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You might assume that February is a quiet month after the rush of filing tax returns by 31 January. But there are a number of things to watch out for.

Introduction

Each month, LITRG aims to produce an article giving topical tax, tax credits and related welfare benefits reminders and tips. Here we look at points to consider in February.

Tax

Appealing against penalty notices for late 2009/10 tax returns

February is the month when 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 2009/10 tax return but thought you had met the deadline (either with a paper tax return submitted by 31 October 2010 or by filing online by 31 January 2011), 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 2009/10 by 31 January 2011 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).

Tax and other payments

For self-assessment taxpayers, the normal deadline for paying 2009/10 liabilities was 31 January 2011. 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 (that is, a 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 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.

However, the 5% surcharge only applies to what you owed for 2009/10 – it does not apply to the first payment on account for 2010/11 which was also due on 31 January 2010.

Having difficulty paying?

Whilst HMRC respond more sympathetically to those who ask for extra time to pay before the deadline has passed, you can still contact them now and ask to make a payment arrangement regarding tax due at 31 January. Telephone them as soon as possible to discuss the difficulties you are having. Both individuals and those in business should use the Business Payment Support Line on 0845 302 1435.

If you are likely to owe less for 2010/11 than 2009/10 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.

Think about the year ahead. Check your PAYE coding notice

HMRC are now starting to issue PAYE Notices of Coding for the coming tax year – 2011/12.

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.

One change that we know of for this year is that if you have more than one source of PAYE income (job and/or pension) you might receive two notices of coding in the same envelope. Where you do have more than one source, make sure you check the codes on each of them and try to understand how they work together.

Whenever you telephone HMRC, make sure you take a note of the call in case there is a dispute later.

PAYE tax calculations (P800s) – what to do if you receive one

Our previous advice (see useful links below) covers what to do if you receive a P800 showing you have paid too much tax or not paid enough for a previous tax year. HMRC are now issuing calculations for the 2007/08 tax year, which might come on top of calculations you have already received for 2008/09 and 2009/10. If HMRC say that you have not paid enough tax, make sure you consider your rights and whether you can ask them not to collect it. Also, if HMRC try to ask you to repay tax for a year earlier than 2006/07, you should refuse to pay on the grounds that their assessment is out of time – in the ordinary course of events, they can now only assess tax for four years from the end of the tax year in question.

Employers and PAYE – online filing exceptions

Employers will soon start to receive notices to file year-end PAYE returns (P35s), for the tax year 2010/11.

As part of an increasing trend towards online filing, almost all employers are now obliged to file P35s electronically, with a few limited exceptions. LITRG 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.

It is also worth noting that from April all employers (which therefore now includes those with fewer than 50 employees) will have to file forms P45 and P46 online, but care and support employers are again exempt from this requirement.

Employers and PAYE – HMRC online tools

HMRC are shortly withdrawing their CD-Rom for employers, replacing it with online tools. More information should be available on this in the next couple of months but if you are concerned that you will not be able to download the new tools, HMRC say:

‘In exceptional circumstances some of you may not be able to download the new tools easily if for example you only have access to a very slow internet connection or have no access at all. HMRC will be able to supply the Basic PAYE tools on a disc to those who cannot access it directly via the website. If you are sure that you will not be able to download the tools, you can pre-order a disc by calling HMRC's Employer Orderline on 08457 646 646. But please only do so if you really need a disc, as HMRC is very keen to cut down on its costs and to reduce waste - helping to protect the environment.’

Tax credits

As the end of the tax year approaches, it is more important than ever to report to HMRC any changes of circumstances that you have not already told them about. When working out what payments you should receive between 6 April and the time when they have processed your renewal and decided on your initial award for next tax year, HMRC will base their calculations on the circumstances they already know about. That could increase any overpayment if their information is not up to date.

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 the way of tax credits from April 2011 until you renew, and will normally seek to recover the overpayment. Similarly, if your income decreases, you may want to tell HMRC as soon as possible as you may be entitled to more tax credits.

On the other hand, 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 increase or decrease during the year or wait until after the end of the year.

Useful links

LITRG guidance on tax appeals and reasonable excuse
LITRG guidance on self-assessment payments on account
LITRG guidance on checking your PAYE Coding Notice
Telephoning HMRC? Keep a careful note
Latest guidance on P800 tax calculations can be accessed via ‘Popular links’ from the LITRG website home page