduction in income recently due to job losses, or perhaps having had their working hours reduced or taking part time work where full time positions are unavailable. Some people have found that, even though one person has lost their income, they cannot claim any more tax credits. This is because tax credits work by spreading your income out across the whole tax year, and so even though you might not be earning anything now, your income over the whole year is still too high to claim tax credits. If you are in this situation, you can contact HMRC after 6 April and ask them to base your new 2010/11 award on an estimated current year income which will take into account the fall in your income.
However, if you choose to do this you must remember not to overestimate the fall in your income. If you do, and your income later rises in the year, it is likely you will have an overpayment. If you do find you have an overpayment, read our guide (link below) on what to do. If you are in receipt of any Housing Benefit, Council Tax Benefit or other passported benefit (such as help with health costs) you should seek advice on how these benefits interact with tax credits and if you think you might be entitled to these benefits you should seek advice before providing HMRC with an estimated income for 2010/11.
Pensions changes
Our February article gave details of various pension changes coming in from 6 April 2010. If you missed it, have a look back to find out if you could be affected.
Cold weather payments
If the cold weather continues in the coming month, don’t forget to check if you are eligible for extra help with your heating bills. Cold weather payments are available up until 31 March.
Useful links
Annual PAYE Coding: Multiple or Incorrect Coding Notices Update from HMRC
LITRG guidance on checking your Notice of Coding for employees and pensioners
More about the P38(S) process for students
LITRG guidance on how student loan repayments work
LITRG guidance on appeals and reasonable excuse
Tax to pay? Check HMRC’s bank details
More information on asking for time to pay on the TaxAid website
LITRG guidance on self assessment payments on account
LITRG guidance on the Small Earnings Exception for Class 2 NIC
LITRG’s article ‘Childcare vouchers, tax credit claimants, and the recession’
Tax and Part-Time Workers – the Dangers
Please register or log in to add comments.
There are not comments added