Many would assume that February is a quieter month in the tax world after the January tax return rush, but there are a number of things to watch out for.
Monthly Reminders – the Latest
Each month, LITRG aims to write about relevant and upcoming issues for tax, tax credits and some related benefits. Here we look at points to consider in February – perhaps not such a quiet time as one might imagine. Useful links to further information are given at the end.
Tax
Was your Tax Return Late or have HMRC told you it was Late? You might be able to Appeal against a Late-Filing Penalty…
February is the month when HM Revenue & Customs (HMRC) issue £100 penalties for late Self Assessment tax returns (whether filed on paper or online), but there are situations when a penalty notice could be issued inappropriately.
If you receive a penalty notice for a late 2008/09 tax return but thought you had met the deadline (either with a paper tax return submitted by 31 October 2009 or by filing online by 31 January 2010), 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 that you owed for 2008/09 by 31 January 2010 or had nothing to pay. If you owed less than £100 at that date, the penalty is limited to the amount you owed (for example if you owed £50, the maximum penalty is £50).
Late appeals against penalties may be accepted if you have a reasonable excuse for not lodging your appeal within the 30 day deadline. And if HMRC turn down a request for a late appeal, you can take your request to the independent tribunal.
Tax and Other Payments
For Self Assessment taxpayers, the deadline for paying 2008/09 liabilities was 31 January 2010. If the total amount due for that year has not been paid in full, interest will start to accrue.
But if the liability remains unpaid at 28 February, a surcharge (i.e., penalty) of 5% of the outstanding amount will arise – so for every £100 you owe at that date, you will be charged an extra £5 on top.
Note carefully that we are not just referring to Income Tax or Capital Gains Tax due. Interest and surcharges apply to all Self Assessment amounts owing, including Class 4 National Insurance contributions (for the self employed), and student loan repayments.
Be aware, though, that the 5% surcharge only applies to what you owed for 2008/09 – it does not apply to the first payment on account for 2009/10 which was also due on 31 January 2010.
Having Difficulty Paying?
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 they should cancel surcharges, but you will still pay interest.
If you are likely to owe less for 2009/10 than 2008/09 because (for example) your income has gone down or you have moved from self-employment to employment, you should consider reducing your payments on account.
Was your January Tax Payment Rejected?
We recently reported that HMRC have changed their banking arrangements. If you used the wrong bank details or an old payslip when making your January payment, you could find that it has been rejected. We suggest you resend your payment as soon as you can to the correct account. If your payment does not reach HMRC until after 28 February and you receive a surcharge, you might be able to appeal on the basis you have a reasonable excuse for late payment, and if you are charged interest you could consider complaining on the grounds that it is unfair.
Think about the Year Ahead… Check your Coding Notice
As noted in our Pensioners and TaxHelp for Older People article, HMRC should now be issuing PAYE Notices of Coding for the coming tax year – 2010/11.
Employees and pensioners need to check the notices - query them with HMRC if you think they are wrong or are not sure what they mean. If you have not received a notice (or notices, if you have more than one job/pension), don’t panic as HMRC do not usually send you one if your circumstances have not changed and your code is simple. But you should still check your code is correct – check what code is being used (it should be shown on your payslips) and again contact HMRC if you need clarification.
We know that there have been certain problems with this year’s coding notices following changes in HMRC’s IT systems last year. HMRC have posted an advisory note on their website, but also look at our article specifically for Pensioner Tax Code Problems.
Whenever you telephone HMRC, make sure you take a note of the call in case there is a dispute later.
Employers and PAYE – the Future (for the Majority) is Online
Employers will soon start to receive notices to file year-end PAYE returns (P35s), for the tax year 2009/10.
As part of an increasing trend towards online filing, almost all employers are now obliged to file P35s electronically, with a few limited exceptions - see Guidance for Exempt Employers: Filing Your Annual Return on Paper. Over the past year, LITRG has successfully campaigned for exemptions from online filing for certain ‘care and support’ employers. Those who use the simplified schemes and file forms P37 and P12 are also exempted from online filing so long as they had not previously filed online and received an incentive payment.
An Early Warning - Pensions are Changing From 6 April
Private Pensions
The minimum age from which you can start drawing benefits from an occupational or personal pension is increasing from 6 April 2010, from 50 to 55. Certain people with a protected pension age by law and those forced to retire on severe ill-health grounds may still be able to take their pension earlier. HMRC have issued guidance on the changes on their website.
Women’s State Pensions
As part of a major overhaul of the state pension system, from 6 April 2010 women will see a phased increase in the age at which they can start to receive their state pension, moving from the current age 60 up to 65 by 2020. If you are approaching retirement in the next few months or years, you might need to check how you are affected by these changes.
Younger readers might also take note that there are plans for further phased changes from 2024 which will mean that by 2046 the state pension age will increase to 68 for everyone.
Pension Credit
Pension credit is currently available to eligible claimants from the age of 60. But a further consequence of the state pension changes is that, from 6 April 2010, this minimum age will also begin a 10-year phased increase to 65 following the same pattern as for women’s state pensions above. Anyone born after 5 April 1950 will be affected and can check what age they will become eligible using the online State Pension Age Calculator.
Tax Credits
Tax Credits Letters
As part of their Tax Credits transformation programme, HMRC are writing to some claimants to ask if there have been any changes of circumstances relevant to their claim. A list of changes that must be notified can be found on LITRG’s website.
If you do not notify HMRC of these changes of circumstances immediately, in addition to facing a possible penalty, you are likely to build up an overpayment. In addition, if HMRC do not hear from you they will use the circumstances they already know about to work out payments from April 2010 which could increase any overpayment.
Although income changes are not listed as one of the things you must report, it is often best to keep HMRC updated throughout the year if your income increases. Although an income rise will generally not affect your current tax credits award, if HMRC are unaware of it they might pay you too much in Tax Credits from April 2010 until you renew, and will normally seek to recover the overpayment. If your income has fallen, and you provide HMRC with an estimate of your current year income, it may lead to an increase in your Tax Credits. You should be careful when giving HMRC an estimate of your income as, if it turns out to be too low, you will have an overpayment that most likely needs to be repaid.
If you claim means tested benefits, such as Housing Benefit and Council Tax Benefit, you should seek advice from a welfare rights organisation about whether, because of the complicated interactions between benefits and Tax Credits, you should report an income change in year or wait until the end of the year.
Even though you may have reported changes of circumstances and income to HMRC throughout the year, some of which may even mean you are no longer entitled to Tax Credits, it is still crucial that you complete your renewal/declaration papers that will be sent to you around May 2010.
Other Benefits
‘Home Access’ – are you Eligible for a Free Computer and Help with Internet Access?
A scheme, linked to certain state benefits, has been introduced to help provide computer and Internet access for low-income families with children. The Home Access website provides more information, including a ‘quick eligibility check’ and details of how to obtain an application form.
Cold Weather Payments
As a result of the recent weather conditions, claimants of some state benefits (particularly those on low incomes or claiming certain disability benefits) may be eligible for Cold Weather Payments. Make sure you check if you are entitled - read our earlier article Cold Weather Payments - Do You Qualify? Whilst payments should be made automatically, you can raise a query if you think you should have received a payment but have not.
Like the Winter Fuel Payment, remember that Cold Weather Payments are not taxable so if you do have to complete a tax return, do not include them with any other taxable state benefits.
Winter Fuel Payments
A Winter Fuel Payment is paid to eligible people who were 60 or over on or before 27 September 2009. A full list of eligibility criteria can be found on the Directgov website.
Most people will receive their Winter Fuel Payment automatically alongside their state retirement pension or other benefits. If you received a payment last year, you will automatically receive a payment this year.
However, there are some people (particularly men aged 60-64) who might need to claim the payment. The deadline for applications is 30 March 2010. Claims can be made by contacting the Winter Fuel Payment helpline on 0845 9 15 15 15 or downloading a form.
Useful Links
Visit the LITRG website for further ‘tax help’ on many of the topics raised in this article, including appeals, self assessment payments on account, checking your coding notice, pension credit and notifying changes for tax credits.
Contact HMRC if you are having difficulty paying your tax.
TaxAid guidance on arranging Time to Pay
Tax to pay? Check HMRC’s Bank Details
Pensioners and TaxHelp for Older People
HMRC’s advisory note on PAYE coding notice issues
Telephoning HMRC? Keep a Careful Note
HMRC guidance on the changes to the minimum private pension age
State Pension Changes and the State Pension Age Calculator
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